An environmental retrofit of Otter Tail Power Co.'s largest coal-fired power plant has finished significantly under budget, but the achievement is clouded by worries that new greenhouse gas rules will curtail how much the plant operates in future years.

In a report to Minnesota regulators this week, the Fergus Falls-based utility said the Big Stone, S.D., power plant owned with two other utilities went back into full operation Dec. 29, and the project cost, while not yet finally tallied, will be at least 22 percent below the original budget of $491 million.

Otter Tail, which serves 131,000 customers in Minnesota, South Dakota and North Dakota, has spent $356 million so far to retrofit the 1975-era plant with the best-available emissions equipment, including carbon-injection technology to cut mercury emissions.

Jan Rudolf, Otter Tail's vice president of supply, said the three-year project's final price will grow slightly because demolition and other work is still underway, but the figure will be less than the utility's last estimate of $385 million. It is the biggest single investment the utility has ever made, the company has said.

"We are exceeding all of the targets," Rudolf said of the scrubber and other technologies to cut sulfur dioxide and nitrogen oxide emissions that cause regional haze.

But those emissions controls don't reduce carbon dioxide, the gas linked to global warming. During the Big Stone retrofit, the U.S. Environmental Protection Agency proposed and later finalized its Clean Power Plan to cut greenhouse gas emissions at coal-fired power plants.

At first, Otter Tail officials raised alarm with the EPA that the plant — the only coal-fired generator in South Dakota — would be forced to shut down, stranding an investment that costs residential ratepayers in Minnesota about $5 per month. But the final rule softened South Dakota's carbon targets, and the utility officials no longer are concerned about shuttering the plant.

Even so, the risk is that Big Stone, just across the border from Ortonville, Minn., won't be allowed to operate at full capacity. It might have to shut down part of the time or run at partial output. Rudolf said it could take years before the answer is known. South Dakota has joined other states to challenge the carbon rule in federal court, but the state plans to develop a compliance plan in case that effort fails.

"We're really in the early stages to determine whether they have to shut down or could only operate partially," said Brian Gustafson, who administers the air quality program for the South Dakota Department of Environmental and Natural Resources.

Rudolf said large coal-fired power plants like Big Stone will be needed even though more wind power and natural gas power plants are added to the electric grid. Natural gas emits about half as much carbon dioxide as coal, and wind power emits none. But coal and nuclear plants have long supplied the steady electric "base load" favored by utilities.

"These coal plants that are left are the best of the best, and they are going to be a key piece of the grid," he said.

Otter Tail plans to retire two smaller coal units in Fergus Falls later in the decade. Other Midwest utilities are taking the same approach — eliminating older coal generators but keeping newer ones, which usually are the largest and most efficient and have the best conventional pollution controls.

Minnesota Power, based in Duluth, completed in December a $260 million pollution control update of its largest coal-fired power generator at the Boswell power plant in Cohasset, Minn. Xcel Energy has proposed to retire two coal units at its giant Sherco power plant in Becker, Minn., but intends to keep operating a third newer unit.

David Shaffer • 612-673-7090 • @ShafferStrib