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August I, 2014

StatementofMinnesota Power(ALLETE) USEPA's Pittsburgh public hearing on Carbon Pollution Emission Guidelines for Existing StationarySources and Standardsfor Modified and Reconstructed StationarySources: EGUs. 40 CFRPart 60 [EPA-HQ-OAR-201341602 and EPA-HQ-OAR-201341603; FRL-9913-33-0AR) RIN2060-AR33; 2060-AR88

Good afternoon. My name is Michael Cashin, Environmental Policy Advisorfor Minnesota Power (ALLETE). Minnesota Power (MP) is a small investor owned electric utility headquartered in Duluth, Minnesota that serves some ofthe largest industrial customers in the country. The delivery ofreliable, affordable and environmentally responsible energy services to
our customers, with the explicit recognition that ourenergy intensive industrial customers need to remain cost competitive in international markets, is a key tenantto the economic vitality of
ourregion. More than halfofMinnesota Power's electric output is consumed by thirteen large energy-intensive customers. The iron mining sector, which supplies raw material to the domestic iron and steel industry, represents the lion's share ofour electric sales and is critically important to Minnesota, Minnesota Power, and indeed to the Pittsburgh area. Our largest electric power customer, United States Steel, has its corporate headquarters in downtown Pittsburgh.

Minnesota Power is implementing our EnergyForwardstrategy, which was part ofMinnesota's Integrated Resource Plan (IRP) process. EnergyForward is an effective and balanced response to transition our generation fleet away from a mix ofabout 95% coal and 5%renewables in 2005 towards a balanced mix ofone third each ofrenewable energy, natural gas and coal fueled electric generation by about 2030. Customer conservation improvements and energy efficiency programs are also a key component ofourEnergyForwardstrategy.

Minnesota utilities and policy makers have already been addressing all four ofEPA's Best System ofEmission Reduction "Blocks". Ourearly actionjustifies EPA revising its Minnesota Clean Power Plan targets so that Minnesota consumers are not punished for the good deeds our forward-looking policymakers have already put in place and for which Minnesota Power's electric customers are already paying.

Minnesota's past initiatives have largely implemented the measures identified in three ofthe four Best System ofEmission Reduction (BSER) "Blocks" proposed by EPA for regulation ofC02 emissions from existinggeneration units. The remaining BSER, Block 2, would compel preferential dispatch ofexistingnatural gas combined cycle generation over lower cost coal generation, up to a 70 percentcapacity factor for the existingNGCC resources.EPA's "Block 2" biases natural gas generation and ignores Minnesota's "all in" integrated
resources plan cost analysis which considers factors such as natural gas price volatility, price risk hedging and the types ofelectric generation needed to serve different customerclasses and needs (i.e. reserves for servingmetro area daily generation peak demand and intermittent renewable
resource dispatch and needs for large industrial process voltage support for 24/7 base load service). The EPA's CPP upsets the balance Minnesotapolicymakers have strivedto achieve through weighing strongenvironmental protections with cost impacts and reliability requirements in our Integrated Resource Plan process.
MinnesotaPowerthanks EPA for this opportunity to address the Agency's prospective regulation ofC02 emissions under Clean Air Act Section Ill (d). Iwill be glad to answer any clarifyingquestions you may have. Also, Minnesota Power intends to provide additional commentary reflecting ourongoing review ofEPA's Clean Power Plan proposal for submittal by EPA's announced October 16,2014comment closure date. Additional supportive information is being submitted in written format with these public comments. Regards,

Mike Cashin

**fvi~Cl.~** Michael G. Cashin, PE Environmental Policy Advisor MinnesotaPower (ALLETE) 30 West Superior Street Duluth, MN 55802 218-355-3339 Cell: 218-349-9463 mcashin@mnpower.com

Additional SnpportingInformation:

Block 1: EPA is proposing a 6% coal unit efficiency improvement for Minnesota relative to 2012. Yet, Minnesota utilities like MP have delivered electric generating unit energyefficiency improvement practices at all their coal generation facilities. These Minnesota regulatorapproved
measures include turbine efficiency enhancements on MP'stwo largest coal generating units (i.e. early action for "Block 1"). It appears that EPA overlooked in its TSD analysis the degree of capital based efficiency projects already deployed in Minnesota. EPA also appears to have overlooked howoperational efficiency improvements experience degrading performance between outages. Thus, when EPA cited utility performance improvement data referenced directly after a maintenance outage, EPA should onlyhave recognized abouthalfthe performance gained as reflecting average improvements over time. Since Minnesotautilities are practicing a mature heat rate improvementprogram, efficiencyenhancements on Minnesota coal units for heat rate and duty cyclepreservation practices should be viewed as snstaining unit

Page 2 of4performance overtime. Net performancechanges for a mature program can be expected to run closerto "zero".

Block2. EPA is proposing that Minnesota's existing natural gas combined cycle units increase their capacity factor from 24%to 70%, resulting in Minnesota's existing coal units reducing their cumulative outputby abouthalfby 2020. Yet, Minnesota has already given consideration to C02 costs through the Integrated Resource Planning process. Proposed coal unit environmental control retrofits were reviewed by Minnesotaregulators considering all weighting factors involved with resource decisions, including but not limited to C02 emissions. Electric generation markets practice least cost dispatch ofpermitted generation resources. Consequently, EPA'sBlock 2 dispatch biasing as proposed for Minnesota negates the viability ofcompetitive power markets while "double dipping" consideration ofC02 cost for Minnesota. Consequently, for Minnesota, Block 2 biasing from existing coal to NGCC natural gas should normally be "zero", not the 46% suggested by EPA as a Minnesota target (70% CF vs. 24% CF actual in 2012). When natural gas pricing is competitive, markets will deliver shifts in coal vs. natural gas generation without EPA interferencethat would require redesign orprice fixing ofthe United States' least costelectricity dispatch marketing system.

It is also notable that the MinnesotaNGCC unit capacity factor in 2012 was only about halfwhat EPA referred to as the national average in their TSD analysis. This lower existing NGCC utilization in Minnesotareflects the duty cycle for peakdemand supportnearthe Twin Cities, intermittent renewables reliability support needed for Minnesota Renewables Portfolio Standard implementation, distance ofMinnesotaNGCC generation from Northeast Minnesota industrial load centers and how surface mine, Powder River Basin coal delivered to Minnesotacarries lower costs than eastern coal. 2012 historic low natural gas pricing might be expectedto have resulted in more market driven switching from coal to natural gas in the East comparedto that in Minnesota. Yet, this should not give cause for EPA to set aside the designed outcome from Minnesota Integrated Resource Planning by EPA's overlay ofa proposed Clean PowerPlan Block 2, NGCC capacity factor that carries overEPA TSD assumptions that don't apply in Minnesota.

Block 3. EPA assessed renewable energy programs in the Midwest region and suggested that a 15% renewables standard be assigned for all States in the region, including Minnesota. This method created renewables surplus or shortfall standing for States relative to EPA's 2020 State target calculation. In 2013, Minnesotaexpanded its Renewable Portfolio Standard to provide for renewables deployment beyond delivery of25% ofMinnesota customerelectricity service by 2025 to includehigher renewables targets and deployment ofnew solarelectricity resources. Minnesota law RPS requirements are satisfied when renewable energy orequivalent credit is received from renewable resources both within and outside ofMinnesota's borders. Yet, EPA has performed their renewables Statetarget analysis while only considering renewable energy resources within a State's boundaries. EPA appears to be exercising a "takings" ofproperty rights and is compelling Statesto take measures that impede interstate commerce. Rather than providing for reliefthrough corrections in the proposed Clean Power Plan language, EPA is encouraging States to voluntarily enter into consortiums or interstate agreements that may serve no purpose otherthan attemptingto reestablish a State's utilities renewable energy and property rights for the sake ofachieving EPA's proposed Clean Power Plan compliance

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Page 3 of4EPA has also proposedthat States "atrisk" nuclear generation carrythe obligationto provide for
an additional six percent ofBSERBlock I, 2 and 4 activities iftheir nuclear generation is retired. In Minnesota, up to 20% ofelectric generation is sourced from nuclearresources, but it is notable that a single utility is responsible for operation ofall Minnesotabased nuclear generation. EPA has not addressed equity issues for all utilities in a State associated with this at risk nuclear generation provision. EPA has also not addressed Independent System Operator reliability issues when this six percent "clean energy" consequence is considered along with the prospective loss ofa 20% nuclear generation resource in a single State.

Block4. EPA has proposed a 1.5% yearoveryear customerconservation improvementtarget that presumes that benefits from a given conservation orenergyefficiency improvement activity expire after a decade. Yet EPA has not considered there being a pointof"saturation" for customerconservation, beyond which additional increments for conservation are recognized as no longer being costeffective. Minnesota has a mature conservation and energy efficiency program initiated in the 1990s with industrial process efficiency improvements included in targets. After about a decade, Minnesota experienced a level ofconservation and energy efficiency measure deployment where the industrial customers practicingthese process efficiency improvements indicated that program saturation had been reached. Consequently, Minnesota shiftedto targeting only commercial and residential customers in its current 1.5 percent, year overyear improvement program. Saturation ofenergyefficiency orprocess efficiency improvement measures by customerclass is a real issue as programsmature. EPA's CPP target for energy efficiency and conservation in Minnesota needs to be adjusted down accordingly. MP plans on addressing this matter further in our October 16 comments.
Listening session, Minnesota Power input. During EPA's listening sessions, MP called out
areas for EPA consideration that still carry relevance going forward. These call outs include how EPA should limit target settingto what can be achieved within the fence line, i.e. on the existing generating units targeted for reduced C02 emission reductions. Ofthe four BSER Blocksthat EPA proposed, only Block I addresses measures that are implemented on the electricity generation unit. MP recommends that EPA retain the flexibility that EPA has refined with Blocks 3 and 4 by allowing credittoward meeting properly weighted Block I targets. In Minnesota, Block 2 measures should already have received consideration through Integrated Resource Planning. Similarly, early action in Minnesota should be more than sufficient for satisfying EPA's Clean Power Plan proposal measures through 2030.

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