North Dakota Lignite Energy Industrys Contribution

To the State Economy in 2015

January 2017

Randal C. Coon
Nancy M. Hodur
Dean A. Bangsund

Department of Agribusiness and Applied Economics

and
Center for Social Research
North Dakota State University
Fargo, ND 58108

Executive Summary

Randal C. Coon, Dean A. Bangsund, and Nancy M. Hodur1

The economic contribution the Lignite Energy Industry makes to the North Dakota
economy can be measured in terms of key economic indicators, including total business activity,
retail trade activity, personal income, employment, and tax revenues. Estimates for these key
economic indicators were based on in-state industry expenditures of firms that comprise the
Lignite Energy Industry in North Dakota. In-state expenditures represent the direct, or first
round, economic impacts associated with the industry.
A survey of all the entities that comprise the states Lignite Energy Industry was
conducted to gather firm expenditure data. This survey requested the individual companys in-
state expenditures and local expenditures. Delineation of data according to expenditures state-
wide and locally was to enable an examination of economic impacts at both the state and local
level (i.e., city or county). However the task of delineating expenditures to firms local area
proved to be more time consuming and difficult than expected. Without adequate local
expenditure data, an analysis of localized impacts was not possible. However, operational
expenditures for a hypothetical electric generation facility were analyzed to demonstrate
localized economic contributions to the economy.
In-state expenditures of lignite energy industry firms constitute the data for the study.
Expenditures were aggregated to avoid disclosure of any confidential industry data. The North
Dakota Input-Output Model was used to perform the analysis. The model consists of
interdependence coefficients, commonly known as multipliers, which measure the level of
business activity generated in each economic sector from an additional dollar of sales for final
demand in a given sector. The model generates levels of business activity (direct and secondary)
for each economic sector. Historic relationships can be used to estimate selected tax revenues
and secondary employment. All economic indicators that are measured in terms of dollars are
presented as current year dollars (i.e., in terms of the purchasing power of the dollar in each
respective year).

1
The authors are, respectively, Research Specialist, Research Scientist, Department of Agribusiness and Applied
Economics, and Director, Center for Social Research, North Dakota State University.

The North Dakota Lignite Energy Industrys in-state expenditures totaled $1.1 billion in
2015 (Table 1). Industry expenditures have remained stable since 2013, with outlays over a
billion dollars each year with an average annual increase of roughly 3 percent from 2014 to 2015
(Coon et al. 2013; Coon et al. 2014). The largest amount of expenditures were in the Households
Sector, followed by the Retail Trade and Wholesale Trade and Miscellaneous Manufacturing
Sectors. Expenditures in the Households Sector ($295.3 million) are representative of wages and
salaries. The North Dakota Input-Output Model generates levels of total business activity for
each economic sector, for this analysis only the key economic measures will be presented. The
total level business activity (direct plus secondary impacts) resulting from the industrys in-state
expenditures was $3,471.5 million in 2015 (Table 2). Total (direct plus secondary impacts)
business activity in the retail sector totaled $798.7 million and total personal income of $1,084.1
million. Business activity generated for all business sectors (i.e., all economic sectors except
Agriculture, Households, and Government) amounted to $2,070.7 million in 2015 with total
business activity of $3,471.5 million. Secondary impacts totaled $2,350.9 million in 2015.

Table 1. Estimated North Dakota Direct Expenditures by Economic Sector for

Companies Involved in Lignite-Related Activities, 2015
Sector 2015 Expenditures
--------------million $-----------------
Construction 93.4
Transportation 28.9
Communication & Public Utilities 121.0
Wholesale Trade & Miscellaneous Manufacturing 162.7
Retail Trade 173.5
Fin, Ins, Real Estate 94.7
Bus & Personal Services 59.9
Prof & Social Services 91.2
Households 295.3
TOTAL 1,120.6

Table 2. Estimated Direct Plus Indirect Select Economic Measures Attributed to the
North Dakota Lignite Energy Industry, Including Personal Income, Retail Sales,
Business Activity for all Business Sectors, and Total Business Activity, 2015
Item Economic Activity
---------------------million $ ---------------------
Personal Income
1,084.1
Retail
798.7
Business Activity for all Business Sectorsa
2,070.7
Total Business Activity
3,471.5
a
Includes all economic sectors except Agriculture (livestock and crops), Households, and
Government.

North Dakota Lignite Energy companies also contribute to state tax revenues. The total of
selected taxes attributed to the industry were estimated to be $104.6 million in 2015. (Table 3).
Coal severance and energy conversion taxes were 10.6 percent and 25.3 percent of total state tax
revenues, respectively, in 2015. Tax revenues attributed to the Lignite Energy Industry have
grown from $61.4 million in 2000 to over $100 million in 2015 (Table 3). The North Dakota
Lignite Energy Industry employed 3,942 full-time equivalent workers in 2015 (Table 4).
Employment in the lignite energy industry has remained relatively stable since 2005, with
average annual employment of about 3,900 workers during that period. Business activity
attributed to the Lignite Energy Industry was estimated to support about 11,000 secondary
(indirect and induced) jobs in recent years.
Previous versions of this analysis have reported that the states coal mining sector had
some of the highest wages in the state. Job Service North Dakota discontinued publishing wage
data in that detailed breakdown several years ago to avoid disclosure issues. The industry is now
reported as all mining, except oil and gas, a subset of the mining industrial group. The mining
industry covered wages were the highest of any category. Wages for the mining, except oil and
gas sector have risen since 2000 with average wages slightly over $87,000 in 2015 (Table 5).
Wages continued to increase from 2014 to 2015 despite a decline in wages for the mining
category from $104,688 to $101,602, reflective of the downturn in oil development in North
Dakota. Mining, except oil and gas wages were near the highest of any category in North
Dakota, following by gas and electrical production. Salaries for the mining, except oil and gas
were more than double that for all covered wages in North Dakota in 2000 and 2005, but were
less than twice the average for 2010 to 2015.
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To illustrate the effects that a coal-fired generation plant would have on the states
economy, operations of a hypothetical facility were analyzed. Because of the limited number of
electric generation facilities it was not possible to use individual plant operating expenditures
without the potential for disclosing confidential information. All electric generation facilities
expenditure data were consolidated and divided by the electric generation megawatt ratings. This
produced an average dollar value of operating expenditures per megawatt of generating capacity.
Average expenditure were multiplied by hypothetical 100, 500 and 1,000 megawatt plants to
obtain estimated operating expenditures. Total expenditures were allocated to the sectors of the
North Dakota Input-Output Model based on the relationships of industry expenditures presented
in Table 1. Data were not available to incorporate economies of size and scale for the different
plant sizes. Published data (U.S. Energy Information Administration 2016) were used to
determine if the estimated average operating expenditures were representative of the industry
nationally. Operating expenditures for the hypothetical plants were relatively close to national
averages, but slightly lower. The estimates were deemed adequate for the hypothetic electric
generating facility analysis.

Table 3. Estimated Tax Revenue from Selected Taxes Collected As the Result of the
North Dakota Lignite Energy Operations in the State, Selected Years 2000-2015
Tax 2000 2005 2010 2015
------------------------million $ -----------------------
Coal Severance 18.0 12.0 11.3 11.1
Energy Conversion 15.3 27.7 23.2 26.5
Sales & Use 16.2 20.2 31.3 37.0
Personal and Corporate Income 8.5 12.0 19.0 22.7
Other 3.4 5.6 5.0 7.3
TOTAL 61.4 77.5 89.8 104.6
Source: Coon and Leistritz 2001; Coon and Leistriz 2006; Coon and Leistritz 2011.

Table 4. Estimated Direct Employment for North Dakota Lignite Energy Companies and
Secondary Employment Attributable to the Industries Economic Activity, Selected Years
2005-2015
Year Direct Secondary
2005 3,858 11,265
2010 3,910 11,417
2011 3,915 11,638
2012 3,950 10,749
2013 3,883 11,416
2014 3,979 11,497
2015 3,942 11,540
Source: Coon and Leitritz 2006; Coon and Leistritz 2011; Coon et al. 2012; Coon et al. 2013;
Coon et al. 2014.

Annual operation expenditures for the three hypothetical plant sizes were $11.2 million
for the 100 megawatt, $56.1 million for the 500 megawatt, and $112.2 million for the 1,000
megawatt-sized plants (Table 6). Expenditures represent operating expenditures for the plant
only. Applying the direct expenditures to the North Dakota Input-Output Model produce
estimates of direct and secondary (total) economic impacts. The 100 megawatt facility would
generate $34.7 million in total business activity, with $10.9 million of personal income and $8.0
million of retail trade activity (Table 7). Business activity generated in business sectors would be
$20.7 million. A hypothetical 500 megawatt facility would create personal income of $54.3
million and retail trade activity of $40.0 million. Business activity in all business sectors was
estimated to be $103.6 million, with $173.7 million in total business activity as the result of
operating expenditures. Because the average expenditures for the hypothetical plants were
averages, the 1,000 megawatt facilitys expenditures would be twice as much as the 500
megawatt station. Total business activity generated by the 1,000 megawatt plant would be $347.4
million, with $207.2 million of business activity in business sectors. The largest sized facility
would have retail sales of $80 million with personal income of $108.6 million attributed to its
operational expenditures.

Activities related to the Lignite Energy Industry generate substantial economic activity as
a result of annual operations. The assessment of the economic impacts of a hypothetic plant
illustrate the potential benefits of a single plant to the state and local economies.

Table 5. North Dakota Covered Annual Wages by Industry, Selected Years 2000 to 2015 (Current Year Dollars)
Industry 2000 2005 2010 2011 2012 2013 2014 2015
------------------------------------------------------------------ $ -------------------------------------------------------------------
Agriculture 21,561 27,353 34,994 36,174 39,489 39,871 41,263 42,239
Mining 44,305 57,054 79,976 89,730 96,569 98,042 104,688 101,602
Mining, Except Oil & Gas 62,975 70,938 75,585 76,167 77,380 80,174 84,472 87,049
Construction 31,214 35,704 46,536 51,201 56,478 60,219 64,910 64,955
Manufacturing 30,570 36,375 43,408 44,778 46,717 48,103 49,761 51,179
Trans, Comm, Utilities 34,465 41,130 51,215 56,168 60,609 62,784 65,532 66,122
Electric Production 52,622 69,876 78,406 81,639 81,712 86,267 90,666 94,705
Gas Production 58,389 70,100 83,649 87,810 88,434 91,514 93,608 101,990
Wholesale Trade 31,994 40,120 51,358 57,560 63,658 65,272 68,087 66,634
Retail Trade 13,867 20,204 24,159 25,653 27,470 28,319 29,692 30,784
FIRE 30,364 35,752 44,391 48,655 52,218 53,795 57,001 58,676
Services 22,817 28,607 36,163 38,351 41,430 43,227 45,668 47,203
Government 26,361 31,536 38,565 40,281 41,223 42,675 44,142 46,062
TOTAL 24,683 29,955 38,127 41,778 45,909 47,779 50,856 50,696

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Source: Job Service North Dakota 2001; 2006; 2011; 2012; 2013; 2014; 2015; and 2016.

Table 6. Estimated North Dakota Direct Expenditures by Economic Sector for a

Hypothetical Electric Generation Facility, With A 100, 500, and 1,000 Megawatt Rating
Electric Generation Facility MW Rating
Sector 100 500 1,000
-------------------------------$000-------------------------------
Construction 930.9 4,654.6 9,309.1
Transportation 291.6 1,458.1 2,916.1
Comm & Public Utilities 1,211.3 6,056.5 12,113.1
Wholesale Trade & Misc Mfg 1,626.3 8,131.8 16,262.9
Retail Trade 1,738.5 8,692.2 17,384.5
Fin, Ins, Real Estate 953.3 4,766.7 9,533.4
Bus & Personal Services 594.4 2,972.2 5,944.4
Prof & Soc Services 908.5 4,542.4 9,084.8
Households 2,961.0 14,804.8 29,609.7
TOTAL 11,215.8 56,079.0 112,158.0

Table 7. Estimated Direct Plus Indirect Select Economic Measures Attributed to a

Hypothetical North Dakota Electric Generation Plant. Including Personal Income, Retail
Sales, Business Activity for All Business Sectors, and Total Business Activity, 100, 500,
and 1,000 Megawatt Rating
Item 100 MW 500 MW 1,000 MW
-------------------------$000------------------------
Personal Income 10,835 54,277 108,551
Retail Sales 7,997 39,984 79,968
Business Activity for All Business
Sectorsa 20,719 103,600 207,199
Total Business Activity 34,745 173,728 347,449
a
Includes all economic sectors except Agriculture (livestock and crops), Households, and
Government.

References
Coon, Randal C., Dean A. Bangsund, and Nancy M. Hodur. 2014. North Dakota Lignite Energy
Industrys Contribution to the State Economy for 2013 and Projected for 2014. Fargo:
North Dakota State University, Department of Agribusiness and Applied Economics.

Coon, Randal C., Dean A. Bangsund, and Nancy M. Hodur. 2013. North Dakota Lignite Energy
Industrys Contribution to the State Economy for 2012 and Projected for 2013. AAE
13008. Fargo: North Dakota State University, Department of Agribusiness and Applied
Economics.

Coon, Randal C., Dean A. Bangsund, and Nancy M. Hodur. 2012. North Dakota Lignite Energy
Industrys Contribution to the State Economy for 2011 and Projected for 2012. AAE
12003. Fargo: North Dakota State University, Department of Agribusiness and Applied
Economics.

Coon, Randal C., and F. Larry Leistritz. 2011. North Dakota Lignite Energy Industrys
Contribution to the State Economy for 2010 and Projected for 2011. AAE 11001. Fargo:
North Dakota State University, Department of Agribusiness and Applied Economics.

Coon, Randal C., and F. Larry Leistritz. 2006. North Dakota Lignite Energy Industrys
Contribution to the State Economy for 2005 and Projected for 2006. AAE 06002. Fargo:
North Dakota State University, Department of Agribusiness and Applied Economics.

Job Service North Dakota. 2016. North Dakota Employment and Wages: 2015 Annual
Averages. Bismarck: Job Service North Dakota, Labor Market Information.

Job Service North Dakota. 2015. North Dakota Employment and Wages: 2014 Annual
Averages. Bismarck: Job Service North Dakota, Labor Market Information.

Job Service North Dakota. 2014. North Dakota Employment and Wages: 2013 Annual
Averages. Bismarck: Job Service North Dakota, Labor Market Information.

Job Service North Dakota. 2013. North Dakota Employment and Wages: 2012 Annual
Averages. Bismarck: Job Service North Dakota, Labor Market Information.

Job Service North Dakota. 2012. North Dakota Employment and Wages: 2011 Annual
Averages. Bismarck: Job Service North Dakota, Labor Market Information.

Job Service North Dakota. 2011. North Dakota Employment and Wages: 2010 Annual
Averages. Bismarck: Job Service North Dakota, Labor Market Information.

Job Service North Dakota. 2006. North Dakota Employment and Wages: 2005 Annual
Averages. Bismarck: Job Service North Dakota, Labor Market Information.

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Job Service North Dakota. 2001. North Dakota Employment and Wages: 2000 Annual
Averages. Bismarck: Job Service North Dakota, Labor Market Information.

U.S. Energy Information Administration. 2016. Electric Power Annual 2015. Average Power
Plant Operating Expenses for Major U.S. Investor-Owned Electric Utilities, 2008 through
2015. www.eia.gov/electricity/annual/html/epa_08_04.html . Washington, D.C.: U.S.
Department of Energy, Energy Information Administration.

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