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Otter Tail pulls out of Big Stone II

Otter Tail Power Company announced Friday afternoon that it will withdraw from the Big Stone II power plant near Milbank, S.D., that was to be operating by 2011, the company stated in a press release.

Otter Tail will withdraw both as a participating utility and as the project's lead developer. Big Stone II is propsed as a 500-to-600-megawatt coal-fired power plant. Its construction also was related to transmission upgrades in South Dakota and Minnesota.

In the statement, Otter Tail Power Company President and CEO Chuck MacFarlane added that the broad economic downturn coupled with a high level of uncertainty associated with proposed federal climate legislation and existing federal environmental regulation have resulted in challenging credit and equity markets that make proceeding with Big Stone II at this time untenable for Otter Tail's customers and shareholders.

MacFarlane explained that Big Stone II contractual agreements require a commitment to proceed after the project receives all major permits, creating a financial obligation on each party that agrees to go forward. "Each Big Stone II participant is in a different position in terms of means and impact of raising capital and mechanisms for recovering those costs from customers," he said. "Given the legislative and regulatory uncertainties and current economic conditions, Otter Tail Power Company is unwilling to create a binding financial obligation of approximately $400 million for its share of the project at this time."

Tom Heller is CEO of Missouri River Energy Services, which is a Big Stone II participant and has the project's largest share, stated that "Big Stone II is a fully permitted project that will provide participants' customers with least-cost generation for decades. It will improve the emissions profile of the existing Big Stone Plant, and the transmission facilities will be sized to serve the region's burgeoning wind energy development," he said.

While Heller said project participants regret that Otter Tail had to withdraw, he said other potential new participants have expressed interest in joining the project and exploratory discussions are underway.

Big Stone II had been scheduled to be on line in 2011, and now the plant would not begin operating until late 2015 at the earliest. MacFarlane said that the company no longer could delay the project to obtain greater clarity on -- and to mitigate -- risks unique to Otter Tail. Accordingly, Otter Tail chose to withdraw and allow the others to proceed. "We believe the project is important for the region, both in terms of adding baseload power and enhancing regional reliability," MacFarlane said.

While Otter Tail Power Company has invested more than $300 million in wind energy generation during the last three years, MacFarlane added that dispatchable generation remains an important need for Otter Tail Power Company's customers. As a result, over the next three to six months, Otter Tail Power Company will continue to evaluate other options to meet its customers' need for reliable electricity.