Your Board of Directors has spent a considerable amount of time in recent months discussing what the closure or sale of Coal Creek Station will mean to LREC members. Most of these discussions center around the most important thing we do which is providing safe, reliable, and affordable electricity.
Coal Creek Station Closure and Impact on LREC: As many of you know, Coal Creek Station will shut down in 2022 or will be sold to another party. Great River Energy (GRE) has assured us that its modern fleet of natural gas power plants in Minnesota will provide around-the-clock reliability when solar and wind energy are not at their peak. Based upon projections from GRE, the projected wholesale power costs LREC pays to GRE will go down slightly beginning in 2023 as a result of the Coal Creek Station closure. As we hear more from GRE, and as we get closer to 2022-2023, we will continue to generate more certainty regarding our decisions leading to the final plan to be put in place to ensure rate stability and service reliability. The closure or sale of Coal Creek Station will continue to reduce the carbon footprint related to our cooperative. Ten or so years ago, the GRE generation portfolio was over 80% coal. Once Coal Creek Station is shut down or sold, GRE’s portfolio will be 95% carbon free.
LREC Continues to Strengthen its Balance Sheet: If wholesale costs go down as a result of the Coal Creek Station closure, LREC will be in a great position to consider, among other things, whether the additional savings should be used to make the cooperative more profitable with better margins and higher equity to meet the Board’s goal of getting the cooperative’s equity to 45%. Regardless of the action taken, the cooperative remains in a great position to continue to strengthen its balance sheet. One example of the cooperative’s financial stability is reflected by the following: In 2020, LREC borrowed 49 cents for every $1.00 of LREC’s Total Utility Plant – compared to 2005, when LREC borrowed 56 cents for every $1.00 of LREC’s Total Utility Plant. That liability to asset ratio is projected to continue to improve this year. Moving forward, we will strive to continue to improve that ratio by retaining, and building upon, the financial strength of the cooperative.
Innovative Technology and Increased Reliability: LREC continues to be proactive with enhancing reliability which is shown by our investments in Exacter Technology and a new Distribution Grid Improvement Program (DGIP). To shed some light on how beneficial our investments in reliability have been, there were approximately 1,250 outages per year in 2003-2004 compared to approximately 850 outages in 2019-2020. This reduction in outages resulting from our investments in enhanced reliability systems has improved reliability for our members. It has also improved the safety for our employees who haven’t had to respond to as many outages. The cooperative continues to invest in Exacter Technology that locates equipment in our system that is in pre-fail condition. This allows our crews to change a component of our distribution grid system before it fails instead of waiting for an outage to occur. We will continue to prioritize utilizing new technology to achieve rate stability, affordability, and reliability.
Continued Rate Stability: LREC continues its analysis and efforts to sustain affordable rates for its members. I assure you that I will continue analyzing industry data and opportunities in an effort to keep our rates stable moving forward. As an aspirational goal, we are evaluating the possibility of a small retail rate reduction if GRE wholesale rates do actually decrease slightly.
As always, we at LREC will continue to strive to plan, strategize, and communicate the cooperative’s vision to its members. Stay tuned!