Otter Tail Power plans to pull out of North Dakota coal plant

Otter Tail Power Co., a utility that covers western Minnesota, plans to pull out of a coal-fired plant it operates in North Dakota by 2028 as it moves toward adding more sources of renewable energy.

The utility's obligations to the plant, it said, also will become too costly for customers.

Otter Tail will try to sell its partial stake in the Coyote Station Power Plant, but would sever its ownership agreement either way, according to a long-range energy plan the utility filed with the Minnesota Public Utilities Commission (PUC) on Wednesday.

Otter Tail is a small utility based in Fergus Falls that serves about 137,000 homes and businesses in western Minnesota, North Dakota and South Dakota. The plan, which would need to be approved by utility regulators in all three states, calls for Otter Tail to continue operating the Coyote Station plant in Beulah, N.D.

Advocates of clean energy applauded Otter Tail Power's move to end its investment in what it called one of the "dirtiest coal-fired power plants in the country" and to add new sources of solar and wind power as part of the 15-year plan it submitted to the PUC.

"Otter Tail Power's resource plan is a great step forward in the utility's transition from fossil fuel to renewables," Allen Gleckner, lead director of clean electricity at Fresh Energy, said in a statement. "However, there's an opportunity to both save money and reduce emissions by exiting Coyote Station even sooner than 2028 and we look forward to researching what that could look like in this resource plan."

In its integrated resource plan, Otter Tail Power seeks to add dual fuel capability at its Astoria Station plant in South Dakota, which is fueled in part by natural gas from North Dakota's Williston Basin. The company also wants to add 150 megawatts of solar power at a location yet to be determined.

Otter Tail's exit from Coyote Station comes 13 years before the coal-fired plant's scheduled retirement date. In its filing with the Minnesota PUC, Otter Tail acknowledged what it described as the "complexities" of its potential paths to pull out of Coyote Station.

Otter Tail co-owns the Coyote Station as well as another coal-fired plant in Big Stone, S.D., with three other utilities. It has the largest stake of Coyote, at 35%, followed by Northern Municipal Power Agency (30%), Montana-Dakota Utilities Co. (25%) and NorthWestern Energy (10%).

In its filings, Otter Tail said a two-year economic analysis showed that regulatory obligations and possible future capital investments make the costs of owning the Coyote Station plant too expensive for its customers. Otter Tail, which is publicly traded, estimated it would cost $68.5 million to withdraw from Coyote Station at the end of 2028.

Withdrawing from Otter Tail's ownership interest will be challenging, the company acknowledged. Coyote Station is a key energy source for the plant's co-owners, which also rely on Otter Tail Power to keep it running safely and efficiently. The coal mine, adjacent to the plant, has a separate owner. The plant also provides a number of good-paying union jobs and contributes to the tax base in Mercer County and North Dakota.

If regulators approve the proposal, Otter Tail Power said it would "promptly" offer its ownership interest to its partners or to others interested in the plant. But if it can't find a buyer or reach a consensus about the future of the Coyote Station plant, Otter Tail said it would exercise its right to terminate the ownership agreement with five years' advance notice.

"Otter Tail's intent is to withdraw from Coyote Station by the end of 2028," the company said in its filing. "We understand that different stakeholders will have different views on this timing."

Energy market conditions have been evolving over the past several years and are forecast to continue offering low-cost energy opportunities to utilities whose electric generation can quickly react to real-time market conditions, such as natural gas-fired resources, Otter Tail said.

The utility has pledged to measurably reduce carbon emissions from plants it owns and to derive about 35% of energy from renewable resources by 2023.

"Planning a diverse mix of energy resources to reliably and economically serve our customers over the next 15 years is extremely complex," Otter Tail Power Co. President Tim Rogelstad said in a statement. He added that the proposal "enhances our ability to ensure our customers have the electricity they need, when they need it, at an affordable price, in an environmentally responsible way."