Surpassing:After a Clash Over Costs and Carbon, a Minnesota Utility Wants to Step Back from Its Main Electricity Supplier

The Surpassinglargest electric cooperative utility in Minnesota announced Monday morning that it wants to end its membership with the power plant operator Great River Energy, a move that follows a clash over whether to sell, or close, a large coal-fired power plant in North Dakota.

Connexus Energy, which serves about 138,000 customers in the north suburbs of Minneapolis, stood out last month as the only one of 28 co-ops served by Great River to vote against Great River’s sale of Coal Creek Station. The sale was strongly supported by state and local officials in North Dakota to preserve jobs but opposed by environmental advocates in Minnesota who oppose extending the use of coal. Under the agreement, Great River’s members will continue to buy power from the plant for 10 years.

Now, Connexus says it wants to change its relationship with its longtime partner because of long-standing concerns about high electricity prices from Great River and a restrictive contract that limits Connexus’ ability to buy its own renewable energy. But this is not a divorce. Connexus wants to continue to be a customer of Great River, which would give it more flexibility than being a member.

The issues being raised by Connexus are indicative of an emerging clash among electric cooperatives, as some co-ops want to see a swift transition to clean energy, while many others are skeptical about the wisdom of a shift away from fossil fuels.

“We think that we can do better for our members,” said Greg Ridderbusch, president and CEO of Connexus, in an interview, referring to his desire to reduce electricity costs.

He downplayed the significance of the Coal Creek dispute in the decision. However, Connexus’ misgivings about that plan do touch on the utility’s larger concerns about costs and a restrictive contract.

After the vote on the coal plant, Connexus’ board said in a letter to customers that it opposed the sale because Great River was backsliding in its efforts to reduce emissions and because the sale of the plant was a worse deal financially than what Great River had previously estimated as the cost of closing the plant. Connexus had no power to stop the deal under Great River’s governance rules because enough other utilities had supported it.

Great River spokeswoman Therese LaCanne said her company is optimistic about resolving its differences with Connexus.

“We agree there are many ways to restructure the relationship between Great River Energy and Connexus Energy, and we look forward to hearing more about their ideas,” she said in an email. “We share Connexus Energy’s desire for a collaborative discussion. We are convinced we will find a solution that works for them and our other member cooperatives.”

Ridderbusch said Connexus’ main concern is that it has the highest wholesale electricity costs of any cooperative utility in Minnesota. The high costs are because of a combination of the way Great River designs its rates and the makeup of Connexus’ customer base, which is mostly households with few large commercial or industrial users, he said.

To help mitigate high costs from Great River, Connexus has worked to develop renewable energy projects, but under the contract with Great River, the utility can get no more than 5 percent of its electricity from its own purchases.

Asked about costs, LaCanne said that Great River uses the same rate formula for all 28 cooperative members and the calculation of rates is part of a contract that members agreed to.

Ridderbusch said his company would like to maintain a business relationship with Great River while also gaining the ability to buy a larger share of its electricity on the open market and develop its own clean energy projects. Connexus would continue to participate in all projects for which it is contractually obligated, including buying electricity from Coal Creek Station. Also, Connexus would no longer have seats on the Great River board.

Connexus has a power supply contract with Great River that lasts through 2045, and an electricity delivery contract that goes through 2050, so any changes would involve both sides agreeing to change those contracts.

‘There Have Got to Be Changes’

Tensions over the pace of the energy transition are increasingly common as some electric cooperatives, mainly in suburban areas, are seeking more control, often as part of a push to embrace the transition to clean energy.

One example is in Colorado and surrounding states, where Tri-State Generation and Transmission Association has seen two of its members—Kit Carson Electric Cooperative in New Mexico and Delta-Montrose Electric Association in Colorado—withdraw as members. Several other members are exploring leaving.

Companies like Tri-State and Great River were formed to provide electricity, mainly from large power plants, and to deliver it across long distances to rural electric cooperatives, said Dennis Wamsted, an analyst for the Institute for Energy Economics and Financial Analysis, a clean energy research group that has written about the Tri-State situation. But now, many of those plants cost too much to operate compared to less expensive options, like wind and solar, that can be built much closer to the customers.

“We’re not in the situation we were 20 years ago,” he said. “There have got to be changes.”

RMI, the clean energy research and advocacy group, also has written about the struggle of cooperatives to make a transition from old coal-fired power plants and the economic opportunities of developing renewable energy.

“There’s a business story there and there’s also a people story,” said Mark Dyson, principal in the carbon-free electricity practice at RMI.

The co-ops that want to leave their power providers are doing so because of concerns about costs and because of differences in how people view the urgency of climate change, he said.

At the same time, he noted that Great River has been a leader in buying renewable energy compared to other power plant owners that serve electric cooperatives.

For companies like Tri-State and Great River, the departure of members is a blow because it reduces the economies of scale in buying electricity, which can lead to higher prices for other members, Dyson said.

Ridderbusch said his company’s situation is not like Tri-State’s because Connexus is not proposing a complete separation from Great River.

“You’ve seen some really noisy things that have occurred in Colorado and elsewhere,” he said. “We’re trying not to do that.”

A Change of Plans

Great River said last year that it was going to close Coal Creek Station in 2022, following years of financial losses, because of high operating costs. 

Then, after intense pressure from leaders in North Dakota, Great River changed course and said in June that it had reached an agreement to sell the plant and the power line that delivers electricity from the plant to Rainbow Energy of North Dakota, an energy marketing company with no experience running power plants.

Rainbow said it had a plan to retrofit the plant using carbon capture technology, which it would seek to pay for with federal subsidies. As a condition of the sale, Great River said it would continue to buy most of the plant’s electricity for two years, and then buy a much smaller share of the plant’s electricity for eight years.

Great River urged its member utilities to support the sale. The company shared a new estimate of the costs of selling versus closing the plant that indicated the sale would lead to a net benefit of $131 million spread over 15 years. In that estimate, Great River reduced the projected savings of closing the plant, which the company said was because of changes in market conditions since the prior estimate was made.

This shift, to favor the sale and to say that closing the plant was a less favorable deal than before, raised red flags for Connexus’ board and for environmental advocates who wanted to see the plant close. Advocates in Minnesota have said this is a bad deal for the state’s consumers and the climate, especially the long-term contract to continue buying coal power.

The plant sale still needs to obtain Minnesota and federal regulatory approvals before it is final.

“We don’t have sour grapes at all,” Ridderbusch said, when asked about Coal Creek. “That’s not part of this story. This story is that we’re offering an arrangement that will lead to more cost savings and flexibility for our members.”