New law allows much of Minnesota's biomass industry to be shut down

Environmentalists and loggers — who are often on opposite sides of issues — are both fighting mad about a new law allowing Xcel Energy to use clean energy development funds to negotiate a shutdown of three renewable energy plants in greater Minnesota.

Environmentalists object to how the money would be used. Loggers, who first heard of the plan late in the legislative session, are outraged that it could devastate many of their businesses.

"The irony is that this is in the jobs bill, but it's going to cost hundreds and hundreds of jobs," said Scott Dane, executive director of the Associated Contract Loggers and Truckers of Minnesota.

At issue is a provision tucked into the omnibus jobs and energy bill signed last week by Gov. Mark Dayton.

Xcel is under contract to buy electricity from the plants and argues they need to be shut down because they are too expensive and ratepayers should not have to bear the cost of pricey power when much cheaper alternatives are available.

The plants in question include a small power plant in Benson in western Minnesota that burns turkey manure and wood chips for fuel, and a pair of municipal plants on the Iron Range that were converted to burn wood chips.

Under the new law, if the plant owners and Public Utilities Commission agree to details, Xcel could purchase and decommission the Benson plant and get out early from power purchase agreements with the plants in Hibbing and Virginia.

It all goes back to a 1994 deal between the state and Xcel Energy's predecessor Northern States Power Co. that became law after weeks of contentious debate. In exchange for permission to expand radioactive waste storage at its Prairie Island nuclear plant in Red Wing, Xcel agreed to several conditions designed to jump-start possible alternatives to nuclear power in the future.

One condition established a renewable energy fund to be used for research and development grants for solar, wind and other technologies. Another required Xcel to build or purchase 425 megawatts of power from wind farms and 125 megawatts of electricity from biomass plants by the end of 2002. Biomass fuels include waste wood, manure or various plants such as switch grass.

In response to the law, investors built the turkey manure incinerator in Benson that began operating in 2007. The Iron Range plants that were owned by municipal utilities in Virginia and Hibbing and operated under the Laurentian Energy Authority were converted.

To meet part of the requirements of the mandate, Xcel purchased power from them on long-term contracts. The utility's contract for the Benson power expires in 11 years, and its agreement to buy electricity from Laurentian ends in nine years.

The new law allows Xcel to end those power purchase agreements early, thereby relieving it of the biomass mandate, as long as the biomass plant owners agree and state regulators approve the details. Although not specified in law, the shutdowns will also need to be reviewed by authorities who run the regional electric grid.

Two other biomass-fueled plants, in St. Paul and Shakopee, are not affected.

However, loggers and turkey producers who supply the biomass fuel are not part of the law. Dane said that Laurentian Energy buys $7 million and the Benson plant purchases $20 million in wood chips each year.

At least 20 logging companies are involved as suppliers, he said, representing hundreds of logging and trucking jobs, and some may go bankrupt with the closures because there is virtually no other market for the wood chips.

"Our members made millions of dollars of investments in good faith to supply this industry, and it's extremely disappointing to see politicians and Xcel renege on their legislative agreement to using biomass," Dane said.

Steve Olson, executive director of the Minnesota Turkey Growers Association, said that manure and bedding sent to the Benson plant has also been an important revenue stream for poultry producers. "That's been part of their business plan going forward," he said. "So now the concern is finding alternatives for a lot of manure." That will likely take three years, Olson said, to find enough crop farmers to buy the manure to spread on their fields.

Xcel officials declined to be interviewed, but issued a statement that the cost of electricity produced by biomass is the most expensive energy on the utility's system, and costs about 10 times more than wind-generated power. "We expect to save our customers nearly $700 million over the next 11 years by removing the biomass energy," Xcel said.

The new law also provides compensation for the cities affected by the future biomass plant shutdowns.

It authorizes payment of $20 million in four installments to the city of Benson between fiscal 2018 and 2021 for economic development, and $34 million over five years to Virginia and Hibbing through Laurentian, "to assist the transition required by the new, amended or terminated power purchase agreement."

Benson city manager Rob Wolfington said the city initially opposed the shutdown of the biomass plant, which employs 45 people and will pay about $930,000 in 2017 property taxes, and represents about a quarter of the city's tax levy.

"The community has a lot of emotion tied to that plant, so this is very bittersweet," said Wolfington, who has worked for the city since 1996. "But we understand the forces behind the decision, and they're beyond our control."

Wolfington said the city is looking for an anchor replacement to make up for jobs and taxes that it will lose when the power plant closes, and has a "proposal on the ground" that is under consideration.

"That was why we came up with the $20 million compensation number," he said. "It wasn't an accident."

Much of the money would be used for infrastructure improvements such as wastewater expansion to accommodate the needs of a new replacement business, Wolfington said.

Besides excusing Xcel from the biomass mandate, the new law allows the renewable development fund to be tapped to pay the $54 million to communities affected by the shutdowns.

"They're using the renewable development fund to shut down a renewable energy industry," said Dane. The loggers' organization expects to challenge the provisions when Xcel goes to state regulators for approval, he said, and is also considering legal options.

The law also authorizes a study to determine the economic effects on suppliers affected by the biomass shutdowns.

Use of the renewable development fund has also raised objections from environmental leaders, including Matt Privratsky, government affairs specialist for Fresh Energy, an advocacy group based in St. Paul.

"The fund was meant for research and innovation in our energy system, but this year it was used as a slush fund," he said.

Also a problem, said Privratsky, was that the biomass changes were added to the bill late in the legislative session. "It didn't have a chance to be vetted in the public eye," he said. "It got slipped in at the end of session and didn't go through a committee for discussion."

Xcel's statement did not address concerns about the renewable development fund, but said that "as this renewable energy experiment winds down, it is important that funds be provided to assist the communities with this transition."

The final outcome also bothered Dayton, who signed the jobs and energy bill but objected in his signature letter to its detrimental effects on the timber industry and to "significantly obligating these [renewable development] funds over the next several years for nonrenewable energy uses."

Dayton also sympathized with the Prairie Island Indian Community, which he said has expressed concerns that ending the biomass mandate may also make the state and Xcel less motivated to find a permanent storage solution for nuclear waste. It is kept underwater in a storage pool inside the plant, and in huge casks outside — both of which are near tribal land.

Tom Meersman • 612-673-7388