Remarks at the annual meeting by Brad Dolinski, CEO:
Thank you for coming to the annual meeting today. Thank you to the community of Northome for hosting us! Thanks to Shining Light Café for providing us a little treat after the meeting is done.
I want to recognize several people.
Our operations department, thank you for the safety presentation, I hope you all learned something about the system these fine gentlemen manage on our behalf. Also, thank you for your commitment to safety and maintaining the lines that keep our lights on. These guys lace their boots up everyday for all of us, no matter the weather or conditions they will face.
Our office professionals, thank you for your caring professionalism, hard work and commitment to the members we serve. This group works extremely hard every day on our behalf, they take on every task for the benefit of our cooperative. There is never a down time between month ends, year ends, yearly reporting,
audits… This small group is on their A game…always!
Our Board of Directors and Andrew, our attorney. Thank you for your service to the members and communities we serve. These directors are well informed, studied and prepared for the business at hand. Our directors spend hours training locally and nationally to oversee our investment. Thank you for your professionalism and commitment.
2022 was a challenging year for North Itasca Electric but through the hard work of all these employees and directors mentioned, it was a good year for the cooperative. Storms showed up early in the year. In the end of May we had two major events; it seemed these storms were very focused on the Jesse Lake area of our system. We sustained a substantial amount of damage to that one substation and the lines nearby.
Our operations department had to be creative to correct the issues in the short term. We had several temporary fixes on the system while we waited for parts to correct the issue. We reached out to our friends at Minnkota Power, and they were able to help us out with some equipment to get things close to normal.
Now we had to make some bigger decisions: our substation transformer was damaged in the storms. These transformers cost over a half million dollars today. We have been working with Minnesota Homeland Security and Emergency Management since the storms happened. We will be working with HSEM to provide funding for that event. The storm and damage was big enough to be declared by the Minnesota governor. Roughly 70% of that transformer will be paid for by HSEM. This is good news for all North Itasca Electric.
After the storms let up for the summer we got back to somewhat normal business. We did have higher expenses in 2022 due to the weather and outages sustained throughout the year. Overall, we had a good year in 2022.
The board made the decision to hold the PCA (power cost adjustment) rather than passing it on in 2022. There were times in the year I was very nervous about the PCA. The accounts were growing, and we were going to have to come to you with some potentially bad news. Thankfully, things turned around at Gret River Energy. We ended up with a credit in the PCA account at the end of 2022. Now we are using these dollars to offset future charges that can come from GRE on our power bill.
We ended the year with enough margins to meet all our lender’s requirements. In November I was faced with another bit of hard news; our budget wouldn’t meet these same standards in 2023. We had a roughly 6% increase in our GRE power costs coming into 2023. Additionally, costs of materials and business expenses have been increasing substantially over the past few years. I was forced to suggest a rate increase for the first time since 2018.
For many years we have enjoyed sustained flat rates or modest increases when necessary. My concerns are this is not guaranteed in the future. We have material costs and business expenses rising rapidly. Additionally, we have new rules and regulations that we must abide by.
In the 2023 Legislative Session 100% carbon free was signed into law. I am not turning this article into a political debate. I am not talking about anyone or a group of legislators. I only want to discuss what the changes are for North Itasca Electric and my concerns. I also want to be clear, there are supporters and non-supporters of this bill and I respect that.
What does the 100% carbon-free bill require?
• 60% carbon free by 2030 (cooperatives and municipals)
• 90% by 2035
• 100% by 2040
Increase in existing renewable energy standards: 55% of energy in Minnesota must be from renewable sources by 2035. Currently we are at 30% renewable, ahead of 20% by 2025. The goal post moved on the renewable standard.
There are several concerns voiced about the new standard. Reliability, affordability and local control are some of the concerns voiced.
Reliability concerns
We will have an increased reliance on variable resources. These are the resources that do not work when the wind isn’t blowing, or the sun is blocked by clouds or nighttime. Also, winter snow loads can hinder solar panel performance. Midcontinent Independent System Operator and North American Electric Reliability Corporation issued warnings in December of 2022 of energy shortfalls. MISO studies also show the grid becomes exponentially unreliable when the grid exceeds 40% renewable. On January 31st of 2023 at 5:55 a.m. the grid was supported by 69% coal and natural gas, 14% nuclear, 14% wind and 4% other (think hydro). Solar was 0%, it’s dark out at 5:55 a.m.
Affordability
This effort will be immense. WE must build new infrastructure to replace the coal and natural gas resources mentioned above. Also, we must overbuild these resources. What happens when the wind isn’t blowing in a region? You are not going to accept rolling blackouts. We will need enough power producing equipment to be geographically spread apart to provide for everyone’s needs 100% of the time. Additionally, resources that are still being used will be retired early, there is still depreciation owed on these plants. That depreciation does not go away, we still need to pay that to zero.
Many want to see us shift to more electrification. This would, in a perfect world, reduce pollution and reliance on fossil fuels. This increased demand on the grid will drive costs up when we must build new wind and solar resources. This is simply a supply and demand debate that is complicated when you’ve already heard that MISO expects energy shortages soon. Contracts for new resources have already been increasing in cost since the legislation was signed.
Local Control
You heard me thank our directors at the beginning of this speech. You elect your friends and neighbors to represent you and your interests at the cooperative – this business model has worked for the last 80 years. With the new legislation, we must go before the Public Utility Commission for any potential off ramps. The PUC is a 5-person commission appointed by the governor in St. Paul. Our Board of Directors have been making these decisions in our best interest for over 80 years. The potential off-ramps are limited to reliability and cost. Exactly the concerns we have with the new legislation.
Now I don’t want to be all doom and gloom. Great River Energy and Minnkota are some of the G&T’s of the state that will have to figure this out on our behalf. GRE recently filed their integrated resource plan on March 31st. This was the first plan to be filed after the 100% carbon free initiative was passed.
GRE’s portfolio of renewable resources combined with the ability to retire renewable energy credits (RECs) to satisfy the carbon-free standard puts GRE in strong position to achieve the standard. Great River Energy anticipates that by 2035 its retail electric sales will be provided by a 90% carbon-free power supply in alignment with the Minnesota carbon-free standard, and its power supply will be 90% decarbonized from 2005 levels.
Regardless of the hurdles faced now and into the future, I am confident we’ll be fine. We have over 80 years of history of overcoming some of the most daunting challenges.
Our employees, Board of Directors, and myself are here to serve you, the communities that built us all those years ago. We will stand together with you and our fellow cooperatives to overcome and be the beacon of light we were created to be.
