Generation costs drive rates higher

March 2011

Two months ago, this publication was used to inform you of rapid increases in the cost to generate electricity. Hundreds of

millions of dollars have been spent by our power supplier, Minnkota Power Cooperative, primarily for required environmental upgrades at their coal-fired power plants in western North Dakota. These expenditures don’t create a dime of new business, so obviously the cost is added to the business we already have.

Huge investments in generation translate into huge additions to debt service. Coupled with higher operating costs and higher cost of fuel, our wholesale cost of power has risen more over the last two years than the previous 20 years combined. We received wholesale rate increases of 5% in April 2010, 5% in January 2011, and will receive an increase of nearly 30% in April 2011.

For the last nine months of this year, excluding projected growth, our cost of power will increase from $32.8 million in 2010 to a projected $42.3 million in 2011. This additional $9.5 million needs to be recovered through a combination of higher retail rates and increased sales. While our forecast for increased sales is optimistic for 2011, the reality is that most of the added cost will need to be recovered through higher retail rates.

The Nodak Board of Directors has approved a rate increase of 17%, which will be added to the April billing period, and you will see the effect on the bill you receive around May 1. This increase will recover about $8.6 million of the $9.5 million adder to our wholesale power bill. The remainder will be recovered from increased sales, primarily to the Keystone Pipeline stations.

Prior to the year 2009, we enjoyed a 15-year period of incredible rate stability. The few rate increases we had during that period were far below the rate of inflation, even during a period of low inflation. We are now in a period of making huge investments in generation, which create immediate and dramatic upward pressure on our rates. We wish we could have had gradual investments and gradual rate increases over an extended period of time, but that isn’t the way power plants are upgraded. We can only meet all environmental standards as required, borrow the funds to do the work, and see that the added costs are recovered through our retail rates.

During the last part of April, we will be holding a series of member information meetings at various locations throughout our service area. We want to make ourselves available to give you a little more detail about this rate increase. More importantly, we want to answer questions in person about this or any other part of our business. We encourage you to watch for these meetings and attend if your schedule permits.