G R E A T R I V E R E N E R G Y ANNUAL REPORT

Transcription

1 G R E A T R I V E R E N E R G Y ANNUAL REPORT

2 LETTER TO STAKEHOLDERS across Minnesota, and it is available 24 hours a day, 365 days a year. Every year, Great River Energy produces electricity more efficiently and with a smaller environmental impact. Through it all, electricity has remained an outstanding value for homeowners and business owners across our service territory. David Saggau Great River Energy President and CEO On behalf of our employees, board of directors and 28 member cooperatives, we invite you to review our 2012 annual report. We hope you will take the time to learn about the events that contributed to an overwhelmingly successful year as well as the strategic decisions we made that will benefit our members in the future. In recent years, we have worked closely with our employees Michael Thorson Great River Energy Board Chair and member cooperatives to take bold actions that have led to positive financial results, improved operations and moderated wholesale rate increases. At Great River Energy, we sell a valuable product, one that is essential to our wellbeing. Electricity is a dependable and affordable energy source for homes, farms and businesses Over the last seven years, Great River Energy has invested about $300 million to reduce emissions and increase electricity production at our power plants in Minnesota and North Dakota. From 2006 through 2012, Great River Energy increased electricity production by 4 percent, culminating with an all-time record of million megawatt hours generated in At the same time, we significantly increased our purchases of renewable energy, including wind and hydropower. As a result of these purchases and power plant investments, Great River Energy has significantly reduced the intensity of our emissions. Electric utilities have faced significant challenges in recent years. When the economic downturn began affecting our membership in 2008, we adopted a different mindset which has left us in a very competitive position. We have reduced spending, but only in areas that will not jeopardize our future 2

3 ER ENERGY success. Our 2013 operations and maintenance spending is budgeted to be less than it was in 2007, which was made possible through efficient practices and focusing on investments that improve reliability. By working hard to contain costs and improve efficiency, Great River Energy yielded impressive financial returns in Our margin, or net income, exceeded expectations and we refunded more than $5 million to our member cooperatives through a power cost adjustment. We empowered our employees to analyze their work and seek out better, more efficient solutions. In 2012 alone, Great River Energy employees recorded savings of more than $8.3 million. We have made many changes and will continue to seek new opportunities, but the pillars on which Great River Energy was built will remain. We have always made sure our employees are well trained and safe. Our employees are responsible for building and maintaining the backbone of Great River Energy: our generation and transmission system. We must serve our members with generation and transmission infrastructure that is properly sized, flexible, reliable, well maintained and, most importantly, safe. In addition, we are finding ways to derive even more value from those resources. Employees are leveraging existing resources in innovative ways to realize new sources of revenue. These improvements boost efficiency and combat the upward pressure on rates due to reduced load growth. We are also finding new and cost-effective Every year, Great River Energy PRODUCES ELECTRICITY more efficiently and with a smaller ENVIRONMENTAL IMPACT. ways to deliver electricity in environmentally responsible ways. The past year also demonstrated the value of our long-standing commitment to reliability. Our transmission network operated reliably during recordsetting hot weather that increased demand for electricity. Our peaking generation facilities delivered additional power that met demand in the region while providing revenue for Great River Energy and our members. We continue to take a leadership role in the CapX2020 regional transmission projects, which are providing a needed upgrade to the transmission network in Minnesota and neighboring states. We have also recommitted to our focus on reinvesting in the communities we serve. A company-wide buy local campaign ensures that much of our members investment in their electric cooperative is returned to them through commercial activity throughout Minnesota and North Dakota. Furthermore, we are working with our member cooperatives to attract good jobs, businesses and electric load to the rural and suburban communities we serve. After all, successful cooperatives are the result of healthy local economies. Expertly trained employees operating world-class facilities with the support of a forward-thinking board of directors. That has long been the hallmark of Great River Energy. However, we have never been content with the status quo. Our corporate culture fosters collaboration, values innovation and plans ahead for decades. As our industry evolves, we remain confident in the decisions we have made and our plans to meet the challenges before us. We are already benefiting from implementing our recent strategies, and we expect that success to continue. 3

4 ABOUT GREAT RIVER ENERGY Great River Energy is a not-for-profit cooperative which provides wholesale electric service to 28 distribution cooperatives in Minnesota and Wisconsin. Those member cooperatives distribute electricity to approximately 655,000 member ACCOUNTS or about 1. 7 million people. With $3. 7 billion in assets, Great River Energy is the second largest electric OUR MEMBER COOPERATIVES power supplier in Minnesota and one of the largest generation and transmission cooperatives in the United States. Great River Energy s member cooperatives Great River Energy 2012 Financial Highlights Systemwide Load Characteristics* Number of member accounts ,000 Revenue $921.2 million Residential % Total assets $3.7 billion Seasonal % Utility plant investment (net) $2.7 billion Commercial, industrial and other % Long-term obligations, including current maturities $2.8 billion *Based on energy sales Sales to members ,749,814 megawatt hours range from those in the outer- Total distribution line.. 87,500 miles ring suburbs of the Twin Cities to Average density. 7.5 consumers/mile the Arrowhead region of Minnesota Distribution substations to the farmland of southwestern Combined annual revenue $1.25 billion Minnesota. Great River Energy s largest distribution cooperative serves more than 125,000 memberconsumers; the smallest serves about 2,500. Learn more at greatriverenergy.com. 4 Member Cooperative Summary Electric plant in service (net) $1.8 billion Average kilowatt hours per account ,200/year Distribution employees ,600 5

5 Member Cooperative Summary Number of member accounts...650,000 Sales to members...11,749,814 megawatt hours Total distribution line..87,500 miles Average density 7.5 consumers/mile Distribution substations Combined annual revenue... $1.25 billion Electric plant in service (net)... $1.8 billion Average kilowatt hours per account... 18,200/year Distribution employees... 1,600 Great River Energy 2012 Financial Highlights Revenue... Total assets... Utility plant investment (net)... $921.2 million $3.7 billion $2.7 billion Long-term obligations, including current maturities... $2.8 billion Systemwide Load Characteristics* Residential % Seasonal % Commercial, industrial and other % *Based on energy sales 5

6 GREAT RIV G E N E R A T I O N O U R R E S O U R C E S TO SUPPLY RELIABLE POWER ACROSS MINNESOTA AND PARTS OF WISCONSIN, GREAT RIVER ENERGY OWNS AND OPERATES POWER GENERATION FACILITIES OF ALL SORTS, TRANSMISSION LINES OF SEVERAL STRENGTHS AND SIZES, AND A VARIETY OF OTHER RESOURCES. EACH PLAYS AN IMPORTANT ROLE IN POWERING COOPERATIVE COMMUNITIES. 1 4 Coal Creek Station Location: Underwood, N.D. Generating capability: 1,140 MW Start of operation: Unit 1, 1979; Unit 2, 1980 Fuel: Lignite coal and DryFine TM 2 Stanton Station Location: Stanton, N.D. Generating capability: 188 MW Start of operation: Unit 1, 1966; Unit 10, 1982 Fuel: Powder River Basin coal Elk River Energy Recovery Station Location: Elk River, Minnesota Generating capability: 24 MW Start of operation: Units 1 & 2, 1951; Unit 3, 1959 Fuel: Refuse-derived fuel Spiritwood Station Location: Jamestown, N.D. Generating capability: 99 MW Start of operation: TBD Fuel: DryFine 7 Lakefield Junction Station Location: Martin County, Minnesota Generating capability: 509 MW (summer) Start of operation: 2001 Fuel: Natural gas; backup, fuel oil T R A N S M I S S I O N T R A N S M I S S I O N A S S E T S Total transmission line 4,625 miles (mi) Total transmission 109 substations (owned or partially owned by Great River Energy) ±400 kilovolt (kv) DC 436 mi 500 kv 70 mi 345 kv 75 mi 6

7 5 6 Elk River Peaking Station Location: Elk River, Minnesota Generating capability: 185 MW (summer) Start of operation: 2009 Fuel: Natural gas; backup, fuel oil Cambridge Station Location: Cambridge, Minnesota Generating capability: 177 MW (summer) Start of operation: 2007 Fuel: Fuel oil (Unit 1), and natural gas (Unit 2) St. Bonifacius Station Location: St. Bonifacius, Minnesota Generating capability: 60 MW (summer) Fuel: Fuel oil Rock Lake Station Location: Pine City, Minnesota Generating capability: 21 MW (summer) Fuel: Fuel oil Maple Lake Station Location: Maple Lake, Minnesota Generating capability: 20 MW (summer) Fuel: Fuel oil Arrowhead Emergency Generation Station Location: Cook County, Minnesota Generating capability: 18 MW Fuel: Fuel oil Trimont Wind Purchase: 100 MW (nameplate) Turbine: 67 General Electric 1.5-MW wind turbines Elm Creek Wind Purchase: 99 MW (nameplate) Turbine: 66 General Electric 1.5-MW wind turbines Prairie Star Wind Purchase: 101 MW (nameplate) Turbine: 61 Vestas 1.65-MW wind turbines Ashtabula II Wind Purchase: 51 MW (nameplate) Turbine: 34 General Electric 1.5-MW wind turbines Endeavor I Wind Purchase: 100 MW (nameplate) Turbine: 40 Clipper 2.5-MW wind turbines OTHER ASSETS Blue Flint Ethanol Blue Flint Ethanol is a 65-million-gallon-per-year dry mill ethanol biorefinery that uses process steam from the nearby Coal Creek Station power plant. 8 Pleasant Valley Station Location: Mower County, Minnesota Generating capability: 415 MW (summer) Start of operation: Units 11 & 12, 2001; Unit 13, 2002 Fuel: Natural gas; backup, fuel oil Elk River Resource Processing Plant Municipal solid waste is processed to create refusederived fuel (RDF) for powering Great River Energy s Elk River Energy Recovery Station. Up to 400,000 tons of waste is transformed into RDF each year. Other wind energy purchases: 17 MW (nameplate) from four Minnesota wind farms. Location: Jackson, Dodge and Murray counties. Generating capability based on Summer Net Dependable Capacity per NERC Generating Availability Data System for the planning year. 230 kv 523 mi 161 kv 46 mi 115 kv 451 mi 69 kv or less 3,024 mi 7

8 E N E R AT I P o w e r i n g G R E A T E R M I N N E S O T A As the wholesale power provider to 28 distribution cooperatives, Great River Energy s generation resources must be reliable enough to provide energy around the clock yet possess the flexibility to meet fluctuations in demand. Great River Energy had a successful year on both fronts as the cooperative s generation resources produced million megawatt hours, an all-time record amount of energy. Hot and humid temperatures throughout the region combined with low natural gas prices spurred the Midwest Independent Transmission System Operator (the region s electric grid operator) to call Great River Energy s peaking power plants into service often during the summer of Peaking plants operate during periods of heightened demand for electricity, often during hot summer days. Great River Energy set records for peaking generation in June, July and August. July also marked a onemonth energy production record for Great River Energy s peaking plants. Great River Energy s baseload power plants, which run almost without interruption, also performed consistently well. Great River Energy s largest power plant, Coal Creek Station, had its best year in terms of energy generation in Coal Creek Station s annual generation amounted to 9.23 million net megawatt hours, eclipsing the previous annual record of 9.14 million net megawatt hours set in 2006 (another year without a major planned outage). What makes Coal Creek Station s record particularly impressive is that, compared to 2006, emissions were dramatically lower, due to the DryFining TM system placed in service in Because the DryFining process substantially reduces emissions, the coal refined in that process is eligible for the refined coal production tax credit contained in Section 45 of the Internal Revenue Code. Great River Energy s transaction to lease the DryFining system resulted in a net benefit of $10.1 million for Keeping watch of waste Stanton Station had an excellent year for fly ash sales in 2012, selling almost 28,000 tons of the fine ash produced during coalfueled power generation. That sum far exceeded the projected budget, and marked the first year in which all marketable fly ash was sold and almost zero ash was landfilled from Stanton Station. Much of the ash was used in the oilfields in western North Dakota to reclaim oil well pits. Great River Energy s Elk River Resource Processing Plant, a facility that processes municipal solid waste to produce a burnable fuel for 8

9 O N electricity generation by Great River Energy, made several operational changes to reduce the amount of waste that ends up in a landfill. Before Great River Energy purchased the facility in 2010, the plant landfilled approximately 12 percent of incoming municipal solid waste. Today, less than 0.5 percent of incoming municipal solid waste ends up in a landfill. Improving practices leads to savings Great River Energy not only trains its employees to excel at their given roles, the company also empowers its staff to pursue better practices to improve efficiency. This challenge is one aspect of a company-wide business improvement program that encourages employees to discover more cost-effective ways to work. In 2012 alone, Great River Energy employees recorded savings of more than $8.3 million. Since the program s inception in 2002, it has amassed cumulative savings of $83.3 million. Pleasant Valley Station Operator/Technician Craig Birkett monitors equipment at the southern Minnesota peaking plant. 9

10 watch over all aspects of the plant operations to ensure consistent operations day after day. For example, one team is dedicated to monitoring boiler water for purity and cooling water for contaminants. Another group regularly tests fuel for caloric content (Btus), moisture and emissions. Great River Energy takes full ownership of biorefinery Technicians keep constant watch OVER all aspects of power plant OPERATIONS TO ensure consistent operations DAY after DAY. Chemical Analysis Technician Robin Hultberg tests coal for caloric content (Btus), moisture and emissions at the Coal Creek Station lab. Keeping in tune Coal goes into a power plant; water circulates through a power plant; electricity comes out. While that s true, it s not quite that simple. In order for a coal-fueled power plant to operate effectively without interruption, those two ingredients must meet exacting standards. For example, Coal Creek Station lab technicians closely monitor plant inputs and outputs to ensure consistency and identify discrepancies before they become problems. A rotation of highly trained chemical analysis technicians keeps constant Great River Energy became the full owner of Blue Flint Ethanol LLC after purchasing 51 percent of Blue Flint Ethanol from HES Ethanol Holdings, LLC, a subsidiary of Headwaters Incorporated. The transaction closed January 1, Great River Energy also purchased Headwaters 20 percent interest in the neighboring Coal Creek Drying and Storage. Blue Flint Ethanol operates as a wholly owned independent subsidiary of Great River Energy. The biorefinery is unique in that it purchases process steam from the adjacent Coal Creek Station power plant, creating a highly energy efficient operation. 10

11 Corn storage expands Coal Creek Drying and Storage added another 550,000 bushels of storage capacity to accommodate the corn storage and drying needs of Blue Flint Ethanol and the local farming community. With the additional capacity, the facility will have a total of million bushels of corn storage along with the ability to dry 4,000 bushels of corn per hour. Great River Energy owns 40 percent of Coal Creek Drying and Storage. The remaining 60 percent is owned by Knorr DS, LLC. Award recognizes commitment to research A team of Great River Energy employees was recognized for its work in applying emission reductions research results from the Electric Power Research Institute (EPRI) in innovative ways that benefited Great River Energy and the industry. Employees from several areas of the company were selected to receive the EPRI Generation Technology Transfer Award, given annually to EPRI members who have led technology transfer efforts. IMPROVING ENVIRONMENTAL PERFORMANCE Since 2006, Great River Energy has increased its energy output by 588,000 megawatt hours, or 4 percent. During that same time, Great River Energy increased its purchase of renewable energy and reduced emissions at its power plants. As a result, sulfur dioxide emissions are down by approximately 50 percent; nitrogen oxides, 40 percent, and carbon dioxide, 20 percent. These measurements are based on pounds of emissions per megawatt hour of energy produced and purchased. Great River Energy s power supply portfolio consists of a diverse mix of energy sources. 11

12 S RANSMISS LINKING CO-OPS AND COMMUNITIES Behind all the light sockets and electrical outlets in every home, farm or business is a network of transmission lines and power generation resources that have been carefully crafted over decades to deliver precisely the right amount of electricity at the moment it is needed. That complex system is monitored every second of the day to ensure that cooperative members have dependable power when they need it. High voltage transmission lines owned and operated by Great River Energy are able to move bulk electricity enough to power towns, neighborhoods and factories over hundreds of miles to supply ample power for distribution cooperatives across Minnesota and parts of Wisconsin. The network gives cooperative members access to reliable, affordable electricity. Great River Energy transmission lines and substations performed admirably during periods of increased power consumption in On July 2, the Great River Energy transmission system transmitted more electricity than at any time in its history when more than 2,700 megawatts (MW) of power was passing through its lines. The previous high was approximately 2,560 MW in July Despite the historic power consumption, Great River Energy s transmission system performed as expected with reliable service during periods of increased demand for power. Regional grid expansion a reality What started as a hallway conversation about the need for regional transmission more than nine years ago has evolved into a massive construction effort. A long-awaited transmission build-out in Minnesota is making significant progress as foundations are poured, poles are assembled and wires are strung as part of a comprehensive plan to assure grid reliability. Following years of planning, public meetings and permitting, the series of projects known collectively as CapX2020 is in its peak construction year, creating nearly 8,000 jobs and boosting economic activities in the local communities served by Great River Energy s members. The CapX2020 projects are a joint effort of 11 investor-owned, cooperative and municipal utilities. Great River Energy has taken a leadership role in the overall effort and is managing the construction of the Brookings Project, a 345-kilovolt, 240-mile transmission line spanning from Brookings County, South Dakota, to Hampton, Minnesota, with nine new or expanded substations. The Brookings County-Hampton project is 12

13 ION budgeted at $730 million and Great River Energy is one of five utilities investing in the project. Great River Energy s investment helps mitigate the cost of new transmission additions and reduces rates for customers. It is the largest project undertaken by Great River Energy since the construction of Coal Creek Station and the high voltage direct current system in the late 1970s. Brookings County-Hampton construction began in May and is making significant progress. Great River Energy serves as the project manager, which includes land acquisition, materials procurement, engineering, construction management, budgeting and scheduling. When energized, the project will improve reliability throughout southwest and west central Minnesota and the Twin Cities. It will also enable access to new generation resources, including renewable energy, in the area. Budgeted at $730 million, the Brookings County- Hampton CapX2020 transmission line is the largest project undertaken by Great River Energy since the late 1970s. There are currently four CapX2020 projects that are either under construction or have recently been placed in service around the region. In September, a 68-mile, 230-kilovolt line spanning from Bemidji, Minnesota, to Grand Rapids, Minnesota, was energized. Supply Management Services Leader Paula Mastel (left) and Senior Regional Engineering Project Manager Devang Joshi are among the numerous Great River Energy employees who have played integral roles in the planning and development of the CapX2020 Brookings County-Hampton line. 13

14 Great River Energy builds and maintains transmission lines and substations throughout its service territory in order to maintain reliable electricity in rural and suburban communities. Pictured here, Great River Energy works on upgrading the Cook Substation to boost reliability in northern Minnesota. On July 2, a record OF MORE THAN 2,700 megawatts of power was PASSING THROUGH GREAT River ENERGY s transmission lines. Construction is underway on a 345-kilovolt line between Fargo, North Dakota, and Monticello, Minnesota. The St. Cloud, Minnesota-to-Monticello portion of that project was energized in late That project reached another milestone on September 12, when the North Dakota Public Service Commission approved the route permit for the North Dakota segment. Regulatory permits have been approved for a project that will connect Hampton, Minnesota, Rochester, Minnesota, and La Crosse, Wisconsin. Construction began in January Serving members transmission needs Many factors contribute toward a reliable transmission system. Among the most important are continuous monitoring and regular maintenance practices. Equally important is identifying when additional lines are needed or if existing infrastructure is no longer sufficient. As energy consumption patterns change, technologies advance or communities evolve, transmission systems have to keep pace. For example, as northern Minnesota customers increased their use of electricity for winter heating, the transmission network had to grow to meet the demand. In 2012, Great River Energy placed in service the final segments of a 46-mile, 69-kilovolt transmission line between Tower, Minnesota, and Orr, Minnesota. Great River Energy also upgraded a substation near Cook, Minnesota, which will further fortify the area s transmission network. The project will provide voltage support and improve power quality and reliability to meet members needs around Lake Vermilion and the cities of Tower, Cook and Orr. 14

15 Leading smart grid development It is possible to further the knowledge of an industry by simply getting the right people at the same table. On May 1, Great River Energy was the hub of the smart grid universe as the U.S. Department of Energy hosted a roundtable discussion on the subject at the cooperative s headquarters in Maple Grove, Minnesota. Department of Energy Assistant Secretary for Energy Delivery and Electric Reliability Patricia Hoffman led the discussion, which addressed the opportunities and barriers to thoughtful development of smart grid technology. The roundtable, which was webcast live online, included state electric regulators, cooperative members and employees, and educators and researchers from the University of Minnesota. Great River Energy Member Services and Demand Side Management Director Gary Connett (back, second from left) and Department of Energy Assistant Secretary for Energy Delivery and Electric Reliability Patricia Hoffman (back, third from left) led the smart grid roundtable at Great River Energy s headquarters on May 1. demonstration project includes meter data management software that can help manage information provided by smart meters. The project also includes the installation of in-home displays to signal to homeowners when electricity prices rise, enhanced demand response management tools and demonstrations of energy storage devices such as batteries and grid-interactive water heaters. The chart below shows the average monthly outage time per substation in Portions in gray represent outage time specifically related to weather. New records were set for the months of September and December. Although June and July were above the 14-year average, Great River Energy s transmission system was still available percent of June and percent of July. The event was held as part of the announcement of a grant for a smart grid demonstration project Great River Energy is conducting with member cooperatives Minnesota Valley Electric Cooperative, Jordan, Minnesota, and Lake Region Electric Cooperative, Pelican Rapids, Minnesota. The $5 million 15

16 E BE A HIGHER STANDARD OF SERVICE Great River Energy serves its membership in ways that extend far beyond providing wholesale power. As a collective of 28 cooperatives, the company offers a portfolio of services and expertise that provides efficiencies and mutual benefits for its members. Great River Energy supports its member cooperatives in a wide variety of ways. The company provides pathways to comply with regulations, advocacy on energy issues and expertise on economic development, just to name a few. A good example of these services can be found in the work of Great River Energy s resource planning department. This group is responsible for analyzing the cooperative s existing portfolio, monitoring its position in the energy market and conducting research to help with resource decisions for the decades ahead. In 2012, Great River Energy filed its Integrated Resource Plan with the state of Minnesota. The required filing details demand and supply-side resources and outlines an environmental update and expected load forecast. The Integrated Resource Plan also details Great River Energy s preferred plan to meet future electric demand and comply with regulatory and legislative requirements.as detailed in the plan, Great River Energy s existing portfolio of generation resources is expected to meet the needs of its members for the foreseeable future. No new generation resources are expected to be needed for the decade ahead. Great River Energy also reported that it will need to add additional renewable generation beginning in 2024 to meet the Minnesota Renewable Energy Standard requirements. Promoting healthy economies Great River Energy and its member cooperatives know that successful cooperatives are the product of thriving communities, so they have stepped up efforts to attract economic activity to areas served by cooperatives. Through its Energy Efficient Equipment Fund, Great River Energy offers low-interest loans to help businesses cover the costs of acquisition and installation of state-of-the-art technology. The portfolio of loans doubled in 2011 and Great River Energy is also working with the United States Department of Agriculture to help rural startup businesses gain access to capital. The company remains closely involved with regional economic development organizations dedicated to attracting business to rural Minnesota. 16

17 R S In July, Great River Energy and its members launched an online economic development tool to help expand business activity in the state. The online resource is designed to help prospective businesses evaluate new locations for facilities and help existing businesses expand in the region. Each cooperative-specific site includes information, such as financing tools, local demographics, education and training services, as well as employee and workforce information. Buying local to support the community A company the size of Great River Energy has the opportunity to positively impact the communities in which it operates, as well as the communities its members serve. Throughout 2012, Great River Energy has made a concerted effort to seek local companies in Minnesota and North Dakota to supply products and services. Acknowledging those suppliers has led to new and strengthened relationships throughout the Minnesota and North Dakota business communities, as well as increased visibility of how Great River Energy works with local businesses and reinvests in the communities it serves. Great River Energy s resource planning department analyzes the cooperative s portfolio of resources and monitors its position in the energy market to ensure Great River Energy meets member needs and remains competitive. Pictured here are (clockwise from top left): Resource Planning Analyst Tammie Carino, Sr. Forecaster Nathan Grahl, Resource Planning Manager Laureen Ross McCalib, Sr. Resource Strategist Stan Selander, Compliance and Policy Analyst Brian Glover and Renewable Energy Project Lead Mark Rathbun. 17

18 Great River Energy Power Marketing and Compliance Leader Sam Kokkinen (left) works with Adam Klick (center) and PJ Martin from ACES Power Marketing to ensure Great River Energy s resources provide value for Minnesota s cooperatives. Teaming up for conservation requirements Beginning in 2010, the state of Minnesota set ambitious energy conservation goals for all energy companies. The American Council for an Energy Efficient Economy has recognized it as one of the most aggressive energy savings targets in the country. Great River Energy has led collaborative efforts among its member cooperatives to establish programs that help to reach the goal, and they have collectively met the goal each year the rule has been in effect. The state statute requires every electric and gas utility to achieve energy savings equivalent to 1.5 percent of their annual retail energy sales. Employees from GREAT River ENERGY s member COOPERATIVES regularly GATHER TO address challenges and share best practices. LOAD MANAGEMENT Great River Energy has spent decades building an industry-leading load management portfolio. The cooperative can avoid purchasing high-cost energy in the wholesale market by interrupting service to the following devices located throughout its service area: LOAD TYPE CONTROLLABLE LOADS SPACE HEATING 81,822 WATER HEATING 106,993 AIR CONDITIONING AND HEAT PUMPS 144,514 GROUND-SOURCE HEAT PUMPS 1,921 IRRIGATION 3,271 CURTAILABLE COMMERCIAL AND INDUSTRIAL 1,363 Maximum load management summer control capability 360 MW Maximum load management winter control capability 340 MW 18

19 Restoring a cultural landmark Although record floodwaters along the Missouri River in central North Dakota receded in 2011, the recovery continued throughout While homes and businesses were the top priority for restoration efforts, many public spaces remained in need of repair. A group of Great River Energy employees teamed up to restore a historic site and park that is a favorite spot for both locals and visitors near Washburn, North Dakota. Nearly 40 employees started working on the grounds of Fort Mandan shortly after sunrise on August 2. When they left that afternoon, the grounds had been mowed, fallen trees cleared, sandbags removed and areas affected by the natural disaster returned to their pre-flood condition. All cooperatives are guided by the Seven Cooperative Principles. Among those is a promise to work for the sustainable development of communities. Great River Energy embodies this principle through volunteerism, sponsorships and contributions, among other efforts. A teacher learns about renewable energy at Energy Education in the Classroom. Teachers take a lesson in energy education Teaching teachers how to teach their students about energy; that was the goal of Energy Education in the Classroom, a graduate-level teacher course hosted by Great River Energy in August. The course is offered by the University of Wisconsin-Stevens Point with curriculum developed by the Wisconsin K-12 Energy Education Program. Great River Energy provides scholarships to teachers in its members service areas to attend the course, and speakers from around the company add to the experience by sharing real-world information about energy topics. It was the fourth year Great River Energy hosted the program. Collaboration among cooperatives Great River Energy regularly offers training and collaboration opportunities with and among its member cooperatives. Inspired by the democratic governance of cooperatives, groups of staff members from Great River Energy and its member cooperatives representing a variety of disciplines, ranging from engineering to human resources, regularly gather to address challenges and share best practices. Known as the Member Manager Group, the CEOs of Great River Energy s member cooperatives regularly meet to exchange ideas with Great River Energy and one another. 19

20 CONTENTS 22 FINANCIAL HIGHLIGHTS 22 FINANCIAL DISCUSSION AND ANALYSIS 26 MANAGEMENT REPORT 27 INDEPENDENT AUDITORS REPORT 28 CONSOLIDATED BALANCE SHEETS 30 CONSOLIDATED STATEMENTS OF OPERATIONS 31 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 31 CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL 32 CONSOLIDATED STATEMENTS OF CASH FLOWS 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 56 MANAGEMENT AND BOARD OF DIRECTORS 20

21 2012 FINANCIAL REPORT 21

22 Financial Highlights (DOLLARS IN MILLIONS) Change OPERATIONS Revenues $ $ $ 56.9 Purchased Power $ $ $ (13.5) Fuel $ $ $ 17.0 Other Operating Expenses $ $ $ 15.1 Depreciation and Amortization $ $ 98.0 $ 2.5 Interest Expense $ $ $ 19.3 Other Income $ 4.5 $ 4.1 $ 0.4 Nonutility Operations, Excluding Variable Interest Entity $ 0.1 $ 3.1 $ (3.0) Net Margin Attributable to GRE $ 45.4 $ 31.5 $ 13.9 FINANCIAL POSITION Electric Plant and Plant Held for Future Use $ 3,994.8 $ 3,864.2 $ Utility Plant - net $ 2,683.6 $ 2,608.9 $ 74.7 Deferred Charges $ $ $ 18.4 Cash and Cash Equivalents $ $ $ (2.5) Total Assets $ 3,689.8 $ 3,557.2 $ Long-term Obligations $ 2,712.1 $ 2,664.8 $ 47.3 Members' Capital $ $ $ 45.3 Equity to Capitalization Ratio 13.7% 12.6% 1.1% GREAT RIVER ENERGY Financial Discussion and Analysis Great River Energy s 2012 financial results were very good. Great River Energy exceeded its budgeted margin by $5.4 million, returned a power cost adjustment (PCA) credit of $5.6 million to its members, maintained its investment grade credit ratings, sustained its strong liquidity, and improved its equity to capitalization to 13.7 percent. The results of 2012 continue to strengthen Great River Energy s financial position, and Great River Energy is very well prepared for the future. Margins Net margin attributable to Great River Energy for the year ended December 31, 2012, was $45.4 million, the second highest in Great River Energy s history. This compares to a budget of $40.0 million for 2012 and actual results of $31.5 million for Great River Energy s indenture requires the maintenance of a margin-for-interest (MFI) ratio of 1.1x in order to issue additional secured debt. In addition, Great River Energy s board of directors targeted a debt service coverage (DSC) ratio of 1.2x when setting member rates for Great River Energy s 2012 operations produced an MFI of 1.3x and a DSC of 1.2x. Electric Revenue Electric revenue increased $41.4 million or 5.0 percent to $869.6 million in 2012 from $828.2 million in Electric revenue from member cooperatives was $800.3 million during 2012, an increase of $31.8 million from $768.5 million in The member revenue increase was due to a planned wholesale rate increase. Member revenue was reduced for a PCA credit of $5.6 million. The PCA allows Great River Energy to bill or credit differences ELECTRIC REVENUES BILLED Member Cooperatives/Others (DOLLARS IN MILLIONS) NON-MEMBERS MEMBERS 22

23 Financial Discussion and Analysis CONTINUED between actual and budgeted results in Midwest Independent Transmission System Operator (MISO) market activity, purchased power, non-member revenue, and fuel. The 2012 PCA credit was due to the strong performance of all of Great River Energy s power plants. Nearly all plants met or exceeded budgeted energy production. Revenue from Great River Energy s peaking plants significantly exceeded budget, and the margin on this revenue greatly contributed to the PCA credit. Electric revenue from non-members increased $9.6 million or 16.1 percent to $69.3 million in 2012 from $59.7 million in This increase in revenue was the result of increased unit sales both into the MISO market and under bilateral contracts in 2012 compared to Other Operating Revenue Other operating revenue increased $15.4 million to $51.6 million in 2012 from $36.2 million in 2011, due to increased transmission and other revenue from the MISO market and increased fly ash sales at Coal Creek Station (CCS) and Stanton Station. Operating Expenses Total operating expenses for 2012 were $736.6 million, an increase of $21.0 million from $715.6 million in Purchased power decreased $13.5 million or 7.4 percent to $167.8 million in 2012 from $181.3 million in 2011, due to purchasing 27.2 percent fewer megawatt hours (MWh) from the MISO market during 2012 compared to 2011, decreased net transmission charges by MISO during 2012, and decreased power purchases under bilateral contracts during Great River Energy s decreased power purchases were the result of increased generation from Great River Energy s plants during 2012 compared to These decreases were partially offset by increased purchases under third party wind contracts of $5.0 million or 9.2 percent during 2012 compared to Great River Energy purchased 1,516,000 MWh and 1,406,000 MWh of wind power in 2012 and 2011, respectively, under these contracts. In addition, capacity costs for Genoa 3 increased $4.2 million in 2012 compared to 2011, due primarily to an extended maintenance outage in Fuel expense was $217.9 million for 2012, an increase of $17.0 million or 8.5 percent from $200.9 million in Fuel expense at CCS increased $11.1 million or 7.4 percent due to increased generation during CCS generated 9,228,000 MWh and 8,563,000 MWh in 2012 and 2011, respectively, an increase of 665,000 MWh or 7.8 percent in CCS was not scheduled for a major planned outage during 2012, unlike 2011, and its generation performance set a record for Great River Energy s peaking plants also set generation records during the summer months of 2012 due to the hot and humid weather and low natural gas prices. Peaking plant generation increased to 524,000 MWh in 2012 from 277,000 MWh in 2011, an increase of 89.2 percent. Fuel expense at the peaking plants increased $2.6 million or 15.6 percent during 2012 compared to Fuel expense for these plants was favorably impacted by significantly lower average natural gas prices during 2012 compared to 2011, and the renegotiation of Great River Energy s long-term natural gas transportation and storage contract at the end of EXPENSES AND MARGINS OPERATION AND MAINTENANCE 24.5% DEPRECIATION AND AMORTIZATION 10.9% NET MARGIN ATTRIBUTABLE TO GREAT RIVER ENERGY 4.9% PROPERTY TAX 2.6% INTEREST EXPENSE 15.5% FUEL 23.5% PURCHASED POWER 18.1% Generation and transmission operation and maintenance expenses, together with business support services expense, increased by $13.9 million compared to As Great River Energy s infrastructure continues to age, operation and maintenance expenses will increase due to increased investment and inflationary increases. Great River Energy maintains its assets to ensure continued reliability and the 2012 record breaking operating performance is a direct result of this effort. Additionally, as regional transmission projects owned by others are completed within the MISO territory, Great River Energy s share of these costs will increase. Great River Energy incurred $3.9 million of additional transmission expense related to these projects in 2012 compared to Depreciation and amortization increased $2.5 million to $100.5 million for 2012 from $98.0 million in 2011, due to additional depreciation on utility plant additions. Other Income (Expense) Interest expense net of amounts capitalized increased $19.3 million to $143.8 million in 2012 from $124.5 million in Interest incurred on Great River Energy s long-term obligations decreased slightly in 2012 when compared to 2011; however, the increase in interest expense was due to $22.5 million less interest being capitalized in 2012 compared to Interest on Spiritwood Station was no longer capitalized during 2012 and was included in the 2012 member rate. 23

24 Financial Discussion and Analysis CONTINUED Nonutility Operations Operating revenue of $197.2 million, operating expense of $197.3 million, and operating loss of $(0.1) million for 2012 represent the operations of Blue Flint Ethanol LLC (Blue Flint). Effective January 1, 2012, Great River Energy purchased the remaining 51 percent of Blue Flint and began consolidating its financial statements in Income from equity method investments in 2012 represents Great River Energy s share of net income from Coal Creek Drying and Storage, LLC and ACES Power Marketing, LLC. The income from equity method investments in 2011 also included Great River Energy s share of net income from Blue Flint. When combining the 2012 operating results of Blue Flint and the equity method investments, the overall net result is positive to Great River Energy. In January 2011, Great River Energy closed on a transaction with North Dakota Refined Coal LLC (NDRC), and its subsidiaries, for the lease and operation of Great River Energy s DryFining facility. NDRC represents a variable interest entity of Great River Energy and is consolidated in the financial statements. Great River Energy included in nonutility operations in the financial statements the noncontrolling interest net loss of $14.5 million and $13.1 million for the years ended December 31, 2012 and 2011, respectively, which represents the planned net operating results of NDRC REVENUES NON-MEMBER 7.4% OTHER 5.6% NONOPERATING 0.5% MEMBER 86.5% Nonutility Operations, Excluding Variable Interest Entity represented 0.01% of 2012 revenues. Member Rate Great River Energy s 2012 member billed rate was 68.5 mills/kilowatt hour (kwh) compared to 66.3 mills/kwh in As member energy sales were flat in 2012 compared to 2011 (a 0.1 percent increase), this increase was due primarily to a planned rate increase for MEMBER AVERAGE RATE PER KWH Excluding WAPA (MILLS PER KWH) Balance Sheet Review Great River Energy s total consolidated assets increased $132.5 million to $3.7 billion in 2012 from $3.6 billion in Utility plant net increased $74.7 million to $2.7 billion in 2012 from $2.6 billion in Utility plant increased $173.1 million due to additions related to Great River Energy s investment in transmission projects, including CapX2020, of $111.4 million, The Falkirk Mining Company (Falkirk) mining equipment of $24.8 million, and other generation and general plant projects of $36.9 million. Additions were offset by an increase in accumulated depreciation of $98.4 million. Nonutility plant and equipment net increased to $58.7 million in 2012 due to the consolidation of Blue Flint. Other assets and investments decreased $2.2 million to $295.8 million in 2012 from $298.0 million in This decrease is primarily the result of Great River Energy no longer accounting for Blue Flint as an equity method investment in As of December 31, 2011, this investment was $23.3 million. This decrease was offset by an increase in deferred charges of $18.5 million, which is due primarily to the deferral of refined coal purchase costs associated with the DryFining lease transaction of $12.0 million and the postretirement benefit plans of $6.4 million. The deferred charges related to the DryFining lease will be recognized into member rates commensurate with the net benefits of the transaction. The deferred charges related to the postretirement benefit plans adjust each year with the remeasurement of the associated benefit obligations. Current assets increased $1.3 million to $651.7 million in 2012 from $650.4 million in Other inventory, which consists of corn, ethanol, and related inventory, increased $22.4 million due to the consolidation of Blue Flint in Accounts receivable from nonaffiliated parties increased $7.0 million due primarily to the addition of Blue Flint s 24

25 Financial Discussion and Analysis CONTINUED trade accounts receivable of $6.1 million. Materials and supplies inventory increased $7.8 million in anticipation of projects, particularly transmission related projects, occurring in Derivative instruments increased $15.5 million to $15.7 million in 2012 from $0.2 million in 2011, due to the valuation of certain unsettled interest rate swap contracts and commodity derivatives. Investments decreased by $60.0 million due to the conversion of investments to operating cash. Members capital increased $45.4 million to $444.8 million in 2012, the result of the 2012 net margin attributable to Great River Energy. Noncontrolling interest, which represents the capital attributable to NDRC, decreased $36.3 million to $41.9 million in 2012 from $78.2 million in NDRC incurred a planned net loss of $14.5 million and distributed capital and dividends of $21.8 million during Other noncurrent liabilities increased $8.8 million to $95.4 million in 2012 from $86.6 million in This increase was due primarily to an increase of $9.1 million for asset retirement obligations, of which $7.4 million was due to a change in estimate for the CCS ash disposal sites capping and reclamation liability. Regulatory liabilities increased $15.1 million to $20.6 million in 2012 from $5.5 million in This increase was due primarily to the regulatory accounting treatment of certain derivative instruments with fair values recorded as assets. Long-term obligations increased $47.3 million to $2.7 billion in This increase is the result of additional borrowings of $120.0 million on the unsecured syndicated credit facility, additional capital leases at Falkirk of $19.7 million, and the addition of Blue Flint long-term debt of $34.3 million due to consolidation; offset by principal LONG-TERM DEBT (DOLLARS IN MILLIONS) (INTEREST RATE) , % 2, % 2, % 2, % 2, % Long-term Obligations, Including Current Maturities Weighted Average Interest Rate 10% 9% 8% 7% 6% 5% 4% payments during 2012 of $127.1 million. Deferred income taxes increased $3.2 million to $23.2 million in 2012 from $20.0 million in 2011, due primarily to timing differences related to utility plant depreciation. Current liabilities increased $48.1 million to $341.0 million in 2012 from $292.9 million in Current portion of longterm obligations increased $13.1 million due to planned debt repayment schedules. Notes payable to members increased $5.0 million due to the timing of the activity within the member investment program. Obligations under line of credit increased $10.0 million due to additional borrowings during Accounts payable increased $9.5 million due to timing, CapX2020 related payables, and consolidating Blue Flint. Derivative instruments increased $9.1 million due to the valuation of certain unsettled interest rate swap contracts. Liquidity Position and Financing Great River Energy s year end 2012 unrestricted available liquidity of $643.1 million was comprised of cash and cash equivalents of $323.1 million and unused capacity on its existing unsecured credit facilities of $320.0 million. Great River Energy s unsecured credit facilities include a $600.0 million revolving credit agreement that expires in June 2016 and a $30.0 million line of credit with CoBank ACB (CoBank) that expires in October Great River Energy uses its unsecured credit facilities for general working capital and for financing its construction program. Great River Energy has the option to increase the revolving credit agreement to $775.0 million, subject to certain terms and conditions. Construction borrowings on the unsecured credit facilities are repaid periodically with issuances of long-term secured debt under Great River Energy s Indenture of Mortgage, Security Agreement and Financing Statement. Since Great River Energy s 2007 prepayment of its debt under the RUS Mortgage with the issuance of the $1.3 billion 2007A bonds, Great River Energy has issued an additional $1.345 billion of secured debt. Great River Energy does not plan to issue any additional long-term debt until Utilizing existing available cash and cash equivalents, budgeted internally generated funds, and planned short-term borrowings under credit facilities, Great River Energy anticipates being able to fund its CapX2020 transmission projects and the additions and upgrades to existing generation, transmission, and other general plant facilities in Great River Energy s board of directors has a goal and a plan to continually improve Great River Energy s financial strength and prepare for the future. In management s view, Great River Energy s financial position at the end of 2012 continues to demonstrate strength and provides the flexibility to meet future opportunities. 25