Rates cost Great River big customer: Elk River

Great River Energy, the state's second-largest electric supplier whose rising wholesale rates have come under fire, is losing a large customer that decided it could purchase cleaner, cheaper electricity elsewhere.

Elk River Municipal Utilities, which for decades has relied on Great River Energy to generate electricity for its customers, said it has signed a deal to obtain future power from the Minnesota Municipal Power Agency (MMPA) owned by 11 municipal power companies.

Troy Adams, general manager of the Elk River utility, said Great River's rising wholesale rates — up 58 percent since 2006 — are the main reason for making the switch, which takes effect in 2018.

"The No. 1 driving reason is we want to remain competitive, and wholesale power rates are 75 percent of our costs," Adams said in an interview.

It is the latest sign of discontent among customers of the Maple Grove-based wholesale power cooperative, which is owned by 28 local co-ops that serve 645,000 homes and businesses across the state. Two ethanol producers recently complained to state regulators that Great River has invested in questionable projects, including a new coal-fired power plant, that drove up rates.

Great River Energy has denied that its wholesale rates are out of line with other utilities in the region, and last week, its CEO, David Saggau, said at the co-op's annual meeting that he expects no rate hike in 2014. Unlike investor-owned utilities, whose rates are set by state regulators, most co-ops can legally set rates on their own.

Elk River Municipal Utilities, which has nearly 10,000 customers, purchases about 2 percent of the power Great River generates at times of peak demand in the summer.

Such power plants, which are major greenhouse gas sources, could soon face new regulations from the U.S. Environmental Protection Agency to address climate change.

"We were worried about potential rate increases because of all of this coal infrastructure," Adams said. "MMPA is in a much better position."

The smaller MMPA owns no coal power plants, and its sole contract for coal-generated electricity will soon end because the producer plans to retire its coal units. MMPA, which is managed by Avant Energy of Minneapolis, relies mostly on two natural gas-fired power plants and a wind farm. A small generator fueled by food waste will open this year in Le Sueur, Minn., and more wind power is planned, said Oncu Er, vice president of planning for Avant Energy.

"We have expectations of things happening in the carbon and emissions world that don't look good for a coal resource — we do as much as we can to stay away from it," he said.

Beth Goodpaster, an attorney for the Minnesota Center for Environmental Advocacy, a St. Paul nonprofit that has questioned Great River's reliance on coal, said the Elk River utility is "accurately assessing the risks that lie ahead, and they are taking steps to protect their customers."

"We are not facing major investments to keep that coal fleet running," he added. "As a result we expect it to be very competitive in the market even if carbon prices become part of the market."

The co-op also owns natural gas generators, including two of its newer units, Brekke said. Natural gas prices have remained low over the past two years because the fracking boom has unlocked significant new sources of natural gas.

"Will natural gas prices stay as low as they have been is an open question," Brekke said.

One other advantage of the switch from Great River to MMPA is that the Elk River utility gets a seat on the municipal agency's board. Elk River didn't have a vote at Great River, whose board seats are reserved for its co-op members. Instead, Elk River had a long-term contract to purchase power, through Connexus, one of the Great River local co-ops.

David Shaffer • 612-673-7090