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Patrick Springer, Published November 22 2010

Renewable energy push leads to price jolt for rural electric co-ops

Minnkota Power Cooperative, which supplies electricity for a wide swath of eastern North Dakota and northwest Minnesota, has been delivering a jolt to its member rural electric cooperatives.

A combination of factors involving the economics of wind power in Minnesota have led the power provider to tack on a surcharge adding almost 10 percent at the wholesale level.

For the 35,000 retail customers of Cass County Electric, the surcharge translates into about a 7 percent increase.

That adds about $5 a month to the roughly $90 bill of a typical residential customer – and customers recently have been notified that the extra charge will continue next year, said Scott Handy, Cass County Electric’s chief executive.

For Minnkota’s 116,000 customers in Minnesota and North Dakota, the losses from surplus power sales that must be recovered through surcharges total more than $20 million a year, said Dave Loer, the cooperative’s chief executive.

“We originally thought it would be one year,” he said of the surcharge, first announced in October 2009 and since renewed for 2011. “The customers are aware. They don’t like it.”

Similar losses have occurred throughout Minnesota, said Mark Glaess, general manager of the Minnesota Rural Electric Association, which represents 741,000 customers.

“We are losing tens of millions of dollars,” he said.

The problem is partly an unintended consequence of Minnesota’s renewable energy standard that requires utilities to generate at least 25 percent of their electricity from renewable sources by 2025, Glaess said.

When the law was passed in 2007, it appeared likely the federal government would impose a cost on carbon-emitted energy sources such as coal plants. That hasn’t happened.

Also, the cost of natural gas has decreased significantly in recent years, making wind less competitive with other sources, said Bill Glahn, director of the Minnesota Office of Energy Security.

Those problems are exacerbated by the economic slump and the decreased demand for electricity.

Although he cannot “refute or confirm” Minnkota’s losses, he said the problem is genuine, although it varies in magnitude among different utilities around the state.

“We share the concern about the rate impact of the renewable energy standard,” Glahn said.

Otter Tail Power Co., based in Fergus Falls, ­hasn’t imposed a surcharge as a result of the renewable energy standard, said Todd Wahlund, a vice president who oversees renewable energy development.

One reason for the difference: as an investor-owned utility instead of a member-owned cooperative, Otter Tail benefits from certain tax credits offsetting its income taxes.

It owns 75 percent of the wind-generating facilities for its customers, including 60,700 in Minnesota and 57,000 in North Dakota. Eighteen percent of Otter Tail’s electricity is from renewable wind or hydropower.

“That has allowed us to add wind more economically,” Wahlund said.

Minnkota has been expanding its wind power to meet the renewable energy standard. Thirty percent of its electricity now comes from wind, Loer said.

Then the plan hit some turbulence when the economy fell into recession followed by an anemic recovery. As a result, the demand for electricity slumped.

Minnkota must sell its surplus wind power, which fluctuates significantly with weather conditions, on the wholesale market.

The economic slowdown, especially in the Midwest Rust Belt’s manufacturing sector, means the wholesale price of surplus power Minnkota sells now is less than half what it must pay the wind developer for the power, Loer said.

The best remedy to improve the viability of wind power is for the economy to rebound to boost demand, Loer and Handy say, although both agree the recovery will continue to be gradual.

The renewable energy standard allows “off ramps” to relax the mandate if costs rise significantly, but the mechanism isn’t well defined, Glahn said. Minnesota lawmakers could take up the issue, he added.

“We haven’t really defined those terms,” he said. “We’re really in uncharted territory.”


Readers can reach Forum reporter Patrick Springer at (701) 241-5522