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Loss of two partners is blow to Big Stone II project

The withdrawal of two partners from the Big Stone II project has officials looking for the best way to keep the new coal-fired power plant on track: Options include enlisting another partner or proceeding with a slimmed-down project.

Great River Energy announced recently that has chosen to withdraw as an owner in the project.

In addition, Southern Minnesota Municipal Power Agency will not be participating as an equity owner because it's in the middle of a contract lawsuit with Rochester Public Utilities, its biggest member.

The combined impact means a withdrawal of hundreds of millions of dollars for investment in the proposed $1.6 billion plant.

The five remaining utilities backing Big Stone II -- a group that includes Otter Tail Power, Missouri River Energy Services (which supplies power to Detroit Lakes and Moorhead) and Central Minnesota Power -- will proceed, probably with a 500-megawatt plant, said Curt Punt, utilities superintendent for Detroit Lakes.

Punt, who sits on the board of directors of Missouri River Energy Systems, says the loss of the two owners should not spur the Minnesota Public Utilities Commission to reject transmission line work needed for the project, since the transmission needs are the same for any plant above 250 megawatts.

The Minnesota Utilities Commission is in the middle of its decision-making process on the transmission request and is expected to rule early next month.

According to Great River Energy representatives, their decision stems from an independent resource planning analysis that considered a number of factors unique to Great River Energy, including the company's changing demand and other resources they are developing and purchasing. Great River Energy's share of the proposed 630-megawatt Big Stone II was 122 megawatts.

Southern Minnesota Municipal Power Agency's share was 49 megawatts.

The Big Stone II project agreement establishes restatement-of-participation dates at which all participants must affirm their continuing commitment. The most recent date was Friday, and prior to that, Great River Energy's members elected to discontinue participation in the project.

Ward Uggerud, senior vice president of Otter Tail Power Company, the Big Stone II lead developer, said that Great River Energy's exit does not change the remaining utilities' need for new generation and transmission facilities.

"The remaining utilities' load requirements show Big Stone II to be the least-cost option for meeting our customers' demand requirements -- even if we were to choose to downsize the project given these changes in participation," he said.

It's not uncommon for participation status to change in projects as large and extensive as Big Stone II, particularly when the regulatory process has been as protracted as this one has been.

For example, the project started out as a 450 megawatt plant, and grew as others asked to come aboard, Punt said.

The Big Stone II plant will be built as an addition to the Big Stone plant near Milbank, S.D.

The recently concluded Big Stone II settlement (made under an Aug. 31 settlement agreement with the Department of Commerce) contained some provisions designed to hold pollution to current levels, even as generation more than doubled.

The existing 450-megawatt Big Stone I plant, owned by Otter Tail, would be modernized and refurbished.

And the consolidated Big Stone I and Big Stone II complex of 1,080 megawatts would generate less mercury, sulfur dioxide, nitrogen oxide and other pollution than the smaller plant does today.

The super-critical, high-temperature coal combustion plant would use 20 percent less coal to generate the same power as the 1970s technology it would replace.

And the owners of Big Stone II would pay $10 per ton of carbon dioxide emitted into a Minnesota environmental fund, estimated at about $25 million annually for its share of Minnesota-sold power.

That's twice what the owners wanted to pay, but half the $20 sought by environmental interveners in the case, according to Minneapolis Star Tribune business columnist Neal St. Anthony.

The project is urgently needed for this part of Minnesota, according to spokesman Dan Sharp, who said the region is only a few years away from losing its excess power capacity.

"By 2011, the region will have used up all its reserve capacity," he said. "When it's extremely hot or extremely cold, it might be possible to get power from other regions, but that can't be relied on -- so we would have to ask our customers to cut back. We would ask residents to turn off air conditioning, ask businesses to cut back hours of operations, that kind of thing. That shouldn't happen. We can plan for the future and build a plant like this -- that's why we need this project."