Shane Zahrt ’16, Attorney & Senior Lobbyist, Flaherty & Hood

Minnesota’s Clean Energy future arrives, state and local policy makers grapple with how to support those it leaves behind

As government policies and market forces result in more carbon-free and renewable resources to replace coal, nuclear, and natural gas plants, policymakers in Minnesota (and across the country) are grappling with how to support the communities and workers these transitions will leave behind. One thing is clear: many local governments do not have the tools or resources to accommodate the sheer scale of these massive transitions alone. Successfully navigating these transitions will require a coordinated state and local response.

In September of 2018, executives from Minnesota’s largest electric utility company, Xcel Energy, gathered with community leaders in the City of Oak Park Heights, Minnesota to celebrate the 50th anniversary of the Allen S. King Generating Station—a 511-megawatt coal-fired power plant that sits on the banks of the St. Croix River, about 20 miles east of the Twin Cities of Minneapolis and Saint Paul.

For five decades, life in Oak Park Heights has revolved around the power plant, in ways seen and unseen. “As soon as I see the stack, I know I’m almost home,” Mayor Mary McComber told the crowd, in reference to the plant’s towering smokestack that can be seen for miles in any direction.¹ But the plant does not simply define the city’s skyline. The plant is—by far—the city’s top property taxpayer and employs around 120 people.² In fact, property tax payments attributable to the plant fund more than 39% of the city’s budget.³

As Xcel celebrated the plant’s longevity, Xcel also planned for its demise. In May of 2019, as part of its “industry shaking” plan to reach zero carbon emissions on its system by 2050,⁴ the company announced plans to shut down all of its remaining coal plants nearly a decade sooner than expected.⁵

While the news was celebrated by clean energy advocates, local officials like Mayor McComber face dire, existential questions about the future of their cities. Unfortunately, because Xcel’s plans are completely new to the industry and communities, there is no blueprint a community can follow for a transition this large. The energy market is transitioning very rapidly and state and local policymakers across the country are scrambling to catch up.

The Changing Energy Landscape

For years, the utility sector has been a top contributor of greenhouse gas emissions in Minnesota⁶ and across the country.⁷ This fact has made the early retirement of coal plants a central mission of many clean energy advocates. The Sierra Club’s “Beyond Coal” campaign publishes a map on its website celebrating “defeated plants,” proposed new coal plants it has successfully advocated against,⁸ and every coal plant that retires within the U.S.⁹

The environmental advocacy community’s relationship to nuclear plants is extremely complicated. Renewable energy advocates have long argued against nuclear power on the grounds that it is expensive, dangerous,¹⁰ and there is uncertainty regarding how our country will safely store spent nuclear fuel for thousands of years.¹¹ Those same advocates now face the reality that the extension of nuclear power might be fundamentally necessary to their objective to defeat coal.¹² The primary reason is that nuclear energy is a carbon-free alternative to coal when it comes to producing baseload power. As a result, nuclear energy has come to play a central role in state policies mandating carbon-free resources,¹³ as well as Xcel Energy’s plans for Minnesota’s energy production and distribution system.¹⁴

Specifically, Xcel is currently in the process of seeking the Minnesota Public Utilities Commission’s approval for its 2020 – 2034 Integrated Resources Plan (“IRP”). In the IRP, Xcel proposes retiring the King Plant in Oak Park Heights by 2028, nine years before the end of its current operating license. Xcel is also proposing the complete closure of its largest coal plant, the Sherco Electric Generating Station in Becker, Minnesota by 2030. In addition, the proposal calls for the extension of Xcel’s nuclear plant located in Monticello from the end of its current operating license in 2030 to 2040.¹⁵

Power Plant Retirements Will Have Massive Impacts on Host Cities

The early retirement of the Sherco and King coal plants are a key component of Xcel’s goal to produce 100% of the energy on its system from carbon-free sources by 2050. Xcel’s announcement was celebrated by clean energy advocates far and wide for its aggressiveness in pursuing carbon-free and renewable energy goals. At the local level, elected officials and city staff braced themselves for the impact of these decisions.

On October 3, 2019, Mayor Sean Dowse of Red Wing, Minnesota testified to a field hearing of the Minnesota House of Representatives Tax Committee. To give the committee an idea of the impact the Prairie Island Nuclear Plant has on the City of Red Wing, the mayor used an analogy: he said, in many communities a “big box” retail store, such as Target, may be the city’s largest property taxpayer. In Red Wing, it would take 131 Target stores to have the same tax impact as the power plant. Total estimates of the tax base and jobs provided by each plant in various cities are listed below.¹⁶

City	Fuel Source	Tax Impact (% of City Budget)	Number of Plant Jobs
Becker	Coal	75%	300
Oak Park Heights	Coal	39%	120
Red Wing	Nuclear	55%	700
Monticello	Nuclear	60%	500

For all of these communities, it is no longer a matter of “if” the plant will close, it is a matter of “when.” In communities where a single entity contributes such a significant share of a local government’s tax base and economy, it leaves these communities vulnerable to the point that any fluctuation in the plant’s value can lead to difficult choices for local governments: do they cut services, or allow the property tax burden to shift onto local residents and businesses?

A New Frontier of State Policy

When it comes to the impacts that plant retirements will have on communities, only a few things are certain: (1) the impact will be big; (2) the scale of the impact is beyond what local elected officials have the tools to respond to on their own; and (3) a coordinated, state-level response to support communities is in the best interest of communities, utilities, and clean energy advocates alike, by ensuring the transition to clean energy takes place with as few disastrous, concentrated impacts as possible. That is about where the certainty ends.

The scale of these transitions also means that there is no “silver bullet” policy response that can assure community leaders and local taxpayers that they will not shoulder an inordinate share of the consequences. Multiple states are actively wrestling with how to support communities through these transitions, but New York, Minnesota, and Colorado have wrestled most directly with these issues.

Direct-State Financial Support to Replace Lost Tax Base

Because the direst consequence of plant retirements is the immediate evaporation of the vast majority of a community’s tax base, the most direct and impactful thing state policymakers can do to support host communities is to appropriate funds designed to backfill the significant loss of property tax revenues. It is important to note that while it is sometimes easiest to picture direct impacts to city government, the tax impacts ripple throughout the city, county, and school districts alike.

Inspired by the closure of a single power plant in Tonawanda, New York, the New York Legislature adopted a $45 million “gap fund.” A group that included a local school district, labor organizations, and local governments banded together and successfully advocated for the passage of this fund. This gap fund back-filled the massive and immediate loss of the tax base that local governments and school districts experienced.¹⁷ Although it was inspired by the closure of a coal plant, the fund of $45 million is available to aid communities facing a major plant closure regardless of fuel type.

Direct state aid is obviously not a permanent solution. Communities still have to undergo the extremely difficult work of reinventing their tax base for the day when neither the plant nor state aid are available. However, in the short time since it was implemented, New York’s gap fund approach has been a success. The fund has avoided teacher layoffs, property tax spikes, and other drastic consequences of plant retirements.

Economic Development Programs for Transitioning Communities and Workers

Proposed Minnesota Legislation

During the 2019 Minnesota legislative session, bi-partisan legislation was introduced that would have created the “Community Energy Transition” grant program. In addition, the bill would have created an advisory council to award these grants. The grants would have been provided to communities for local planning, community studies, capital improvements, and to incentivize businesses to open, relocate, or expand within the community.¹⁸

The bill was authored by a bi-partisan group of legislators who have power plants located in their districts. While the program was included in the Omnibus Energy Bill passed by the Minnesota Senate, it was not included in the House’s bill. When the two chambers went to conference committee to reconcile the differences in the bills, the Republican-controlled Senate and the Democratic Farmer Labor-controlled House were so far apart on other aspects of the bill that every major aspect of the bill was not included.

The Minnesota Legislature will return to the Capitol in February of 2020, but what has changed since the last legislative session is that Xcel has announced and formalized plans to retire all of its largest coal plants. The legislature will have to think even bigger for successful community partnerships.

Proposed Colorado Legislation

Colorado legislators have twice introduced the “Colorado Energy Impact Assistance Act.”¹⁹ Among the bill’s other provisions, it would require that the Governor appoint a 7-member “Colorado Energy Impact Assistance Authority” to oversee the payment of “transition assistance.” According to the legislature’s bill summary:

Transition assistance is defined to include payment of retraining costs, including costs of apprenticeship programs and skilled worker retraining programs, for and financial assistance to directly displaced Colorado facility workers, compensation to Colorado local governments for lost property tax revenue directly resulting from the retirement of a facility, and similar payments, job retraining, assistance, and compensation for directly displaced Colorado workers and local governments in areas that produce fuel used in the retired facility directly resulting from the elimination of the need for fuel at the facility.²⁰

This proposal is similar, but broader ranging than Minnesota’s grant proposal. While Colorado’s bill has failed to pass the legislature, the work and community transition provisions of the bill successfully reinforce the scale of the transition that communities are facing.

Regulatory Mandates that Utilities Support Host Communities

The most direct and obvious channel for the adoption of policies to support communities are state legislatures. The utilities that own the plants are heavily regulated entities that must go through long and complex regulatory processes for the approval of their resource plans. Communities will be best served by participating directly in these processes.

To even begin to successfully navigate plant retirements, host communities need a partnership that involves community leaders, state lawmakers and regulators, in addition to the active engagement of the utility companies. One of the most impactful ways that partnership can take place is also one of the hardest to achieve: the boots-on-the-ground work of assisting communities with economic development. It takes an investment of time, manpower, and sometimes years-long efforts to attract investment in a community to replace the lost tax base and jobs that disappear when a plant closes.

Conclusion

To navigate new government policies and market forces resulting in more carbon-free and renewable resources, Minnesota policymakers will need a cohesive and coordinated state and local response. Many local governments do not have the tools or resources to accommodate the sheer scale of these transitions alone. In communities where a single entity, like a coal, nuclear, or natural gas plant, contributes a significant share of a local government’s tax base and economy, communities become vulnerable when these single entities cease to exist.

Without investments and coordinated efforts by policy makers, communities and workers in towns dependent on property taxes from coal, nuclear, and natural gas plants will be left without a strong tax base and without the job opportunities that those plants provided. While the most direct and impactful action that state policymakers can take to support host communities is to appropriate funds designed to backfill the loss of property tax revenues, this is not a permanent solution. Only investments and coordinated efforts by state and local policy makers will fill the hole that these communities will feel without the property tax contributions of coal, nuclear, and natural gas plants.

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Footnotes

1. Hannah Black, Allen S. King Powerplant Celebrates 50th Anniversary, RiverTowns (Sept. 11, 2018, 8:00 am), https://www.rivertowns.net/community/4497547-allen-s-king-power-plant-celebrates-50th-anniversary. ↩︎
2. Greg Pruszinske, Mary McComber, Marshall Hallock, Jeff O’Neill, Host Communities in Transition, Xcel Energy, at 11 (Feb. 12, 2019), https://www.edockets.state.mn.us/EFiling/edockets/searchDocuments.do?method=showPoup&documentId={90D9E768-0000-CC10-A5E8-D75B47C8148E}&documentTitle=20192-150239-01 (last visited Oct. 21, 2019). ↩︎
3. Id. ↩︎
4. Xcel’s ‘industry-shaking’ Emissions Targets, Mountain W. News (Dec. 5, 2018), https://mountainwestnews.org/utility-makes-industry-shaking-news-1cfb5e4607e7. ↩︎
5. Martin Moylan, Elizabeth Dunbar, & Kirsti Marohn, Xcel’s New Plan: Coal-free by 2030, Nuclear Until 2040, MPR News (May 20, 2019, 10:30 am), https://www.mprnews.org/story/2019/05/20/xcel-energy-coal-nuclear-power-wind-solar-minnesota. ↩︎
6. Greenhouse Gas Emissions Data, Minn. Pollution Control Agency,  https://www.pca.state.mn.us/air/greenhouse-gas-emissions-data (last accessed Oct. 19, 2019). ↩︎
7. Sources of Greenhouse Gas Emissions, U. S. Envtl. Prot. Agency, https://www.epa.gov/ghgemissions/sources-greenhouse-gas-emissions (last visited Oct. 19, 2019). ↩︎
8. Sierra Club, https://content.sierraclub.org/coal/environmentallaw/plant-map (last visited Oct. 19, 2019). ↩︎
9. Sierra Club, https://content.sierraclub.org/coal/victories (last visited Oct. 19, 2019). ↩︎
10. Why Nuclear Power Doesn’t Make Sense, Sierra Club,  https://vault.sierraclub.org/nuclear/factsheet.aspx (last visited Oct. 19, 2019). ↩︎
11. Lisa Ledwidge, If not Yucca Mountain, Then What? An Alternative Plan for Managing the Highly Radioactive Waste in the United States, Inst. for Energy and Envtl. Research,  https://ieer.org/resource/commentary/yucca-mountain/ (last visited Oct. 19, 2019). ↩︎
12. Daniel P. Poneman, We Can’t Solve Climate Change Without Nuclear Power, Sci. Am. (May 24, 2019), https://blogs.scientificamerican.com/observations/we-cant-solve-climate-change-without-nuclear-power/. ↩︎
13. Catherine Morehouse, State Carbon Free Policies Increasingly Inclusive of Nuclear, but Resource Needs Federal Boost?, Util. Dive (July 17, 2019), https://www.utilitydive.com/news/state-carbon-free-policies-increasingly-inclusive-of-nuclear-but-resource/557535/. ↩︎
14. Nora G. Hertel, What’s Minnesota’s Future of Carbon-free, Nuclear Power? Star Tribune (July 27, 2019, 12:10 am), http://www.startribune.com/what-s-minnesota-s-future-of-carbon-free-nuclear-power/513281982/. ↩︎
15. Xcel Energy, Upper Midwest Integrated Resource Plan 2020-2034, at 122 (July 1, 2019), https://www.edockets.state.mn.us/EFiling/edockets/searchDocuments.do?method=showPoup&documentId={00FBAE6B-0000-C414-89F0-2FD05A36F568}&documentTitle=20197-154051-01 (last accessed Oct. 25, 2019). ↩︎
16. Greg Pruszinske, Mary McComber, Marshall Hallock, Jeff O’Neill, Host Communities in Transition, Xcel Energy, at 7—11 (Feb. 12, 2019), https://www.edockets.state.mn.us/EFiling/edockets/searchDocuments.do?method=showPoup&documentId={90D9E768-0000-CC10-A5E8-D75B47C8148E}&documentTitle=20192-150239-01. ↩︎
17. Elizabeth McGowan, Rising from the Coal Ashes: An unlikely alliance fashions a future for working-class Buffalo suburb after power plant shutdown, Renewal News (July 19, 2017),  http://www.renewalnews.org/2017/07/19/rising-from-the-coal-ashes-an-unlikely-alliance-fashions-a-future-for-working-class-buffalo-suburb-after-power-plant-shutdown/ ↩︎
18. H.F. 1919, 2019 Leg., 91st Sess. (Minn. 2019). ↩︎
19. H.F. 17-1339, 2017 Leg., 71st Sess. (Colo. 2017); H.F. 19-1037, 2019 Leg., 72nd Sess. (Colo. 2019). ↩︎
20. H.F. 19-1037, 2019 Leg., 72nd Sess. (Colo. 2019). ↩︎