Wind power surplus blamed for spike in rural electricity costs

The cost of electricity is up sharply for many rural Minnesota customers, partly because many utilities are losing money on electricity generated from wind.

Minnesota's renewable energy standard says utilities have to get 25 percent of their power from renewable sources by 2025.

Grand Forks-based Minnkota Power is ahead of the game; the utility now gets 35 percent of it's electricity from wind. Minnkota sells power to rural electric cooperatives across northwestern Minnesota and eastern North Dakota

But wind power is unpredictable. A lot of electricity is generated when the wind blows and on windy days the utility often has more electricity than it can use. That electricity must be sold on the open market.

Minnkota President and CEO Dave Loer said with a soft economy, there are few buyers. The company is buying energy at an average price of $.045 from wind developers and selling to the surplus energy market at about $.02, Loer said.

"That translates for us into about a $20 million loss," Loer said.

That loss was covered by a surcharge added to electric bills. The surcharge will be collected through 2011. Minnkota is considering a rate increase of as much as 17 percent early next year.

That increase is partly related to wind energy costs and partly to pay for $400 million the company spent to cut air pollution on it's coal fired power plant in western North Dakota.

Dan Hoskins manages North Star Electric Cooperative in Baudettem and said customers' electric bills are up about 30 percent in the past eight years, and they could go up nearly 10 percent next year.

The co-op buys electricity from Minnkota Power.

"They're getting to the critical point where I wonder how folks are going to keep paying this," Hoskins said. "This is just unreal. And I can't really blame Minnkota because they did what they were told and now they're losing millions and my customers are paying for it."

The rising electric rates come at a very bad time for many customers, Hoskins said. For example, he said resorts on Lake of the Woods are facing a drop in business because of the economic slowdown and rising electric costs add to their financial struggle.

Joel Johnson, government relations representative for the Minnesota Rural Electric Cooperatives Association, said rising electric rates have a greater impact on rural electric co-ops than on utilities serving large urban areas.

"These rates are causing a great deal of consternation," Johnson said. "And they're looking for ways to soften them. You know we have so many fewer customers per mile of line, so we have far fewer meters to spread these costs across."

Johnson said many rural electric co-ops have as few as two customers for each mile of power line. In urban areas there might be anywhere from 60 to 300 customers per mile.

Johnson said utilities that did the right thing by buying wind power now find themselves stuck with too much electricity.

Despite the mounting losses from wind power, Loer said he's not second guessing the 25 year contracts Minnkota signed to buy electricity from wind turbines.

"We feel what we did was the right thing to do," Loer said. "We're just having some short-term pain for some long-term gain."

Minnkota anticipates electric rate increases will continue into at least 2012.