Externalities laws and summary

In 1995, the North Dakota Lignite Energy Council brought a draft bill to the North State Legislature. The bill, HB 1312, was introduced as a reaction to conversations in other states—namely Minnesota—about assigning costs for new, carbon-emitting power sources. The sponsors claimed that the new law would protect the state’s ratepayers and the lignite industry from escalating costs related to carbon regulation. It restricts the information that the state Public Service Commission (PSC) can use when permitting, siting and setting rates for sources of new electric generation.

This legislation was passed and is now part of the state century code.

NDCC 49-02-23 reads :

Consideration of environmental externality values prohibited. The commission may not use, require the use of, or allow electric utilities to use environmental externality values in the planning, selection, or acquisition of electric resources or the setting of rates for providing electric service. Environmental externality values are numerical costs or quantified values that are assigned to represent either: 1. Environmental costs that are not internalized in the cost of production or the market price of electricity from a particular electric resource; or 2. The alleged costs of complying with future environmental laws or regulations that have not yet been enacted.

This law did not actually come into play until 2006, when the North Dakota PSC was approached by several utilities who were investors in a proposed conventional coal electric generating plant in South Dakota—Big Stone II---for a determination of prudence for the project.

Montana Dakota Utilities and Otter Tail Power both have a large customer base in North Dakota. Getting approval from the PSC would allow them to partially recoup expenses related to construction of the South Dakota plant through rate increases in North Dakota.

Dakota Resource Council (DRC) intervened in the process and has since challenged the PSC’s prudency decision. Attorneys from the Iowa-based Plains Justice represented Dakota Resource Council and twice brought in an expert witness versed in the economics of carbon regulation. Because of the state’s externalities law, the witness, David Schlissel, of Synapse Energy, was unable to present any information to the Commission that dealt specifically with estimated costs of carbon.

During the 2007 legislature, members of DRC attempted to repeal NDCC 49-02-23 in an amendment to a proposed bill, however, the amendment was defeated in committee. The Lignite Energy Council was the sole opposition.

In the 2009 legislative session, DRC members once again brought up the externalities law. Since it seemed impossible that a bill to repeal the law would pass, a resolution for a study of the economic impacts of the law to the state’s ratepayers and renewable energy industry was introduced. Once again, the Lignite Energy Council opposed the bill, and easily succeeded in “hog-housing” the resolution by turning it into a study of how federal, regional and state cap and trade programs, including Minnesota’s Next Generation Law, will impact the state’s lignite industry.

DRC members and the Grand Forks Herald feel that NDCC 49-02-23 is a “gag order” that disallows the Public Service Commission from making a meaningful decision based on all available information, which is a disservice to the people of North Dakota. Ignoring the potential cost of carbon regulation when approving new sources of generation will not protect ratepayers from increased costs, and could cost them more. If all potential costs of coal are considered, renewable energy could indeed be the cheapest option. Thus, the law thwarts the development of “greener” energy, gives an unfair advantage to the coal industry and can cost consumers more.

Related SourceWatch articles

 * External costs of coal
 * North Dakota and coal
 * Dakota Resource Council