NEW ULM - A revised economic outlook for the New Ulm Long Term Power Supply portfolio presented Tuesday showed the controversial Boiler No. 4 coal burning conversion project is no longer economically viable.
The Boiler No. 4 project is a New Ulm Public Utilities Commission (PUC) effort to convert the boiler back to coal burning in addition to its natural gas burning. The project was part of an overhaul of New Ulm's energy infrastructure. The Environmental Protection Agency (EPA) recently approved the PUC to begin modeling the project in order to demonstrate regulation compliance, which is the last step before construction.
The PUC commissioned the firm Sargent & Lundy to present an updated economic outlook of the project at its Tuesday meeting before moving forward. Sargent & Lundy Senior Management Consultant John Wroble gave the presentation.
The report showed that projected coal and natural gas prices no longer showed coal burning to be advantageous like it had been when proposed in 2006.
In addition, three factors made "status quo" burning of only natural gas more effective: fracking, the economic downturn and EPA regulations.
The economic downturn created a drop in energy demand that drove down market energy prices. It also caused large electrical output facilities to be generating a surplus because the high demand they were built to accommodate disappeared.
Increases in the practice of hydraulic fracturing, or fracking, generated increased natural gas production and lowered its price to extremely low levels.
Current and anticipate costs from environmental and greenhouse gas regulations also raised the project's cost. Current regulations alone would require an additional $1.5 million of work on non-project related smoke stacks in order for the Boiler No. 4 project to be in compliance.
The conclusion of the report was that burning only natural gas was the best option, but the PUC should still continue with the Boiler No. 4 permitting process to hedge its options against market fluctuations.
The report's rationale was that the hedging approach provided an additional 18 months of time for the PUC to consider whether to advance or drop the project, and additional insight into how the market was behaving. The cost of completion of the permitting process was estimated at $26,000.
"You're essentially buying time to see what happens," said Wroble.
The PUC accepted the report and moved to consider whether to hedge the decision by continuing the permit process, or whether to terminate the project.
The PUC commissioners expressed reservation with moving forward based on the outlook. But they also were concerned about dropping the project after more than two years and thousands of dollars had been invested in it.
Public Utilities Engineer Pat Wrase helped clarify the results of dropping the project by saying that ending the project would not force the PUC to start from scratch, because of the large amount of paperwork already completed. He estimated it would cost the PUC the price of permits and a year and a half of paperwork if it stopped and restarted at a later date. He said the permits cost $7,000 to $8,000, but he had heard that they might jump to $22,000 in the coming years.
Public Utilities Director Gary Gleisner also commented that the PUC wasn't in the same situation it had been in during 2006, when power costs prompted the project.
"At that time, we had a big cost problems and we were basically buying power on the spot in the market," said Gleisner, "Because of [contracts with Xcel Energy and Heartland Energy], we won't see the spikes we used to."
Wrase said his preference was the hedging strategy because it offered the best options for the PUC.
"We aren't tied to either coal or natural gas," said Wrase, "We're just interested, since the beginning, in working towards what's best for New Ulm. I think this provides us the best opportunities."
The PUC unanimously moved to defer the decision to a later meeting to allow more review time. A date to complete the decision has not yet been set.
After the meeting, Wrase said he also preferred the hedging approach because he doubts fracking will remain sustainable. He pointed out how the process was generating strong controversy over pollution associated with the extraction process. He said it might lead to regulation that would change fracking's ability to provide cheap natural gas, which would raise natural gas prices.
Members of Citizens for Clean Energy, a New Ulm environmental group created in opposition to the Boiler No. 4 project, and representatives from the Minnesota Sierra Club's Beyond Coal Campaign had over 25 people in attendance at the event. Both groups oppose power plants burning coal.
Sierra Club representative Jessica Tatro said that they approved of the PUC's examination of the project's economics and the PUC's careful consideration of the matter.
"[The report] reflects what we've felt all along. That the project is not only environmentally unacceptable, but economically unacceptable also," said Tatro.
(Josh Moniz can be e-mailed at jmoniz@nujournal.com)