THE PRICE OF POWER
Lake Country Power chair objects to jet purchase
REGIONAL—At a time when electric rates are rising for Minnesota’s rural cooperatives, can Great River Energy afford the luxury of a new corporate jet?
Not according to Lake Country Power Board Chair Jack Huhta, who has been speaking out about GRE’s recent decision, and asking whether it’s indicative of a pattern of questionable decision-making by the rural power supplier.
“Is this just the tip of the iceberg?” he asked during an interview this week with the Timberjay.
At issue was GRE’s purchase last August of a nine-passenger Cessna XLS jet, for $11 million. Huhta, who had a long career as a professional pilot, argues that the purchase is an unnecessary extravagance at a time when GRE’s costs are rising and revenues are dropping. “Like the old saying goes, ‘when things get slow the airplane must go,’” wrote Huhta in a letter to GRE Board Chair Mike Thorson and CEO David Saggau shortly after the purchase of the jet.
Huhta doesn’t argue that GRE officials occasionally need to fly, but he said they could do so for far less by flying commercially. He notes that the same Cessna XLS can be chartered in the Twin Cities for about $1,850 an hour.
By contrast, Huhta said the annual operating expenses of GRE’s plane amount to about $4,000 an hour, but that jumps to nearly $5,700 an hour once depreciation is included. Those figures assume about 250 hours of operational time annually, which is consistent with GRE flight records.
“I don’t understand why they didn’t do a cost analysis,” said Huhta. “There’s no way you can justify that kind of expense when you’re only flying 250 hours a year. If they use this kind of judgment spending other peoples’ money, what else don’t we know about.”
Huhta notes that the majority of the flights are relatively short— mostly from the Twin Cities, where GRE is headquartered, to Bismarck, N.D., where the company maintains its power generating capacity. The company provides electricity from its North Dakota power plants to 28 rural electric cooperatives in Minnesota, including Lake Country Power, who collectively own GRE. The company’s $900 million annual operating budget is funded almost entirely by the member cooperatives through the purchase of electricity.
For Lake Country Power, the purchase of electricity from GRE consumes fully 55 percent of the cooperative’s annual budget. And electricity costs have been on the rise, notes Huhta, increasing at a rate of about four percent annually. He says that’s one reason the jet purchase sticks in his craw. “I don’t think people realize the cost,” he says.
GRE officials argue that the cost of the jet is small when viewed against the company’s overall operating expenses, contributing less than half a penny to the per kilowatt-hour cost of Lake Country Power’s electric rates. In a written response to Huhta, CEO Saggau and Board Chair Thorson note that the company has undertaken a number of steps to reduce operating costs, including implementing a hiring freeze, an early retirement plan, management salary freeze, and suspension of an incentives program for employees. At the same time, they say the company has made major investments in operational efficiency, which have collectively saved over $275 million.
GRE officials acknowledge that the jet is not justified solely for transporting company staff, but they say it is critical for emergency situations. “During this summer’s heat wave, for example, we lost Pleasant Valley Station at the height of peak demand. Our on-site technicians immediately called for the aircraft and had the failed inlet guide vane actuator transported to a facility in Milwaukee, Wis. for repair. This part was temporarily fixed, returned, and reinstalled within one day—much more quickly than would have been possible without the aircraft,” wrote Saggau and Thorson. GRE officials note that plant outages, particularly at peak times, can cost GRE hundreds of thousands of dollars a day in lost revenue and power purchases.
Huhta agrees that planes can be critical when time is short, but says GRE can accomplish the same thing with a chartered aircraft, for a lot less, and he says he wants to see more transparency in the decision-making process at the company.
GRE is operated by a 34-member board made up of representatives from its member cooperatives, but only one board member voted against the administration’s recommendation to purchase the jet. That lone dissenter was Sherman Liimatainen, one of two representatives of Lake Country Power who serve on the GRE board.
Liimatainen said he shared some of Huhta’s concerns, but was now focused on other matters.
leading to higher costs
When the GRE board of directors approved a four-percent rate hike in November, it was the seventh straight year of increases for member cooperatives. At the time, GRE chief financial officer Larry Schmid said the increase was needed to pay for an estimated $30 million in maintenance costs at the company’s two power-generating plants in North Dakota.
In fact, according to the Minneapolis Star-Tribune, the company has budgeted $30 million this year to make payments on bonds and hire workers to maintain a third, brand new coal-fired power plant, that the company mothballed after completing construction last year. The Spiritwood plant, located about 85 miles west of Fargo, was built at the encouragement of North Dakota officials who wanted a source of steam heat for a planned malt plant at the site and for an ethanol plant set for construction nearby.
Construction on the power plant began in 2007 just as costs for materials were spiking, resulting in higher than projected costs. When the economy flat-lined in 2008, plans for the malt and ethanol plants were shelved, and demand for the electricity that the plant was scheduled to produce dropped as well. Because it’s coal-fired, GRE can’t just operate the plant during peak periods, so company officials say its cheaper not to run it at all.
The $437 million plant sits idle today, leaving GRE’s member cooperatives to pay the cost of retiring the bonds and paying to maintain the plant in working order. GRE officials recently bought more land at the site and are now planning a joint venture to construct a corn ethanol plant at the site, which would help provide a customer for the plant’s steam. A second cellulosic ethanol plant is also in the works. Those developments could have the plant operational by later this year.