MN PUC Establishes New Environmental Costs for Use in All Proceedings

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Today, the MN PUC concluded a nearly four-year effort on updating environmental costs established under section 216B.2422 subd. 3 of the Minnesota Statutes.  Before getting to the decision, a bit of context.

Background:

Under section 216B.2422, the MN PUC is required to, “to the extent practicable, quantify and establish a range of environmental costs associated with each method of electricity generation. A utility shall use the values established by the commission in conjunction with other external factors, including socioeconomic costs, when evaluating and selecting resource options in all proceedings before the commission, including resource plan and certificate of need proceedings.”  This statute was enacted in 1993, with the MN PUC first establishing final values in 1997.  Minor updates occurred after that time.  On October 9, 2013, the Izaak Walton League of America – Midwest Office, Fresh Energy, the Sierra Club, the Center for Energy and Environment, the Will Steger Foundation, and the Minnesota Center for Environmental Advocacy, filed a motion with the MN PUC request it to update the cost values for CO2 and NOx emissions, to establish a cost value for PM2.5, and to reestablish a value for SO2.  On February 10, 2014, the MN PUC granted the motion and reopened the investigation.  Significant debate, discussions, and litigation ensued, with the MN PUC ultimately breaking the contested case proceeding into two phases.  In Phase I, the MN PUC directed the parties to assess whether the Federal Social Cost of Carbon (FSCC) is reasonable and the best available measure to determine the environmental cost of CO2 and, if not, what measure would be better supported by the evidence.  In Phase II, the MN PUC directed parties to analyze and offer appropriate values for PM2.5, NOx, and SO2.  ‘

Now, on to the decision.  The MN PUC decided both phases, as described below, in an oral decision today.  A written order will follow.

Phase I:

The MN PUC established a new range of $9.05/short ton to $43.06/short ton.  Although the MN PUC did not accept the FSCC as a proxy for environmental cost for CO2 under Minnesota law, it did utilize modeling from the Interagency Working Group, with minor modifications to certain economic framing assumptions.  These modifications include using a range of 3% to 5% for a discount rate (and excluding 2.5%) and using a time horizon for damages from the year 2100 (for the low end of the range) to the year 2300 (for the high end of the range).

Because these values are used in various resource plan and resource acquisition proceedings, which involve decisions on utility investments, the MN PUC reaffirmed a prior decision to incorporate a $0 value input for modeling purposes to provide it with a fuller picture.

Phase II:

Three general geographies are currently utilized for the environmental cost values; rural, metro-fringe, and urban.  The MN PUC updated the ranges in Phase II as follows, assuming metro-fringe values: PM2.5 ($6,450 /short ton – $16,078/short ton); NOx ($2,467/short ton – $7,336/short ton); and SO2 ($4,543 /short ton – $11,317/short ton).

Concluding Thoughts:

Ultimately, it is difficult to state precisely how these new values will influence future proceedings, including resource planning and resource acquisition proceedings.  These values will be one of many factors before the MN PUC in those future proceedings, including qualitative factors such as socioeconomic impacts and grid reliability impacts of any decision.  But all of the new values are a significant increase from the current values.  And the new values will undoubtedly provide the MN PUC with a fresh look at the impact at the range of environmental costs associated with each method of electricity generation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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