STATEMENT OF OTTER TAIL POWER COMPANY EPA Hearing on Regulating Carbon Dioxide Emissions from Existing Power Plants Under Section 111(d) of the Clean Air Act Denver, Colorado July 30, 2014 Good afternoon. My name is Brad Tollerson, Vice President of Planning and Strategy for Otter Tail Power Company. I have three messages today: 1. Cost matters. 2. The EPA may have exceeded its statutory authority by proposing emissions guidelines that go beyond the fence of individual generating units. 3. The EPA must adjust the state targets if it proceeds with the Clean Power Plan.
First, allow me to address cost. Otter Tail Power Company is a small investor-owned utility that serves customers in western Minnesota, eastern North Dakota, and northeastern South Dakota. The environment matters to us because we live with our families in the communities we serve—in states that have some of the cleanest air in the nation. The average population in our communities is about 400. We are very rural. Our median-sized town in North Dakota, for example, is Mercer: population 94. Mercer's average annual household income is near $39,000, and 29 percent of Mercer's households have someone aged 65 or older living alone. Mercer's "big" businesses are Freeberg's Grocery Store and Ed's Service Station. These are the customers and businesses EPA must keep in mind as it finalizes section 111(d) guidelines. Cost matters to them.
Second, we believe the EPA may have exceeded its statutory authority by creating emissions guidelines that go beyond the fence of individual generating units. The EPA has always established standards achievable through the application of the best system of emissions reduction for the generating unit. The change in methodology here creates the untenable circumstance, contrary to the intent of Congress, that the emissions limitations for some existing sources will be more stringent than those for new sources.

1Third, if the EPA goes ahead with its Clean Power Plan, it should make technical

adjustments to the final rule. In South Dakota, for example, Building Blocks 1 and 2 are technically infeasible. Here's why.
Otter Tail Power Company operates and jointly owns Big Stone Plant, the one coal-fired power plant in South Dakota. Building Block #1 is technically infeasible because Big Stone Plant already has performed the available significant heat rate improvement projects. Moreover, EPA's formula overlooks the fact that Big Stone Plant is investing nearly $400 million as we speak to install pollution control equipment to comply with EPA's Regional Haze rules. This equipment will add an estimated eight megawatts of station service to the plant that cannot be recouped through efficiency improvements.
Building Block #2 is also technically infeasible. Application of the proposed rule's formula would require Big Stone Plant to operate at a 23 percent capacity factor. In turn, the application of the rule would dramatically increase the dispatch of the only natural gas combined-cycle unit in the state. The application of this formula has numerous technical flaws: 1. Big Stone Plant and the one combined-cycle unit have no contractual relationship, are owned by different companies, and serve unique loads. The combined-cycle unit owner has no obligation to provide energy to the Big Stone Plant co-owners or, ultimately, to their customers. 2. Big Stone Plant operates within the MISO centralized market. Beginning in 2015 the combined-cycle unit will be dispatched through the SPP centralized market. Accordingly, the two units will operate with entirely different commitment and dispatch processes. 3. Each of the three Big Stone Plant co-owners relies on the capacity and energy from the plant for all 12 months of the year. Because Big Stone Plant's minimum operating load is approximately 40 percent of maximum output, a 23 percent capacity factor would require the unit to be offline at least half the year--jeopardizing the plant's future along with the $400M being invested in environmental upgrades. This would substantially increase costs for our customers—including Freeberg's Grocery Store and Ed's Service Station.

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Even if redispatch were workable in this setting, the South Dakota target would need to

be adjusted because the lone combined-cycle unit did not begin operating until late 2012, resulting in an unrepresentative 1 percent capacity factor. The combined-cycle unit should be considered an "under construction" unit in the South Dakota target calculation, similar to the treatment of combined-cycle units that began operation or construction in 2013 in other states.
Thank you for the opportunity to speak today. Otter Tail Power Company will provide more detailed comments on these and other issues. We look forward to final 111(d) guidelines that are both cost effective and achievable.

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