Operating in an uncertain political climate

Whole sale rates were the headliner in the presentation at the annual meeting in June by guest speaker, David Saggau, CEO of Great River Energy which supplies power to Arrowhead Electric. Although affordable rates are part of the “triple bottom line” that is important to member cooperatives, controlling rates has been a challenge.

In 2008, for instance, the growth in capacity that GRE and many others were seeing hit a wall, he said. Instead of wondering whether utilities were building fast enough, today utilities are working to spread costs over a flat load growth.

GRE attacked the problem aggressively, said Saggau. It began an austerity program in 2008 with a hiring freeze, a freeze at 2009 levels for management salaries, and reducing the operating budget by 10 percent and the capital plan by $700,000. In addition, employee suggestions created $12 million of savings in 2009.

As a result, the forecasted increase of 10.7 percent was held to 2-3 percent this year. But there are things in an uncertain legislative environment that could affect future rates, Saggau cautioned. Rates could be under pressure if the economy improves, if the weather is unusual, if there is unfavorable federal legislation on fly ash or carbon.

For instance, the Environmental Protection Agency is considering classifying fly ash as hazardous and regulate its use. Right now fly ash from Coal Creek is sold to the Portland cement market, turning a waste byproduct into a revenue stream. If it is reclassified, then it will become a $65 million cost to GRE as it has to be disposed of instead in special pits.

Another possibility is carbon legislation, commonly called Cap and Trade. GRE is reliant on coal base load power source; if a $10 possible fee per ton of carbon is imposed, that would result in a $130 million annual cost to GRE – and its owners, including Arrowhead Electric Cooperative.

GRE will control costs that are within its control, said Saggau, and for those outside of its control, it will keep the membership informed.

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