The Cost of Doing Nothing on Big Stone II

Remember when it looked as though another powerplant was coming online to feed the Dakotas? Right at election time last year came the news the Big Stone II was not going to happen:

[]A power plant ran out of steam Monday as developers announced that they have decided not to build the $1.6 billion Big Stone II project near South Dakota’s border with Minnesota. The joint announcement by four utilities brings to an end one of the larger environmental debates in the state in recent years because of mounting public concerns about global warming and energy policy.

Seven utilities were partners when the 500- to 600-megawatt coal-fired plant was announced in 2004, but three dropped out.

The lead utility, Otter Tail Power Co., withdrew from the project in September, citing uncertainty about future carbon dioxide costs and regulations, and the poor economy.[]

You will notice the reference to “future carbon dioxide costs and regulations.” That’s another way of saying that Otter Tail was fairly certain that cap and trade legislation was on the horizon. As a result, what was previously seen to be a good investment turned out to be something else entirely. Despite shelving the project, however, a fair amount of money had already been spent on the endeavor. Now, Otter Tail is doing what many businesses do when they have poor investments. It is raising prices to bring its sheets back into balance:

[]Montana-Dakota Utilities Co. and Otter Tail Power Co. say they spent more than $20 million developing the Big Stone II power plant in northeastern South Dakota.

They’ll be asking regulators in four states for electric rate increases to help them get their money back.[]

One can argue about Big Stone II and whether it was the best available option for expanding the power supply in the region. Regardless, such a discussion does not change the realities–not only do the consumers in the region not have the benefit of more available power, they get to pay for the absence of power.

That has to be painful.

2 thoughts on “The Cost of Doing Nothing on Big Stone II

  1. Isn’t this just sunk cost? Wouldn’t rate-payers hve been asked to cover this cost whether or not the plant was built? And wouldn’t rate-payers have paid even more to cover construction costs?

  2. Sunk cost still needs to be covered by someone. If a company doesn’t have the reserves–then it comes out of tomorrow rather than yesterday.

    It is probable that rate-payers would have been asked to cover this cost regardless, yes. But they have nothing to show for it–and they would have had quite a bit to show for it if the plant had been built.

    I do not know if Big Stone II would have increased capacity enough to add more rate-payers into the mix, but it is probable. As a result, the construction costs which were passed along would have been covered by a greater number of rate-payers–and would almost certainly been amortized over an extended 20 to 30-year period.

Comments are closed.