My name is Ron Harper and I serve as the CEO and General Manager of Basin Electric Power Cooperative. I appreciate the invitation to testify today, and I am here to provide you with Basin Electric’s views concerning the Clean Air Act’s current regulatory framework, how that framework impacts decision making within the energy industry and how that process might be improved upon. Specifically, I am here to support the passage of the Clear Skies Act.
Basin Electric is an electrical generation and transmission cooperative with 120 member cooperatives located in nine states. Our generation sources include approximately 3,400 megawatts of coal, gas, oil and wind, but we are primarily a coal-based utility. The three base-load coal plants we own or manage are located in North Dakota and Wyoming and use both lignite and sub-bituminous coal.
Basin Electric is growing and we are looking at developing new base–load generation. After reviewing all of our options, it became clear to us that to meet our needs for low cost base-load power, the best choice was coal. Both North Dakota and Wyoming have ample supplies of coal and we have considerable knowledge of building and operating coal-based generation plants. We have built gas generation for peaking purposes and will build more. However, we do not believe it is prudent to build base-load gas generation and expose our membership to the rapid fluctuations in natural gas prices. Further, we hope to grow our wind portfolio but due to the intermittent nature of wind generation, it is not base-load generation.
To provide base-load power, Basin Electric is developing two coal-based facilities, one to be developed in Wyoming and the other located either in North Dakota, South Dakota or Iowa. Planning is proceeding. However, building a coal plant takes long-term commitment. It takes eight to ten years to build a coal generation plant. The confusion surrounding the current regulatory programs makes any business decision made today risky. The planning horizons of the regulations and the regulated industry simply do not match.
The development of any facility is predicated on the new plant meeting the necessary emission levels required to be compliant with the regulation of the Clean Air Act. Industry must know what the emission level targets are going to be once the plant is commissioned to make the correct choices today. I believe that Clear Skies will give us those targets and give industry the regulatory certainty that is missing today.
Elements of Clear Skies
That being said, I would like to discuss Clear Skies and its impact to industry. The current patchwork of regulations is duplicative and inconsistent, often with conflicting compliance objectives and deadlines. Clear Skies would improve this situation by providing a clear program to improve our nation’s air quality. Even so, it should be noted that this legislation would have a significant financial impact on Basin Electric. As I mentioned, Basin Electric runs three base-load coal facilities. Two of them have advanced environmental controls while the other, Leland Olds Station, meets all current regulatory requirements but is not scrubbed.
Under Clear Skies, we would need to substantially upgrade our Leland Olds facility. Further, because of the structure of the emissions allocations under Clear Skies, it is likely that we would also need to buy allocations for our units that are already scrubbed. This is an expensive prospect for our members that will be paying the bill. We are willing to take that risk because it allows us to be more flexible in addressing future power needs. However, we believe that coal-based units having emission controls as required under the present New Source Review (NSR) and Prevention of Significant Deterioration (PSD) provisions of the Clean Air Act should not be subject to new and onerous emissions reductions.
The current regulations also prevent us from making prudent business decisions. We have the opportunity to upgrade two currently scrubbed facilities with new steam turbines. These new turbines would be capable of producing up to 45 megawatts more energy at our Wyoming plant and 30 megawatts more at one of our North Dakota plants with no additional fuel requirement or added emissions. We have not upgraded these turbines because of our concerns over the NSR program. Due to the present structure of NSR, reasonable decisions to maintain and upgrade facilities with no adverse impact to the environment are not being made. We believe the ability to upgrade these units should be clearly allowed under the Clear Skies Act without further emission reduction penalties.
The issue of protecting clean units from further reductions is something that is important to Basin Electric. One way to address this issue is to recognize some of the proactive and long-term planning that has already taken place on this issue. For example, the western states, through the Western Regional Air Partnership (WRAP), have developed their own goals for a viable process. This effort should be recognized and kept intact through Clear Skies.
Another issue of importance is coal sub-categorization for mercury. As the committee is aware, the various types of coal have properties that make regulating them with absolute uniformity very difficult. Applying regulations in blanket form without sub-categorization by coal classification would adversely impact the use of coal across the country for future energy development.
The development of new units is also of concern. The current legislation creates a small pool of allocations for new units, and we appreciate that improvement upon the original legislation. This will lessen the barriers facing new units and encourage newer, cleaner plants to come on-line.
In short, Mr. Chairman and members of the committee, for Basin Electric, Clear Skies provides the opportunity to make difficult decisions with a higher degree of certainty, whereas the current regulatory process is extremely cumbersome and uncertain for us to plan with the knowledge and foresight necessary to make an informed decision. The passage of the Clear Skies Act is important to Basin Electric and I look forward to working toward its passage with the help of the committee.
I want to thank Chairman Voinovich for taking the time to hold this hearing and the Committee members for their attention to this issue.