New challenges, continued success

Transcription

1 G R E AT R I V E R E N E R G Y A N N U A L R E P O R T

2

3 G R E A T R I V E R E N E R G Y CONTE NTS 2 LETTER TO STAKEHOLDERS 4 WHO WE ARE 8 EFFICIENT POWER 12 RELIABLE SERVICE 16 PARTNERSHIP 20 PREPARING FOR THINGS TO COME FINANCIAL REPORT 51 MANAGEMENT AND BOARD OF DIRECTORS

4 L E T T E R T O S T A K E H O L D E R S In 2010, electric cooperatives celebrated the 75th anniversary of the formation of the Rural Electrification Administration. Electric cooperatives enabled communities outside of population centers to remain competitive with big cities. Today, it s the cooperatives themselves that are working to remain competitive. financially sound by delivering reliable wholesale power to our members while maintaining our investment grade credit ratings and meeting our financial metrics. As our business has responded to an evolving economic climate, we ve changed our vision to reflect our most basic motivation: keep cooperative energy competitive. David Saggau Great River Energy President and CEO Don Holl Great River Energy Board Chair We will continue to work with our members to ensure that anyone, anywhere can get reliable electricity at a fair price. New challenges, continued success In the early 2000s, Great River Energy experienced rapid sales growth which required us to invest in generation and transmission assets in order to maintain reliable electric service. In addition, state and federal regulations required that we invest in renewable energy and emissions controls at our power plants. Electric cooperatives in the United States serve an average of seven customers per mile of power line compared to 35 for investor-owned utilities and 47 for municipal utilities yet we continue to provide reliable and affordable electricity. All electric utilities are facing economic challenges, but Great River Energy and our members are prepared to weather difficult times due to our collective financial strength and the resilience of the cooperative business model. Despite the ongoing problems faced by the U.S. economy, Great River Energy has remained That period of expansion and investments was followed by a slowing of sales growth in recent years, which drove up wholesale electric rates. As these trends impacted our business, we worked with our member cooperatives to find innovative ways to mitigate rate increases while maintaining our financial health. Great River Energy has responded to upward rate pressures by restructuring into a leaner, more efficient company. A voluntary early retirement program in late 2010 reduced the size of our workforce. We are also challenging our staff to increase efficiency with measured reductions in operations and maintenance spending. 2

5 We have surplus generation capacity and do not expect to make further investments in generation assets until after As our members energy sales begin to grow, that surplus will decrease and rates will stabilize. Great River Energy will invest in transmission assets, such as the CapX2020 transmission projects, to ensure that we deliver reliable power to cooperative members at the lowest possible cost. We continue to look for innovative ways to become more efficient in our operations. The DryFining TM system at our Coal Creek Station power plant refines lignite coal for combustion in the plant, which leads to lower emissions and reduced fuel needs. The system is so successful that DryFining was recognized by Power Engineering magazine as the best coalfired project of 2010 worldwide. We re also finding ways to leverage existing assets in new ways to better serve our members. In April, Great River Energy finalized the purchase of the Elk River Resource Processing Plant, a plant that creates refuse-derived fuel from municipal solid waste. The acquisition of the processing facility allowed Great River Energy to continue operating the nearby Elk River Energy Recovery Station power plant and preserve more than 75 jobs. The strength of many The continued strength of Great River Energy and our member cooperatives despite these difficult economic times proves that the cooperative business model works. Great River Energy is stronger because of our financially stable member cooperatives, and each member cooperative benefits from the financial strength of Great River Energy and all of our members. The current economic climate is presenting challenges, but Great River Energy is adapting and collaborating to do what we ve always done: deliver reliable and affordable power. All cooperative businesses were formed as a result of a need in the community, and our business continues to be guided by the needs of our members. The same principles that brought power to rural America still guide today s electric cooperatives and will keep them competitive long into the future. David Saggau Great River Energy President and CEO Don Holl Great River Energy Board Chair 3

6 W H O W E A R E Great River Energy is a not-for-profit electric cooperative owned by 28 member distribution cooperatives. The organization generates and transmits electricity for those members, which are located from the outerring suburbs of the Twin Cities, up to the Arrowhead region of Minnesota and down to the farming communities in the southwest part of the state. Great River Energy s largest distribution cooperative serves more than 125,000 member-consumers, while the smallest serves approximately 2,400. Great River Energy is member-controlled and governed by a democratically elected board of directors who are electric cooperative members themselves. Collectively, Great River Energy s member cooperatives serve approximately 645,000 member-consumers or about 1.7 million people. Great River Energy owns and maintains a resource mix that includes 11 power plants and more than 4,500 miles of transmission lines, making it the second largest power supplier in Minnesota. Great River Energy offers more than 3,000 megawatts (MW) of generation capability that consists of a diverse mix of baseload and peaking power plants, including coal, refuse-derived fuel, natural gas and fuel oil, as well as wind generation. Great River Energy s more than 850 employees are dedicated to serving its member cooperatives with integrity and accountability in an environmentally sensitive manner. It is the nature of being a cooperative. Our picture of success Great River Energy works to achieve a balance between economic, social and environmental responsibility to its members. The company has adopted a decisionmaking process that gives equal consideration to its highest priorities: affordable rates, reliable energy and environmental stewardship. It is known as the triple bottom line. Great River Energy will not deploy strategies affecting rates and reliability without also assessing the environmental implications. Likewise, Great River Energy will not initiate environmental strategies without fully considering the impact on rates and reliability. These considerations help Great River Energy conduct business in a way that benefits both sustainability and the bottom line. 4

7 Member Cooperative Summary Number of member-consumers: 645,000 Sales to members: 11,754,808 megawatt-hours Total distribution line: 86,800 miles Average density: 7.4 consumers/mile Distribution substations: 550 Combined annual revenue: $1.25 billion Electric plant in service (net): $1.8 billion Average kwh per consumer: 18,700/year Distribution employees: 1, Financial Highlights Revenue: $847.2 million Total assets: $ 3.3 billion Utility plant investment (net): $ 2.6 billion Long-term debt, including current maturities: $ 2.7 billion System Load Characteristics* Residential: 57.1% Seasonal: 2.3% Commercial and industrial: 40.6% *Based on energy sales Our Member Cooperatives 5

8 T R A N S M I S S I O N G E N E R AT I O N T R A N S M I S S I O N A S S E T S Voltage Mileage 69 kilovolt (kv) or less 2, kv kv kv kv kv 70 Total AC transmission 4,117 ±400 kv DC 436 Total transmission line 4,553 Total transmission substations 105 (owned or partially owned by Great River Energy) HVDC Line The ±400-kV high voltage direct current (HVDC) transmission system delivers electricity from Coal Creek Station in central North Dakota to the Dickinson converter terminal near Delano, Minnesota. Since its commissioning in the late 1970s, the availability of the HVDC system has been better than 99 percent. The system has been one of the most reliable HVDC systems in the world. L O A D M A N A G E M E N T Load type Controllable loads Space heating 78,745 Water heating 105,713 Air conditioning and heat pumps 152,469 Ground-source heat pump 1,542 Irrigation 2,990 Curtailable commercial and industrial 1,354 1 Coal Creek Station Underwood, N.D. Generating capability: 1,131 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 W I N D E N E R G Y 3 Elk River Energy Recovery Station Location: Elk River, Minnesota Generating capability: 33 MW Start of operation: Units 1 & 2, 1951; Unit 3, 1959 Fuel: Refuse-derived fuel 6 Lakefield Junction Station Location: Martin County, Minnesota Generating capability: 500 MW (summer) Start of operation: 2001 Fuel: Natural gas; backup, fuel oil Maximum load management summer control capability: 360 MW Maximum load management winter control capability: 320 MW 6

9 8 St. Bonifacius Station Location: St. Bonifacius, Minnesota Generating capability: 59 MW (summer) Fuel: Fuel oil 4 5 Elk River Peaking Station Location: Elk River, Minnesota Generating capability: 183 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) 9 10 Rock Lake Station Location: Pine City, Minnesota Generating capability: 20 MW (summer) Fuel: Fuel oil Maple Lake Station Location: Maple Lake, Minnesota Generating capability: 19 MW (summer) Fuel: Fuel oil 11 Arrowhead Emergency Generation Station Location: Cook County, Minnesota Generating capability: 18 MW Fuel: Fuel oil OTHER ASSETS Blue Flint Ethanol A joint venture between Great River Energy and Headwaters Inc., Blue Flint Ethanol is a 58-milliongallon-per-year dry mill ethanol plant that uses waste heat from the nearby Coal Creek Station power plant for ethanol production. 7 Pleasant Valley Station Location: Mower County, Minnesota Generating capability: 422 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 municipal solid waste is transformed into RDF each year 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 Other wind energy purchases: 18 MW (nameplate) from three Minnesota wind farms. Location: Jackson, Dodge and Murray counties. As of April 1, 2011, Great River Energy will add 100 MW of nameplate capacity from Endeavor I Wind Energy Center in northwestern Iowa. Wellspring Wind Energy Program Wellspring Wind Energy is sold to cooperative members who voluntarily choose the amount of renewable energy they want to buy. Wellspring subscribers help to bring additional renewable energy resources online. Participants: 6,611 cooperative members. 7

10 G E N E R AT I O N In order to provide reliable wholesale power to its member cooperatives, Great River Energy must maintain a portfolio of power supply resources that is sufficient to meet demand for electricity at all times, yet be flexible enough to accommodate variations in energy consumption, weather, market conditions and regulatory requirements. In 2010, Great River Energy made great strides in making its generation assets more efficient, secure and safe. When the fuel source for one of Great River Energy s longest running power plants was threatened, employees proposed a solution that benefited Great River Energy, its member cooperatives and the community. On April 28, Great River Energy finalized the purchase of the Elk River Resource Processing Plant, a facility that creates refuse-derived fuel (RDF) from municipal solid waste. 8 The purchase of the Elk River Resource Processing Plant allowed Great River Energy to continue operating one of its longest running power plants. Production Coordinator Steve Vrchota (left), Maintenance Planner Scott Dunagan (center), Processor Linda Fraser and the rest of the Elk River Resource Processing Plant staff ensure that Elk River Energy Recovery Station is supplied with refuse-derived fuel. The RDF is used to power Great River Energy s Elk River Energy Recovery Station, a 33-megawatt (MW) facility with the capacity to convert approximately 1,000 tons of RDF into electricity each day. The acquisition of the processing facility allowed Great River Energy to continue operating the power plant and preserved jobs during an economic downturn. Elk River Energy Recovery Station also meets Minnesota s definition of biomass energy, a renewable energy classification, so it helps Great River Energy meet Minnesota s renewable energy standard. In an effort to make the plant a more economical resource, it typically operates at higher capacities during peak periods for energy prices and backs off on load during the off-peak periods. On April 23, Great River Energy signed a 30-year power purchase agreement with

11 Terry Bourgeois, processor mechanic at Elk River Resource Processing Plant, monitors the facility s operations from the control room. NextEra Energy Resources to purchase 51 MW of output from the Ashtabula II Wind Energy Center in Griggs and Steele counties in eastern North Dakota. Great River Energy began receiving power from the facility in August. Great River Energy projects that it has sufficient renewable resources in place to exceed Minnesota s renewable energy standard milestones through Great River Energy also expects to comply with subsequent tiers of Minnesota s renewable energy standard by utilizing its supply of banked renewable energy certificates through To maintain compliance beyond 2025, Great River Energy will need to acquire significantly more renewable resources or purchase renewable energy credits. Great River Energy understands that a reliable system benefits from a variety of power supply resources, so it continues to invest in traditional generation resources, such as coal. In June, the entire Congressional delegation of North Dakota visited Great River Energy s Coal Creek Station power plant to dedicate the first installation of an innovation developed and owned by Great River Energy that will make power plants cleaner and more efficient. Known as DryFining TM, the system improves fuel quality by simultaneously drying and refining lignite coal. DryFining was designed to reduce fuel input into boilers, increase power plant efficiency and reduce emissions. The DryFining facility at Coal Creek Station is reducing emissions of sulfur dioxide and mercury by more than 40 percent, nitrogen oxides by more than 20 percent and carbon dioxide by 4 percent. 9

12 The entire North Dakota Congressional delegation joined industry and company leaders at Great River Energy s Coal Creek Station power plant to dedicate the DryFining system in June, including (left to right) Gov. John Hoeven; Dr. Joseph Strakey, U.S. Department of Energy; Great River Energy President and CEO David Saggau; Rep. Earl Pomeroy; Sen. Kent Conrad; and Sen. Byron Dorgan. Construction continues on Spiritwood Station, a combined heat and power plant located near Jamestown, North Dakota. The plant is expected to achieve commercial operation in 2012, when it will begin producing electricity for sale into the market and steam for sale to an adjacent industrial facility. Great River Energy continues to work to develop and recruit additional steam partners for Spiritwood Station, which will increase the power plant s value to Great River Energy s members. A culture of safety Generating and delivering electricity can be a dangerous business, so Great River Energy ensures safety is paramount at all of its facilities. Great River Energy s two peaking stations in southern Minnesota Lakefield Junction Station, near Trimont, and Pleasant Valley Station, near Dexter completed their first 10 years of operation without a single lost-time injury. The DryFining facility at Coal Creek Station is reducing emissions of sulfur dioxide and mercury by more than 40 percent, nitrogen oxides by more than 20 percent and carbon dioxide by 4 percent. Stanton Station completed registration for Occupational Health and Safety Assessment Series (OHSAS) certification. OHSAS is an international occupational health and safety management system specification that establishes and controls safety documentation and record-keeping. Annual audits will be completed to ensure that the system is maintained and continues to be effective. Stanton Station is the second Great River Energy facility to receive OHSAS registration; Coal Creek Station was registered in Great River Energy s transmission operations achieved an incident rate of 0.80 for 2010 far better than the goal of 3.5. That means that there were two recordable accidents for half a million hours worked. 10

13 The DryFining system at Coal Creek Station improves the quality of lignite coal which reduces fuel consumption, increases efficiency and cuts emissions. It required a large team of Great River Energy employees to bring the DryFining facility to life, including (left to right) Senior Engineer Adam Johnson, Principal Engineer Mark Ness, Senior Principal Engineer Charlie Bullinger and Engineering Services and Projects Leader Jeff Hammes. 11

14 T R A N S M I S S I O N Weather in Minnesota was unusually mild in 2008 and In 2010, however, severe weather returned with a vengeance and brought the second wettest year ever recorded. The state also set new records for the most tornadoes in a single year (107), month (71 in June) and day (48 on June 17). Tornadoes, like any extreme weather, have the potential to cause significant damage to the electric grid, resulting in widespread and prolonged outages. The Great River Energy system endured some of the most challenging weather conditions in several years in 2010, yet the system delivered the reliable service that has become the hallmark of Great River Energy s transmission operations. The CapX2020 projects include four high-voltage transmission lines spanning four states and more than 700 miles to ensure electric reliability and expand access to wind resources. Despite inclement weather, Great River Energy recorded excellent scores in several industryaccepted measurements of system reliability. For example, the System Average Interruption Duration Index (SAIDI) is a measurement of the number of minutes over a year that the average consumer is without power. Great River Energy s 2010 average was minutes. That score is better than Great River Energy s 10-year average and less than its goal of 30 minutes. The Momentary Average Interruption Frequency Index (MAIFI) measures the average number of momentary interruptions in electric service in a year per customer. Great River Energy surpassed its goal of 3.5 by recording just 1.86 momentary outages per customer. 12 Transmission Planning and Operations Director Gordon Pietsch (left), Transmission Vice President Will Kaul (center) and Regional Transmission Development Director Terry Grove led a team through more than five years of planning for the CapX2020 transmission projects. Great River Energy s ability to exceed its reliability goals in a year marked by extreme weather is proof that diligent maintenance of transmission assets combined with responsive and well-trained line technicians significantly improves electric service reliability.

15 Crews build rebar cages for the foundations of each pole of the CapX2020 Monticello St. Cloud project. A growing network After approximately six years of planning, permitting and engineering, construction began on the first of the CapX2020 transmission projects. CapX2020 is the largest upgrade of the region s electric transmission infrastructure in 30 years. It includes four high-voltage transmission lines spanning four states and more than 700 miles. The new lines will ensure electric reliability in Minnesota and the Upper Midwest, and expand access to rich wind resources that will be needed to meet Minnesota s renewable energy standard. Great River Energy is one of 11 utilities participating in the CapX2020 projects. CapX2020 achieved several regulatory milestones in 2010, each bringing the projects closer to their goal of serving utility customers. The Minnesota Public Utilities Commission (PUC) approved the final route of the 345-kilovolt (kv) Monticello-St. Cloud project and construction began shortly thereafter. The PUC also approved the route permit for the Brookings County-Hampton 345-kV project. The project will benefit electric customers throughout the region, help meet projected electric growth in the southern Twin Cities metro area, and provide a needed generation outlet for proposed renewable energy projects in southwest Minnesota and South Dakota. Construction is expected to begin in late 2012 and be completed by The PUC also approved a route permit for the Bemidji-Grand Rapids 230-kV project that will enhance reliability in northern Minnesota and the Red River Valley. Construction will begin in

16 New control center In April, Great River Energy completed initial commissioning of a new back-up control center. In the event that Great River Energy s primary control center becomes unavailable, the back-up facility will allow for the continued monitoring and control of the majority of Great River Energy s generation and transmission facilities. CapX2020 to create economic boost According to a University of Minnesota-Duluth study, the CapX2020 projects will create thousands of jobs and have a significant impact on Minnesota s economy. The study showed that the projects will have an overall economic impact of $3.4 billion and create nearly 8,000 construction and indirect jobs during the peak construction year. Great River Energy previously had a back-up control center with limited real-time monitoring and control capability. The new back-up control center has the communications infrastructure needed to allow for the continued real-time monitoring and control that is necessary due to more stringent requirements in the North American Electric Reliability Corporation s Emergency Preparedness and Operations Standards. Serving members needs Concurrent with addressing large-scale regional transmission needs, Great River Energy and member cooperative planning and operations For each dollar spent on construction, it is estimated that an additional $1.93 will be returned to the economy due to multiplier effects. That money will circulate through the economy creating additional benefits to the state and surrounding region. Great River Energy s line crews maintain thousands of miles of transmission line that spans from suburban neighborhoods to farmland. 14

17 engineers work together to assure the loadserving transmission system is able to supply existing and planned load growth safely and reliably. Load-serving transmission line projects are often undertaken as a result of estimates of Great River Energy s member cooperatives current and future electricity needs. Great River Energy takes pride in accommodating all member connection requests in a timely and cost-effective manner, as was done again in In October, Great River Energy energized the final segment of its portion of the 115-kV Badoura area transmission line. After nearly six years of work, the 63-mile line was placed in service to improve electrical service and meet increasing demand for electricity in north central Minnesota. Also in October, Great River Energy energized approximately 18 miles of the Cook-to-Orr 69-kV project to meet load-serving needs in northern Minnesota. As construction continues, Great River Energy will build and energize segments of the Tower-to-Frazer Bay 69-kV project to meet the load-serving needs near Lake Vermilion. As part of a project that runs from Tower to Orr, Great River Energy will upgrade a substation near Cook, add a 115-/69-kV transformer at the Tower substation and build an additional 12 miles of new 69-kV transmission line. Line technicians are located at outposts throughout Great River Energy s service area to perform regular maintenance and respond quickly to needs on the transmission system. These system improvements are needed to improve the reliability of electric service in and around the cities of Tower, Cook and Orr. The transmission system in the area is the most vulnerable in winter due to growth in the use of electricity for heating. Line Technicians (left to right) Jeremy Romsdahl, JR McGuire and Grant Hess finish replacing a pole on a Great River Energy transmission line north of Corcoran, Minnesota. 15

18 S E R V I N G M E M B E R S Great River Energy s responsibility to its members goes beyond simply supplying wholesale electricity. The organization provides leadership and shared resources for its member cooperatives in order to meet regulatory mandates, advocate for energy issues and improve electrical service. The state of Minnesota has challenged utilities to help consumers conserve energy. Known as the Conservation Improvement Program (CIP), Minnesota has set a goal that every electric and gas utility in the state reduce energy consumption by 1.5 percent of their annual retail energy sales. At year s end, Great River Energy and its member cooperatives surpassed the state goal by helping consumers save more than 167 million kilowatt-hours (kwh) or the annual electricity needs of more than 15,000 households. Great River Energy and its member cooperatives work together to meet regulatory mandates, pursue innovative ideas and responsibly serve the community. To accomplish this challenging goal Great River Energy worked with its member cooperatives to create a catalog of programs and incentives to help consumers save energy. Utilities were given credit for each installation of energy efficient equipment in consumers homes, farms and businesses. Projects ranged from large installations, such as ground source heat pumps, to substituting energy-efficient LED holiday lights for less efficient traditional lights. 16 Great River Energy Key Account Executive Vicki Belanger (left) and East Central Energy Business Accounts Specialist Steve Kosbab (right) work with National Vision Inc. Director of Manufacturing Jim Rueter (center) to improve the energy efficiency of National Vision s eyeglass manufacturing facility in St. Cloud, Minnesota. In the summer of 2010, Great River Energy and its members conducted the Fridge Farewell program, an effort to help meet the CIP goal by getting rid of the most inefficient appliance in the home: the spare refrigerator or freezer. Too often when consumers buy a new refrigerator they move the older model to the garage or basement, which can add $150 to a home s

19 annual energy costs. By offering a $35 bounty on inefficient refrigerators, the Fridge Farewell program resulted in the removal of more than 3,700 refrigerators and 1,300 freezers, for an annual energy savings of more than 3.7 million kwh. Pursuing new technology Electric utilities are approaching a new information age, and Great River Energy is on the leading edge of research. Great River Energy and two of its member cooperatives are participating in a Smart Grid Demonstration Grant awarded to the National Rural Electric Cooperative Association as part of the American Recovery and Reinvestment Act. The $2 million grant will fund a four-year project to test smart grid technologies on the customer side of the meter. As regulations, technology and customer expectations develop, Great River Energy s demand response programs and strategies will progress to new levels of complexity, creating more opportunities for consumers to take control of their electricity use and costs. The research conducted over the next several years will provide valuable insight to all of Great River Energy s member cooperatives. Great River Energy and its member cooperatives surpassed the challenging state conservation goal by helping consumers save more than 167 million kwh or the annual electricity needs of more than 15,000 households. In September, Great River Energy completed a transaction to purchase the telecommunications assets owned by Arcadian Networks, Inc. that are used to provide Great River Energy s 700-megahertz wireless network service, an essential component for telecommunications necessary for Great River Energy s system operations. Great River Energy s member cooperatives also use the wireless network to monitor and manage meter information across their dispersed service areas and to manage data and operations in real time. An economic development partner The communities served by Great River Energy and its member cooperatives benefit from healthy and growing local economies. Great River Energy represents its member cooperatives in economic development activities ranging from the municipal to national level. Many electric cooperatives don t have staff to dedicate to economic development, so Great River Energy provides them with resources and a voice for their interests. Great River Energy helps its member cooperatives pursue grants, loans and other incentives to attract and retain commerce in their communities. Great River Energy and its 17

20 member cooperatives regularly exchange input and feedback on economic development efforts. Lending a hand Great River Energy, like all cooperative businesses, is guided by a set of seven cooperative principles. Among them is the concern for community principle which states that, beyond providing service, cooperatives must focus on the sustainable development of their communities. Social responsibility is at the heart of Great River Energy, and the company strives to help all of its member cooperatives through philanthropic efforts. When tornadoes caused severe damage across the state in June, Great River Energy worked with relief organizations across Minnesota to ensure that the communities served by its member cooperatives had the funding, food and resources they needed to recover as soon as possible. Great River Energy employees also display their own personal concern for the community. Through various events throughout the year, employees generously donate coats, food, blood, toys, dollars and their volunteer time to the community organizations they value most. Treating employees right Transmission Planning Engineer Yewulsew Atnafu (bottom) and Principal Transmission Planning Engineer Dave Kempf spent a day painting a Habitat for Humanity home in Champlin, Minnesota as part of a Great River Energy volunteer effort. In October, Great River Energy was recognized with the Healthiest Employer award by the Minneapolis-St. Paul Business Journal. Great River Energy was highlighted for its employee wellness program, which includes company wellness walks, use of on-site fitness centers and an 85 percent participation rate in an online wellness program. The award is part of the Healthiest Employers of the Twins Cities project, which was established to recognize Minnesota-based companies committed to creating a healthy workplace. 18

21 Improving a reliable resource In mid-2010, a family farm that raises corn near Underwood, North Dakota proposed an idea that would bring a corn drying facility to the campus of Blue Flint Ethanol, a corn ethanol facility in which Great River Energy is a partner. The proposal outlined potential synergies from a corn dryer that would increase the economic viability of Blue Flint Ethanol and benefit local farmers. After only a few months of research, Coal Creek Drying and Storage was under construction as a joint venture of Knorr Farms, Headwaters Inc. and Great River Energy. The project was on-line for much of the 2010 harvest and quickly demonstrated its value. Local farmers no longer needed to transport crops roughly 100 miles to the nearest corn drying facility and Blue Flint Ethanol was able to secure favorable pricing on more of the local corn supply. Coal Creek Drying and Storage includes a 4,000-bushel-per-hour corn dryer and a 600,000-bushel storage facility. In addition to the direct net income generated by drying operations, Blue Flint Ethanol will save significantly on transportation costs. Blue Flint Ethanol has proven to be a valuable resource to Great River Energy and its member cooperatives by repeatedly creating positive financial returns. In 2010, the facility contributed $7.7 million to Great River Energy s bottom line and generated $4.7 million by purchasing steam from Coal Creek Station. In the years ahead, Blue Flint Ethanol will be even more efficient as a result of the installation of Coal Creek Drying and Storage. 19

22 Preparing for things to come Great River Energy s success in 2010 is largely the result of the thoughtful business decisions and careful planning of years past. Great River Energy s board of directors understands that the decisions they make today can affect the business for decades to come. Electric utilities exist in a constantly evolving regulatory environment, so Great River Energy collaborates with several groups to help develop regulations that affect electric cooperatives. Great River Energy works with its members as well as industry groups, such as the Minnesota Rural Electric Association and National Rural Electric Cooperative Association, to ensure that the cooperative voice is heard. In addition to weighing in on industry matters, Great River Energy is planning ahead for ways to minimize the impact of regulatory changes on its member cooperatives. 20

23 Proactive planning In June, Great River Energy created a carbon management roadmap to help manage its potential exposure to carbon costs related to proposed climate change legislation. The roadmap identifies measures that can be implemented to mitigate the risk of high carbon prices in the future. Some measures included in the roadmap are cost-effective in today s environment, in which there are no costs imposed on carbon emissions; other measures would only be undertaken if limits and costs are placed on carbon. The roadmap will continue to evolve as federal, state and regional legislation and regulations change. Advocating for members Great River Energy regularly provides testimony and guidance when regulations are proposed that will affect the generation and transmission of power or the cost of electricity. When the Environmental Protection Agency proposed new regulations for coal combustion byproducts, Great River Energy provided testimony about the many beneficial uses of fly ash. Fly ash, a byproduct of coal-based generation, is used in several industrial applications such as replacing a portion of Portland cement in roads and bridges. By finding beneficial uses of fly ash, Great River Energy is reducing waste and generating revenue from the sale of ash. 21

24 CONTENTS 24 FINANCIAL HIGHLIGHTS 24 FINANCIAL DISCUSSION AND ANALYSIS 28 MANAGEMENT REPORT 29 INDEPENDENT AUDITORS REPORT 30 CONSOLIDATED BALANCE SHEETS 31 CONSOLIDATED STATEMENTS OF REVENUES, EXPENSES, AND MEMBERS PATRONAGE CAPITAL 32 CONSOLIDATED STATEMENTS OF CASH FLOWS 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 51 MANAGEMENT AND BOARD OF DIRECTORS

25 2010 Financial Report

26 GREAT RIVER ENERGY Financial Highlights (DOLLARS IN MILLIONS) Change OPERATIONS Revenues $ $ $ 59.4 Purchased Power $ $ $ 7.0 Fuel $ $ $ 24.5 Other Operating Expenses $ $ $ 4.4 Depreciation and Amortization $ 94.7 $ 90.6 $ 4.1 Interest Expense $ $ 93.1 $ 21.5 Other Income $ 4.0 $ 6.5 $ (2.5) Non-Utility Operations Margin $ 7.7 $ 5.7 $ 2.0 Net Margin $ 27.2 $ 29.8 $ (2.6) FINANCIAL POSITION Utility Plant $ 3,411.8 $ 3,264.8 $ Net Plant $ 2,557.9 $ 2,426.3 $ Deferred Charges $ $ $ 61.3 Cash and Short-term Investments $ $ $ 66.4 Total Assets $ 3,349.9 $ 3,094.5 $ Long-term Obligations $ 2,585.2 $ 2,269.0 $ Member and Patron Equities $ $ $ 27.7 Equity to Capitalization Ratio 12.1% 12.6% (0.5)% GREAT RIVER ENERGY Financial Discussion and Analysis Great River Energy experienced many positive events during 2010 including meeting our budgeted margin, maintaining our investment grade credit ratings, exceeding our minimum debt covenants and improving our liquidity. The future will continue to present challenges, however the events of 2010 have helped position Great River Energy to meet these challenges. Margins Net margin for the year ended December 31, 2010 was $27.2 million compared to $29.8 million for Great River Energy s budgeted margin for 2010 was $27.0 million. Great River Energy achieved a margin of $27.2 million despite a reduction in member energy sales and continued depressed market prices compared to historical levels in the Midwest Independent Transmission System Operator (MISO) energy market. 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 targets a debt service coverage (DSC) ratio of 1.2x when 24 setting member rates. Great River Energy s 2010 operations produced an MFI of 1.25x and a DSC of 1.20x. Electric Revenue Electric revenue increased by $52.0 million from $766.7 million in 2009 to $818.7 million in Electric revenue from member cooperatives was $743.2 million during 2010, an increase of $38.4 million over The member revenue increase was due primarily to planned wholesale rate increases, partially offset by lower energy sales. Member revenue also includes $11.2 million in power cost adjustments (PCA). The PCA allows Great River Energy to bill or credit differences between actual and planned results in purchased power, non-member revenue and fuel. The 2010 PCA charge was due in large part to significantly lower margins from peaking plants than planned. Peaking plant margins were budgeted at $11.5 million with an actual of $4.9 million, resulting in a $6.6 million impact on the PCA. The PCA was also impacted by higher than anticipated fuel expenses for Electric revenue from non-members increased by $13.6

27 GREAT RIVER ENERGY Financial Discussion and Analysis CONTINUED million from $61.9 million in 2009 to $75.5 million in This increase in revenue was primarily the result of increased energy sales into the MISO market as well as modest rate increases for these sales as compared to Although non-member revenue did increase in 2010 as compared to 2009, it remains significantly lower than years prior to Electric Revenues Billed Member Cooperatives/Others (DOLLARS IN MILLIONS) NON-MEMBERS MEMBERS Operating Expenses Total operating expenses for 2010 were $717.0 million, an increase of $39.9 million from $677.1 million in Purchased power increased by $7.0 million to $182.7 million. This increase was primarily the result of a slight increase in the energy units purchased in 2010, as well as an increase in the rate for these purchases compared to Fuel expense was $200.3 million for 2010, an increase of $24.5 million over Fuel expense at baseload facilities increased by $19.0 million, due primarily to increased coal mining expenses and due to expenses associated with finetuning the coal refining operations. The location of coal seams and increasing costs of resources necessary for mining have led to increases in fuel expense. Earlier mining plans at Falkirk Mine required the removal of approximately 50 million yards of dirt per year. Today, more than 80 million yards of dirt must be removed annually, and it requires additional equipment to do so. That has resulted in a need for more equipment, workers and diesel fuel, increasing Coal Creek Station fuel costs as compared to prior years. Fuel expense for the peaking stations increased by $5.5 million due primarily to the units being dispatched by MISO more often in 2010 than during During 2010, generation operations and maintenance expense increased by $2.3 million. Transmission operations and maintenance increased by $4.1 million, due in part to higher transmission network charges as a result of increased revenue requirements from zonal partners. Business support services decreased by $0.2 million as a result of continued process improvements and expense monitoring. Also impacting generation, transmission and business support expenses was the one-time expense recognition for the early retirement program in Great River Energy offered an early retirement program to long-tenured employees in an effort to reduce the workforce. The program was a successful example of efforts to increase efficiency across the company. Although Great River Energy expensed $8.8 million in 2010, the program is expected to have a payback period of less than two years. Depreciation and amortization increased by $4.1 million to $94.7 million for 2010, as compared to 2009, due to the DryFining facility being placed into service at the end of 2009 resulting in a full year of depreciation in This increase was partially offset by a decrease in depreciation for our peaking plants. The life expectancies of these plants were lengthened based on current usage and operating information. Property and other taxes were $20.8 million for 2010 as compared to $22.7 million for Generation taxes decreased in North Dakota due to a five-year repowering exemption at Coal Creek Station being obtained for the DryFining facility. This exemption began in This decrease was partially offset by property tax increases in Minnesota Expenses and Margins Operations and Maintenance 25.5% Purchased Power 21.3% Depreciation and Amortization 11.0% Margin 3.2% Property Tax 2.4% Interest Expense 13.3% Fuel 23.3% 25

28 GREAT RIVER ENERGY Financial Discussion and Analysis CONTINUED Other Income (Expense) Other income net decreased by $1.2 million from $2.9 million in 2009 to $1.7 million in 2010 due to less engineering services being performed for others. Interest income was $2.3 million in 2010 as compared to $3.6 million in This decrease was due to decreased levels of long-term investments and lower interest rates on cash equivalent investments compared to Interest expense net of amounts capitalized increased by $21.5 million from $93.1 million in 2009 to $114.6 million in Total interest charges increased by $16.7 million in 2010, primarily the result of increased debt levels. Capitalized interest decreased by $4.8 million in 2010 due primarily to Great River Energy placing the DryFining facility into service at the end of Non-Utility Operations Gain from joint ventures increased by $2.0 million from $5.7 million in 2009 to $7.7 million in 2010 due to the continued favorable operating results of Blue Flint Ethanol Revenues Member 86.5% Non-member 8.8% Other 3.3% Non-operating 0.5% Non-utility margin 0.9% Member Rate Great River Energy s 2010 member billed rate was 64.0 mills/kwh as compared to a 2009 member billed rate of 60.3 mills/kwh. This increase was due primarily to a planned rate increase for 2010 as well as an increase in the PCA charge for 2010 as compared to Member Average Rate per kwh Excluding WAPA (MILLS PER kwh) Balance Sheet Review Great River Energy s total consolidated assets increased by $255.4 million to $3.3 billion in Net utility plant increased by $131.6 million due primarily to the continued construction of Spiritwood Station as well as continued investment in our other facilities and transmission assets. Other assets and investments increased by $41.8 million, from $223.0 million in 2009 to $264.8 million in This increase is primarily the result of an increase in deferred charges of $61.3 million, offset by a decrease in funds reserved for debt service of $15.1 million. The increase in deferred charges relates primarily to an interest rate hedge that settled in 2010 and is now being amortized over the life of the related debt instrument. The funds that were previously reserved for debt service are no longer required to be reserved under the related debt instrument and are now available for operations and included in cash. Current assets increased by $82.0 million from $445.2 million in 2009 to $527.2 million in Cash and cash equivalents increased $66.4 million. This increase resulted from a combination of net cash being generated from operations of $104.0 million, net financings generating cash of $169.5 million, and the conversion of longterm investments to operating cash of $14.2 million, offset by Great River Energy s investment in utility plant additions of $220.1 million and other net investment uses of $1.2 million. Accounts receivable increased by $4.8 million due primarily to increased member billings related to the month of December as compared to Fuel inventory increased $2.5 million to $21.5 million in 2010 due to the combination of increases in inventory levels at year end compared to 2009 and increases in the related transportation costs. Materials and supplies inventory increased by $6.5 million to $64.5 million

29 GREAT RIVER ENERGY Financial Discussion and Analysis CONTINUED due primarily to the combination of the purchase of the inventories related to the Elk River Resource Processing Plant; materials and supplies obtained as part of the purchase of all of the telecommunications assets used to provide Great River Energy s 700-megahertz wireless network service; and the increased level of materials and supplies at Coal Creek Station in anticipation of the planned maintenance scheduled for the spring of Members patronage capital increased by $27.7 million from $339.8 million in 2009 to $367.5 million in 2010, due to the 2010 net margin and the 2010 change in the value of the interest rate swaps at Blue Flint Ethanol of $0.5 million. Long-term obligations increased by $316.2 million to almost $2.6 billion in This increase is primarily the result of three new debt offerings in 2010 totaling $506.0 million, with the largest being the 2010D bonds for $400.0 million. Great River Energy used a portion of the new debt proceeds to pay-off a $125.0 million balance on a multi-year syndicated credit facility that is coming due in New capital leases related to Falkirk Mine and Spiritwood Station were entered into in 2010 increasing long-term obligations by $24.8 million. Scheduled principal payments were $95.0 million for Long-Term Debt Including Current Maturities (DOLLARS IN MILLIONS) , % 1, % Current liabilities decreased to $285.8 million in 2010 from $383.2 million for Current portion of long-term obligations increased by $4.0 million due to the planned debt repayment schedules; notes payable to members decreased by $6.8 million due to the timing of the activity within the member investment program; obligations under lines of credit decreased to $0 in 2010 compared to 2, % 2, % 2, % INTEREST RATES 10% 9% 8% 7% 6% 5% 4% $60.7 million for 2009 due to improved liquidity during 2010; accounts payable decreased by $22.3 million due to a decrease in construction related payables; and derivative instruments decreased by $22.2 million due to the settlement of the interest rate hedge related to the 2010D debt offering. In January 2011, Great River Energy closed on a transaction that is expected to result in a net present value of more than $200.0 million to the company. The benefit is created by the Internal Revenue Code Section 45 production tax credits generated when Great River Energy s Coal Creek Station power plant uses qualifying coal that has been refined by the DryFining facility and meets certain emissions performance standards. At the transaction s closing, Great River Energy received an up-front payment of $105.9 million. Liquidity Position and Financing Great River Energy s year-end 2010 unrestricted available liquidity of $971.8 million was comprised of cash and investments of $271.8 million and unused capacity on its unsecured credit facilities of $700.0 million. Great River Energy s unsecured credit facilities include a $600.0 million revolving credit agreement that expires in December 2011 and a $100.0 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. Construction borrowings 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 Rural Utilities Service (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, including $506.0 million in Proceeds from Great River Energy s 2010A, 2010B, 2010C and 2010D debt issuances were used to refund certain previously issued tax exempt debt, repay construction borrowings under its syndicated credit facility and to fund current and planned future capital projects. Great River Energy does not plan to issue any additional long-term debt during the next year. Together with existing available cash and investments, budgeted internally generated funds and planned short-term borrowings under expected renewals of credit facilities, Great River Energy anticipates being able to fund its additions and upgrades to existing generation and transmission facilities and other general plant additions. 27

30 GREAT RIVER ENERGY Management Report To the Board of Directors and Members of Great River Energy: Management is responsible for the fairness and accuracy of the financial information presented in this annual report. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles, using management s best estimates and judgments where appropriate. Great River Energy maintains an internal accounting control system that provides reasonable assurance of the integrity and reliability of the financial statements and the protection of assets from loss or unauthorized use or disposition. Directors, who are not employees, make up the Finance and Audit Committee of the Board of Directors. The committee meets regularly with management and independent public accountants to review and discuss Great River Energy s internal accounting controls and financial reports. The independent public accountants have free access to the committee and the Board of Directors, without management present, to discuss the findings of their audits. David Saggau President and CEO Great River Energy Maple Grove, Minnesota March 7,

31 GREAT RIVER ENERGY Independent Auditors Report To the Board of Directors of Great River Energy Maple Grove, Minnesota We have audited the accompanying consolidated balance sheets of Great River Energy (GRE) as of December 31, 2010 and 2009, and the related consolidated statements of revenue, expenses and members patronage capital and cash flows for each of the three years in the period ended December 31, These consolidated financial statements are the responsibility of GRE s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Blue Flint Ethanol (BFE), GRE s investment in which is accounted for by use of the equity method. The Company s equity of $19,486,000 and $13,603,000 in BFE s net assets at December 31, 2010 and 2009, respectively, and of $7,293,000, $4,953,000, and $1,110,000 in BFE s net income for each of the three years in the period ended December 31, 2010 are included in the accompanying consolidated financial statements. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for BFE, is based solely on the report of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of GRE s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of GRE as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. March 7,