,\. ! 

August I, 2014 

Statement of Minnesota Power (ALLETE) 

USEPA's Pittsburgh public hearing on Carbon Pollution Emission Guidelines for Existing 

Stationary Sources and Standards for Modified and Reconstructed Stationary Sources: 

EGUs. 40 CFR Part 60 [EPA-HQ-OAR-201341602 and EPA-HQ-OAR-201341603; 

FRL-9913-33-0AR) RIN 2060-AR33; 2060-AR88 

Good afternoon. My name is Michael Cashin, Environmental Policy Advisor for Minnesota 

Power (ALLETE). Minnesota Power (MP) is a small investor owned electric utility 

headquartered in Duluth, Minnesota that serves some of the largest industrial customers in the 

country. The delivery of reliable, affordable and environmentally responsible energy services to 

our customers, with the explicit recognition that our energy intensive industrial customers need 

to remain cost competitive in international markets, is a key tenant to the economic vitality of 

our region. More than half of Minnesota 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 of our 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 Energy Forward strategy, which was part of Minnesota's 

Integrated Resource Plan (IRP) process. Energy Forward is an effective and balanced response 

to transition our generation fleet away from a mix of about 95% coal and 5% renewables in 2005 

towards a balanced mix of one third each of renewable energy, natural gas and coal fueled 

electric generation by about 2030. Customer conservation improvements and energy efficiency 

programs are also a key component of our Energy Forward strategy. 

Minnesota utilities and policy makers have already been addressing all four of EPA's Best 

System of Emission Reduction "Blocks". Our early action justifies 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 of the four 

Best System of Emission Reduction (BSER) "Blocks" proposed by EPA for regulation of C02 

emissions from existing generation units. The remaining BSER, Block 2, would compel 

preferential dispatch of existing natural gas combined cycle generation over lower cost coal 

generation, up to a 70 percent capacity factor for the existing NGCC 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 of electric generation needed to serve different customer classes and needs 

(i.e. reserves for serving metro 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 Minnesota policymakers have strived to achieve 

through weighing strong environmental protections with cost impacts and reliability 

requirements in our Integrated Resource Plan process. 

Minnesota Power thanks EPA for this opportunity to address the Agency's prospective 

regulation of C02 emissions under Clean Air Act Section Ill (d). I will be glad to answer any 

clarifying questions you may have. Also, Minnesota Power intends to provide additional 

commentary reflecting our ongoing review of EPA's Clean Power Plan proposal for submittal by 

EPA's announced October 16,2014 comment 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 

Minnesota Power (ALLETE) 

30 West Superior Street 

Duluth, MN 55802 

218-355-3339 

Cell: 218-349-9463 

mcashin@mnpower.com 

Additional Snpporting Information: 

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 energy efficiency 

improvement practices at all their coal generation facilities. These Minnesota regulator approved 

measures include turbine efficiency enhancements on MP's two 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 how operational efficiency improvements experience degrading performance 

between outages. Thus, when EPA cited utility performance improvement data referenced 

directly after a maintenance outage, EPA should only have recognized about half the 

performance gained as reflecting average improvements over time. Since Minnesota utilities are 

practicing a mature heat rate improvement program, efficiency enhancements on Minnesota coal 

units for heat rate and duty cycle preservation practices should be viewed as snstaining unit 

Page 2 of 4 
performance over time. Net performance changes for a mature program can be expected to run 

closer to "zero". 

Block 2. 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 output by about half by 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 Minnesota regulators considering all weighting factors 

involved with resource decisions, including but not limited to C02 emissions. Electric 

generation markets practice least cost dispatch of permitted generation resources. Consequently, 

EPA's Block 2 dispatch biasing as proposed for Minnesota negates the viability of competitive 

power markets while "double dipping" consideration of C02 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 

20 12). When natural gas pricing is competitive, markets will deliver shifts in coal vs. natural gas 

generation without EPA interference that would require redesign or price fixing of the United 

States' least cost electricity dispatch marketing system. 

It is also notable that the Minnesota NGCC unit capacity factor in 2012 was only about half what 

EPA referred to as the national average in their TSD analysis. This lower existing NGCC 

utilization in Minnesota reflects the duty cycle for peak demand support near the Twin Cities, 

intermittent renewables reliability support needed for Minnesota Renewables Portfolio Standard 

implementation, distance of Minnesota NGCC generation from Northeast Minnesota industrial 

load centers and how surface mine, Powder River Basin coal delivered to Minnesota carries 

lower costs than eastern coal. 2012 historic low natural gas pricing might be expected to have 

resulted in more market driven switching from coal to natural gas in the East compared to 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 of a proposed Clean Power Plan 

Block 2, NGCC capacity factor that carries over EPA 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, Minnesota expanded its Renewable Portfolio Standard to provide for 

renewables deployment beyond delivery of25% of Minnesota customer electricity service by 

2025 to include higher renewables targets and deployment of new solar electricity resources. 

Minnesota law RPS requirements are satisfied when renewable energy or equivalent credit is 

received from renewable resources both within and outside of Minnesota's borders. Yet, EPA 

has performed their renewables State target analysis while only considering renewable energy 

resources within a State's boundaries. EPA appears to be exercising a "takings" of property 

rights and is compelling States to take measures that impede interstate commerce. Rather than 

providing for relief through 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 other than attempting to reestablish a State's utilities renewable energy and property 

rights for the sake of achieving EPA's proposed Clean Power Plan compliance .. 

Page 3 of 4 
EPA has also proposed that States "at risk" nuclear generation carry the obligation to provide for 

an additional six percent ofBSER Block I, 2 and 4 activities if their nuclear generation is retired. 

In Minnesota, up to 20% of electric generation is sourced from nuclear resources, but it is 

notable that a single utility is responsible for operation of all Minnesota based 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 of a 20% nuclear generation resource in a single State. 

Block 4. EPA has proposed a 1.5% year over year customer conservation improvement target 

that presumes that benefits from a given conservation or energy efficiency improvement activity 

expire after a decade. Yet EPA has not considered there being a point of "saturation" for 

customer conservation, beyond which additional increments for conservation are recognized as 

no longer being cost effective. 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 of conservation and energy 

efficiency measure deployment where the industrial customers practicing these process 

efficiency improvements indicated that program saturation had been reached. Consequently, 

Minnesota shifted to targeting only commercial and residential customers in its current 1.5 

percent, year over year improvement program. Saturation of energy efficiency or process 

efficiency improvement measures by customer class is a real issue as programs mature. 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 setting to what can be achieved within the fence line, i.e. on the existing 

generating units targeted for reduced C02 emission reductions. Of the four BSER Blocks that 

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 credit toward 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. 

Page 4 of4