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About our 2012 Stewardship Report This is Otter Tail Power Company’s fourth biennial stewardship report. We selected its content based on the environmental, social, economic, and other standard disclosures outlined in the Global Reporting Initiative (GRI) Sustainability Reporting Guidelines for electric utilities. The GRI Guidelines provide a voluntary reporting framework used worldwide to communicate meaningful information about issues that impact reporting organizations and their stakeholders. As in our three previous biennial reports, our reporting parameters include the business areas on which Otter Tail Power Company, and no other subsidiary of Otter Tail Corporation, has direct impact or significant influence. We are reporting 2012 information throughout this report, unless we indicate otherwise due to data availability. At the end of this report you’ll find the GRI index that shows what we reported relative to the guidelines.
Cover: Lead Lineman Joe Bruechert, left Service Representative Devry Klocke, right Customer Jamie with daughter Karsyn and son Easton
Table of contents About our 2012 Stewardship Report Inside cover Confirmation of self-declared GRI Application Level B 1 Letter from the president 2 Getting to know us Mission and values 3 Operations 3 Generation mix 5 Transmission and distribution 8 Environmental stewardship Our commitment to air quality 10 Illustrating our efficiency improvements and emission reductions 11 Developing wind energy 13 Using water resources responsibly 13 Protecting wildlife 15 Addressing spills, fines, and sanctions 15 Monitoring regulatory proposals 16 Promoting energy efficiency 20 Social stewardship Open involvement 24 Customer information 24 Preparedness planning 25 Reliability 26 Customer satisfaction 28 Community commitment 29 Employee commitment 30 Employee health and safety 32 Employee training 34 Future workforce investment 35 Economic stewardship Charitable contributions 36 Economic development 37 Direct economic value 37 Local sourcing opportunities 37 Indirect economic value 38 Manageable rates 38 Demand-response programs 42 New budgeting software 42 Advanced metering infrastructure 42 Global Reporting Initiative Index 43
Independent consultant confirms self-declared Global Reporting Initiative Application Level B Burns & McDonnell Engineering Inc. (Burns & McDonnell) was retained by Otter Tail Power Company to provide a third-party check of Otter Tail Power Company’s 2012 Stewardship Report. This report was prepared by Otter Tail Power Company’s report team and approved by the company’s management, who retain responsibility for its content. The objective of our third-party check process was to provide Otter Tail Power Company’s stakeholders an independent opinion regarding the compliance of the 2012 Stewardship Report with the requirements of the GRI G3 Guidelines and Electric Utility Sector Supplement (GRI G3 Guidelines and Sector Supplement) for self-declared Application Level B reporting requirements. Burns & McDonnell’s third-party check included review of content, structure, and presentation of the reported data. When needed, Burns & McDonnell provided additional guidance to Otter Tail Power Company to enhance conformity of the report to the GRI G3 Guidelines and Sector Supplement. Burns & McDonnell prepared a GRI index to document the inclusion of the declared content and for use in the 2012 Stewardship Report. Burns & McDonnell believes that the data generated for this report is reproducible using the applicable GRI principles and guidance of the GRI G3 Guidelines and Sector Supplement. Furthermore, Burns & McDonnell has observed reasonable coverage of the minimum standard-disclosure requirements and confirms Otter Tail Power Company’s 2012 Stewardship Report complies with Application Level B of the GRI G3 Guidelines and Sector Supplement.
Sincerely,
Candice Derks-Wood Sustainability Specialist Burns & McDonnell
1
A letter from Chuck MacFarlane, President and CEO, Otter Tail Power Company Thank you for your interest in Otter Tail Power Company’s 2012 Stewardship Report. I believe it will give you an appreciation for the care we take each day to keep whole our stakeholders’ trust in us and to ensure that we continue to deserve their confidence. This is our fourth stewardship report and, keeping true to previous disclosures, its content is wide-ranging. It addresses matters as diverse as customer service, environmental sensitivity, workplace planning and operations, and community involvement.
Chuck MacFarlane, President and CEO
We titled this year’s report Connected for good reason. Just as our electric delivery system is connected to almost 130,000 homes, farms, and businesses, our principle of integrity is connected firmly to each customer we serve and community where we live. I consider this document to be more than a report. It’s proof of how our values drive us to do the right things—with every bolt we fasten, every mile we drive, and every kilowatt-hour we generate. It publicly affirms our promise to ensure that the values that have guided us for more than a century continue to do so for generations. As you read, I sincerely hope you see proof that Otter Tail Power Company and our 777 employees are vitally connected to our customers and our communities. I hope you recognize the dedication to service that has given our company a reputation for excellence. And I hope our values of integrity, safety, customer focus, resourcefulness, and community clearly resonate with you in each topic this report addresses.
Chuck MacFarlane President and CEO Otter Tail Power Company
2
Getting to know us
Incorporated in 1907, Otter Tail Power Company began producing electricity in 1909. Throughout our history we have remained connected to our customers and the communities we serve.
Our mission
To produce and deliver electricity as reliably, economically, and environmentally responsibly as possible to the balanced benefit of customers, shareholders, and employees and to improve the quality of life in the areas in which we do business.
Our values
Integrity. Safety. Customer focus. Resourcefulness. Community.
Operations Our parent: Otter Tail Corporation In the late 1980s, faced with limited growth opportunities in our electric utility operations, Otter Tail Power Company implemented a diversification strategy designed to provide shareholders with dependable long-term earnings growth. In 1989 we formed Mid-States Development, later named Varistar, to own and oversee the new diversified businesses. In 2001, to better recognize our new enterprises while preserving our well-established brand, we changed the corporate name to Otter Tail Corporation.
Electric
Manufacturing & Infrastructure
In 2009 Otter Tail Corporation restructured as a holding company, a business-asusual change for shareholders, customers, and employees. In the restructuring, Otter Tail Corporation became the parent company of the Varistar Corporation, which holds our diversified businesses, and of Otter Tail Power Company, which operates the regulated utility business. This legal structure mirrors historical and ongoing operating structure. Otter Tail Corporation’s objective is to derive between 75 percent and 85 percent of earnings from Otter Tail Power Company and between 15 percent and 25 percent from Varistar. This is consistent with the corporation’s strategy to optimize its portfolio of companies, reduce risk, and create a more predictable earnings stream to support the dividend and future growth. This report’s parameters include the areas of our business that Otter Tail Power Company directly impacts or significantly influences. To learn more about Otter Tail Corporation visit www.ottertail.com. For shareholder information visit www.ottertail.com/investors.
Code of conduct Through the years Otter Tail Power Company and Otter Tail Corporation have built a reputation for excellence. Otter Tail Corporation and its subsidiary companies believe integrity must guide all workplace relationships. Each business entity is committed to ethical behavior and expects directors, officers, and employees to share that commitment.
Otter Tail Corporation platforms and subsidiary companies
Otter Tail Corporation requires employees to comply fully with its code of conduct, which is distributed to all employees and posted online at www.ottertail.com. The corporation’s internal audit department confirms distribution of the code of conduct each year.
Getting to know us
3
Otter Tail Power Company employees We’re a team that serves customers who depend on us for electricity to be available when they want it and need it. We operate power plants, build and maintain electric lines, troubleshoot service issues, and provide the support services needed to keep our company running smoothly. Total employees
Minnesota
North Dakota
South Dakota
777
456
216
105
(includes temporary and part-time, includes plant partners’ employee shares)
Our customers We provide electricity and energy services to more than 129,000 homes and businesses. That means we serve about 230,000 people. They live in 422 communities and in rural areas stretching across 70,000 square miles of western Minnesota, eastern North Dakota, and northeastern South Dakota.
We value each opportunity to share information about our company with our customers. We produced 30 videos for our YouTube channel that featured employees in their working environments. Employees briefly shared some of their work accountabilities and community activities. In 2012 Multimedia Coordinator Mark Case won an Award for Publication Excellence (APEX) in the YouTube Publications category for this series.
For years we used 50,000 square miles as the approximate size of our service territory, a value derived from paper maps and hand calculations. With advances in mapping technology, such as Google Earth and geographical information systems, we’ve revised that value to 70,000 square miles, which reflects our service territory’s total expanse at its outermost boundaries. Our new estimate includes areas within our service territory that other electric utilities, municipals, and cooperatives serve but more accurately communicates the significant geographical area our employees travel to serve our customers. Total customers
Minnesota
North Dakota
South Dakota
129,786
60,645
57,595
11,546
Customer classifications Residential
Seasonal cottages
Farms
Commercial
100,003
2,201
2,770
21,904
Large commercial
Streetlighting
Other public authorities
1,900
409
599
Headquartered in Fergus Falls, Minnesota, we have customer service centers in each of the three states we serve. Minnesota
North Dakota
South Dakota
To watch the videos visit
Fergus Falls, Bemidji,
Devils Lake, Garrison,
Milbank
youtube.com/OtterTailPowerCo.
Crookston, and Morris
Jamestown, Oakes, Rugby, and Wahpeton
4
Getting to know us
Generation mix
In June 2010 we filed our seventh integrated resource plan (IRP) with the Minnesota Public Utilities Commission (MPUC). It identifies the most costeffective combination of resources for meeting our customers’ needs for reliable electric service during the next 15 years. To develop our IRP, we evaluate available electric generation resources and select a plan based on reliability, affordability, achievability, and environmental responsibility. We continue to make existing generating facilities as efficient and economical as possible. But because existing resources alone cannot meet our customers’ future energy needs, our IRP provides a mix of additional resources. While this filing is required only in Minnesota, we develop a strategy for our system as a whole and provide copies of the plan to the North Dakota and South Dakota regulatory commissions as well.
2011-2025 planned resource additions 213 MW 100 MW 55 MW 15 MW New gas-fired plants
New conservation
New wind resources
New demand-side management
2012 energy resource mix 62.37%
For generation updates visit www.otpco.com.
Hoot Lake Plant baseload diversification study
21.27%
In February 2012 the MPUC approved our IRP but ordered us to complete a baseload diversification study with focus on evaluating retirement and repower options for Hoot Lake Plant. Hoot Lake Plant is a 138-megawatt coal-fired power plant in Fergus Falls, Minnesota. Hoot Lake Plant Unit 1 is retired. Unit 2 went into service in 1959 and Unit 3 in 1964. We engaged Minnesota, North Dakota, and South Dakota regulatory staff and environmental and business groups in developing assumptions, methodology, and analysis. Our study results showed the lowest-cost option would be to add equipment to comply with Mercury and Air Toxics Standards by 2015 and subsequently retire the plant in 2020, likely replacing it with natural gas generation. So this became our recommended plan.
Coal
Purchases from unknown fuel sources
14.99%
Wind
1.24%
0.13%
Hydro
Natural gas
This graph represents the various fuel sources (owned and purchased) that Otter Tail Power Company uses to serve its customers. Purchases from known fuel sources are reflected in their associated categories such as hydro, wind, etc. For example, the 1.24 percent hydro portion of our resource mix reflects approximately 0.55 percent from owned generation and approximately 0.69 percent from purchases. All other purchases are reflected in the “Purchases from unknown fuel sources” category.
In an order dated March 25, 2013, the MPUC approved our recommendation. This decision is favorable for our company because it removes uncertainty about the future of the plant and gives us a planning horizon. To learn more about the baseload diversification study visit www.otpco.com.
Generation resources Langdon Wind Energy Center
Coyote Station
Luverne Wind Farm
Ashtabula Wind Energy Center Jamestown combustion Fergus turbine Falls Hoot Lake Plant Big Stone Plant
SOUTH D A KOTA
Lake Preston combustion turbine
M I N N E S OTA
NORTH D A KOTA
Solway combustion turbine
Otter Tail Power Company owns part or all of the generation resources shown on the map above. Our hydroelectric plants are shown on the map on page 6.
Getting to know us
5
Coal-fired power plants We operate three coal-fired power plants that produce about 62 percent of the electrical energy our customers consume. Big Stone Plant
Coyote Station
Hoot Lake Plant
Location: Big Stone City, South Dakota
Location: Beulah, North Dakota
Location: Fergus Falls, Minnesota
Age: On line since 1975
Age: On line since 1981
Capacity: 475 megawatts
Capacity: 427 megawatts
Age: Unit 2 on line since 1959, Unit 3 on line since 1964
2011-2012 average net energy output: 2,644,734 MWH Fuel source: Subbituminous coal Ownership: 53.9% Otter Tail Power Company 23.4% NorthWestern Energy 22.7% Montana-Dakota Utilities Co.
Capacity: 138 megawatts 2011-2012 average net energy 2011-2012 average net energy output: 2,674,724 MWH output: 721,931 MWH Fuel source: Fuel source: Lignite Subbituminous coal Ownership: 35% Otter Tail Power Company Ownership: 100% Otter Tail Power Company 30% Northern Municipal Power Agency 25% Montana-Dakota Utilities Co. 10% NorthWestern Energy
All capacity ratings listed in this report are installed capacity ratings according to the Mid-Continent Independent System Operator, Inc.
Hydroelectric plants We own six small hydroelectric plants in Minnesota and purchase generation from other hydro resources to account for about 1.2 percent of our electrical energy. The Bemidji hydro plant, on the Mississippi River, went on line in 1907 and has a nameplate rating of .7 MW. The other hydro plants are on the Otter Tail River near Fergus Falls as illustrated below. Willow Creek
Rush Lake
Taplin Gorge (Taplin Gorge) .6 MW, on line 1925
Wright (Central Dam) .4 MW, on line 1922
Otter Tail Lake
Hoot Lake Wright Lake
Pisgah .5 MW, on line 1918
Hoot Lake 1 MW, on line 1914 Dayton Hollow 1 MW, on line 1909
In 2012 we generated and purchased renewable energy (hydroelectric and wind) equivalent to about 15 percent of our retail sales.
6
Getting to know us
Wind power We own or purchase power from wind farms in North Dakota, South Dakota, and Minnesota totaling 183 megawatts of installed wind energy capacity. In February 2012 the Minnesota Public Utilities Commission approved our integrated resource plan (IRP) that calls for 100 MW of additional wind power. Minnesota
North Dakota
South Dakota
3.8 MW (purchased)
1.1 MW (purchased)
.09 MW (purchased)
North Dakota Wind II (Edgeley) 21.0 MW (purchased) Langdon Wind Energy Center 40.5 MW (owned) 19.5 MW (purchased) Ashtabula Wind Energy Center 48.0 MW (owned) Luverne Wind Farm 49.5 MW (owned)
Wind capacity credit Our owned wind farms rank 3, 6, and 9 of 169 wind facilities in the Mid-Continent Independent System Operator, Inc., (MISO) footprint for the planning year beginning July 2013. The wind capacity credit is based on determining the Effective Load Carrying Capability of the intermittent wind resources. MISO determines the wind capacity credit by using actual wind farm historic generation during peak summer load hours. Renewable energy compliance We are well positioned to comply with the Minnesota renewable energy standard, which requires 25 percent of retail sales to be from renewable resources by 2025 and includes a stepped implementation of 15 percent by 2015. North Dakota and South Dakota have renewable energy objectives of 10 percent by 2015. We are adding these renewable resources within the economic parameters of our 2011-2025 IRP. With current renewable resources plus an additional purchase planned for as early as 2013, we likely will not need additional resources to comply with the renewable energy standard or objectives until sometime after 2024.
Combustion turbines
We’ve entered into a 15-year powerpurchase agreement (PPA) for wind energy with Lake Region State College (LRSC) in Devils Lake, North Dakota. The wind turbine that the college built will produce 6,000 megawatt-hours (MWH) of electricity annually, and the campus expects to use 1,700 MWH for all of its electricity needs. Under the PPA, the college will sell us the excess. The turbine serves as a lab for students enrolled in the college’s wind energy technician program. LRSC is the only college in the tri-state area that offers a wind energy technician program using its own turbine. For more information visit youtube.com/OtterTailPowerCo.
Combustion turbines produce less than 1 percent of our company’s electricity. Because they operate with more expensive fuels, these compact power plants generate electricity only when prices for purchasing power on the energy market are high, typically during periods of high demand or system emergencies.
Solway, Minnesota
Jamestown, North Dakota
Lake Preston, South Dakota
Generating capacity: 42.4 MW*
Generating capacity: 42.1 MW*
Generating capacity: 19.9 MW*
2011-2012 average net energy output: 42,795 MWH
2011-2012 average net energy output: 1,231 MWH
2011-2012 average net energy output: 59 MWH
Operates on natural gas or fuel oil Operates on fuel oil
Operates on fuel oil
*Generating capacities are listed according to Mid-Continent Independent System Operator, Inc., Net Dependable Capacity value.
Getting to know us
7
Transmission and distribution
We invest in transmission upgrades and new construction to meet our customers’ needs and to maintain our system’s reliability.
Miles in operation 2010
2012
2013 proposed additions
Transmission lines
862.4
862.4
69 kv 212.3 41.6 kv 3,768.8 Distribution lines 24 kv and below 5,228.1
212.3 3,764.5
244 miles: CapX2020 Brookings County, SD-Hampton, MN 0 Approximately 16 miles: Buffalo, ND-Casselton, ND 0 0
5,244.9
Determined by customer needs
345 kv*
47.8
76.5
230 kv*
417.1
487.5
115 kv
kv = kilovolt *Mileage includes Otter Tail Power Company joint ownership in CapX2020 transmission projects. See www.capx2020.com for more information.
CapX2020
Pictured in the substation equipment house as they prepared to energize the first section of the Bemidji-Grand Rapids line on August 9, 2012, are (from back, left to right) Construction Manager Kris Koch, Senior Area Engineer Asko Rajaniemi, and Lead Relay Technician Bill Lachowitzer; in the foreground is System Protection Senior Engineer Toby Johnson.
CapX2020 is an effort of 11 transmission-owning utilities in Minnesota and the surrounding region to expand the electric transmission grid to ensure continued reliable and affordable service. CapX2020 projects also will enable renewable and other generation sources to connect to the transmission system. We are participating in three of the four Group 1 projects (the projects in blue text below) and served as lead utility for the Bemidji-Grand Rapids 230-kv line. Otter Tail Power Company and Xcel Energy are joint owners of the Big Stone South-Brookings County project, which also is a multivalue project, as described on the next page.
Group 1 projects Project Fargo Phase 1 St. Cloud-Monticello 345-kv line (energized 2011) Fargo Phase 2 Fargo-St. Cloud 345-kv line Bemidji-Grand Rapids 230-kv line (energized 2012) Brookings County-Hampton 345-kv line Hampton-Rochester-LaCrosse 345-kv line
Getting to know us
Peak construction year
28
2011
210 70 250 150
2012-2015 2012 2012-2015 2013-2015
70
2015-2017
Additional project Big Stone South-Brookings County 345-kv line
8
Miles (Approx.)
Multivalue projects The Mid-Continent Independent System Operator, Inc., (MISO) defines multivalue projects (MVPs) as transmission projects that have regional benefits and are part of a regional transmission plan. MISO approved the first MVP portfolio in December 2011. It includes 18 projects that together will: • Improve reliability of the regional power system. • Increase system capacity to address growth in regional power demand. • Support public policy by enabling renewable energy to be integrated into the system. • Boost regional economies by creating construction and operation jobs and by supporting local businesses. With MISO’s multistate footprint, costs are shared among a larger customer base. All customers who benefit from a transmission line help pay for it. As an independent party, MISO reviews and develops transmission projects that best address need on the regional system. We are involved with two MVP projects.
Project energized
Big Stone South-Brookings County 345-kv line The Big Stone South-Brookings County project is a proposed 70-mile 345-kv transmission line from the Big Stone South Substation near Big Stone City, South Dakota, to the Brookings County Substation near Brookings, South Dakota. Pending all approvals, we anticipate the following project timeline. 2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Planning Environmental review and permitting Engineering design and right-of-way Construction In service
As noted on page 8, this also is a CapX2020 project. Xcel Energy is lead project developer and will manage construction of this project that’s estimated to cost $210 million to $230 million.
Big Stone South-Ellendale 345-kv line The Big Stone South-Ellendale project is a proposed 160- to 170-mile transmission line from the proposed Big Stone South Substation near Big Stone City, South Dakota, to the proposed Ellendale 345-kv Substation near Ellendale, North Dakota. Pending approvals, we anticipate the following project timeline. 2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Planning Environmental review and permitting Engineering design and right-of-way Construction In service
Bemidji-Grand Rapids 230-kv line The entire Bemidji-Grand Rapids transmission line was energized and placed in service by mid-September 2012. We led construction of this CapX2020 project that connects the Wilton Substation near Bemidji, Minnesota, and the Boswell Substation near Grand Rapids, Minnesota. Other partners in the project are Xcel Energy, Minnkota Power Cooperative, Inc., Great River Energy, and Minnesota Power. CapX2020 utilities are committed to using local vendors when appropriate. We spent approximately $3.9 million with vendors in our tri-state service area for work completed on this project in 2012. And with almost 1,000 workers in and around the project corridor we estimate approximately $2 million spent on housing, groceries, dining out, fuel, and other out-of-pocket expenses. Visit www.capx2020.com to follow progress of other CapX2020 projects.
Otter Tail Power Company and Montana-Dakota Utilities Co. jointly will develop this $300 million to $340 million project.
Other transmission news In December 2012 our crews began framing structures for a new 115-kv transmission line between Buffalo and Casselton, North Dakota. Scheduled for completion in late 2013, this line will be approximately 16 miles long and will improve reliability in the Casselton and Mapleton areas. The associated Buffalo Substation expansion is scheduled for completion in 2014.
Getting to know us
9
Environmental stewardship
Our employees, known for their work ethic, honesty, and respect for the area’s natural resources, call our service area home as do many Otter Tail Corporation shareholders. And because a wholesome environment is essential to a satisfying quality of life, we place respect for the environment at the forefront of our operations. We want our communities and their surroundings to have clean air, land, and water resources. We want them to support wildlife, wildflowers, game fish, and rural parks. That’s one of the reasons why Otter Tail Power Company’s Environmental Services Department ensures that we comply with all environmental laws.
Our commitment to air quality
Our company has a longstanding commitment to reduce air emissions. Since 1985 we have invested approximately $143 million in environmental-control upgrades and efficiency improvements at our fossil fuel plants. By 2020 we project that we will invest another $228 million to comply with U.S. Environmental Protection Agency (EPA) regulations. These planned investments include the Big Stone Plant air-quality control system and additional emission-control equipment at Hoot Lake Plant. Since 2007 we have invested more than $300 million in wind energy, a zero‑emission resource that further reduces our emission intensities systemwide.
Big Stone Plant air-quality control system On March 29, 2012, the EPA signed a final rule approving the South Dakota Regional Haze State Implementation Plan. This rule requires us to install and operate a new air-quality control system (AQCS) at Big Stone Plant to reduce sulfur dioxide (SO2) and nitrogen oxides (NOX) emissions. We plan to have the system operational in mid-2015, almost two years ahead of the spring 2017 compliance deadline. We expect a 90 percent decrease in SO2 and NOX at the plant after the project is complete. In addition, we will install an activated carbon injection system to comply with the EPA’s Mercury and Air Toxics Standards. See page 17 for more information. We estimate the AQCS project to cost approximately $405 million. Otter Tail Power Company owns 53.9 percent of the plant, so our share of the investment is approximately $218 million. That’s an expensive project. Nevertheless, every computer model we ran for our integrated resource plan selected the AQCS as part of our low-cost plan rather than removing Big Stone Plant from our resource mix, which would have been required without this project.
Hoot Lake Plant baseload diversification study In approving our 2011-2025 integrated resource plan (IRP), the Minnesota Public Utilities Commission (MPUC) required us to file a baseload diversification study evaluating retirement and repower options for Hoot Lake Plant. As a result of our modeling, we recommended to the MPUC that we spend up to $10 million to add pollution-control equipment at Hoot Lake Plant to comply with Mercury and Air Toxics Standards by 2015 and subsequently plan to retire the plant in 2020, likely replacing it with natural gas generation. This plan: • Allows planning for reasonable replacement power. • Protects our customers from multiple rate increases at a time we are expecting increases from the Big Stone Plant AQCS. • Saves more than 40 jobs for another five years. In March 2013 the MPUC approved our recommendation. For more information about our IRP and baseload diversification study see page 5.
10
Environmental stewardship
Illustrating our efficiency improvements and emission reductions
The graphs in this section illustrate our past, present, and future commitment to reducing emissions and improving our power-production efficiency. The bars reflect the overall production rate of our system, which includes all of our fossil fuel plants and renewable energy resources. Emissions data are presented both in terms of emissions intensity (pounds of substance emitted per megawatt-hour of electricity produced) and tons emitted.
Net plant heat rate
From 1985 to 2012 we have improved our system average NPHR by more than 20 percent, from 11,588 Btu/kwh to 9,168 Btu/kwh. That average includes owned generation sources and long-term wind power-purchase agreements. We’ve achieved these efficiency improvements in the midst of a 45 percent increase in generation from 2,450 gigawatt-hours (gwh) in 1985 to 3,549 gwh in 2012. Looking toward 2020, we project continuing improvements in NPHR.
12000
5,000
11500
4,500
11000
4,000
10500
3,500
10000
3,000
9500
2,500
9000
2,000
8500
1,500
8000
1,000
7500
500
7000
1985
1995
2000 2005 Year System average NPHR
2010
2016
2020
0
Net generation
System average includes all owned generation sources and long-term wind power-purchase agreements. This chart is based on the assumptions that the Big Stone Plant AQCS will be completed by 2016 and Hoot Lake Plant will be replaced with natural gas generation in 2020.
Sulfur dioxide 30
30,000
27
27,000
24
24,000
21
21,000
18
18,000
15
15,000
12
12,000
9
9,000
6
6,000
3
3,000
0
1985
1990
1995
2000 2005 Year System average intensity
2010
2016
2020
Tons
Sulfur dioxide emissions trend
Emissions intensity lb/MWH
Since 1985 our tons of sulfur dioxide (SO2) emissions and our SO2 emissions intensity have declined significantly. Total emissions have decreased by 58 percent, and emissions intensity has decreased by 71 percent. Fuel switches from lignite to low-sulfur subbituminous coal at Hoot Lake Plant and Big Stone Plant contributed to the trend along with other plant efficiency projects. Also, the Coyote Station scrubber removed 63 percent of the SO2 in the exhaust gases during 2012. Completion of the AQCS at Big Stone Plant and likely replacing Hoot Lake Plant with natural gas generation will lead to fewer SO2 emissions. Sulfur dioxide is a precursor to acid rain and fine particulate soot.
1990
Generation (gwh)
Net plant heat rate trend
NPHR (Btu/kwh)
Improving power plant efficiency reduces emissions because it takes less fuel to produce the same amount of energy. Net plant heat rate (NPHR) most commonly is expressed in terms of Btu/kwh to represent a measure of the amount of energy it takes to produce one kilowatt-hour of electricity. Our change from burning lignite to subbituminous coal at Hoot Lake Plant in 1988 and at Big Stone Plant in 1995 significantly contributed to our NPHR improvement. Subbituminous coal has higher heat content than lignite, so it takes less subbituminous coal to produce an equivalent amount of energy.
0
Tons
System average includes all owned generation sources and long-term wind power-purchase agreements. This chart is based on the assumptions that the Big Stone Plant AQCS will be completed by 2016 and Hoot Lake Plant will be replaced with natural gas generation in 2020.
Environmental stewardship
11
Nitrogen oxides 18,000
11
16,500
10
15,000
9
13,500
8
12,000
7
10,500
6
9,000
5
7,500
4
6,000
3
4,500
2
3,000
1
1,500
0
1985
1990
1995
2000 2005 Year System average intensity
2010
2016
2020
Tons
Emissions intensity lb/MWH
Nitrogen oxides emissions trend 12
0
Carbon dioxide
Tons
We monitor and evaluate the possible adoption of national, regional, and state climate-change and greenhouse-gas legislation or regulations that would affect electric utilities. Although in previous sessions of Congress legislators have introduced bills that would compel reductions in carbon dioxide (CO2) emissions, we believe it’s unlikely that Congress will adopt a mandatory federal CO2 emissions-reduction program in this biennium.
System average includes all owned generation sources and long-term wind power-purchase agreements. This chart is based on the assumptions that the Big Stone Plant AQCS will be completed by 2016, a separated over-fire air system will be installed at Coyote Station by 2018, and Hoot Lake Plant will be replaced with natural gas generation in 2020.
5.0
2,850
4.5
2,700
4.0
2,550
3.5
2,400
3.0
2,250
2.5
2,100
2.0
1,950
1.5
1,800
1.0
1,650
0.5 1985
1990
1995
2000 2005 Year System average intensity
2010
2016
2020
Tons (millions)
Emissions intensity lb/MWH
Carbon dioxide emissions trend 3,000
1,500
0.0
Tons
System average includes all owned generation sources and long-term wind power-purchase agreements. This chart is based on the assumptions that the Big Stone Plant AQCS will be completed by 2016 and Hoot Lake Plant will be replaced with natural gas generation in 2020.
12
Environmental stewardship
Hoot Lake Plant reduced its nitrogen oxides (NOX) emissions by approximately 60 percent by installing low-NOX burners and a separated over-fire air (SOFA) system for Unit 3 in 2006 and Unit 2 in 2008. This led to a clear improvement in our NOX emissions intensity when combined with a new SOFA system at Big Stone Plant in 1997. The AQCS project at Big Stone Plant, planned installation of a SOFA system at Coyote Station by mid-2018, and likely replacing Hoot Lake Plant with natural gas generation will further enhance these improvements. Nitrogen oxides are a precursor to acid rain and contribute to visibility impairment.
Because no legislation requiring CO2 reduction exists, our priority is to plan cost-effectively so that by 2020 CO2 emissions are less than or equal to our 2002-2004 average level. Our measure for this goal is based on owned, or internal, emissions. We do not participate in any carbontrading activities. Our efforts to increase plant efficiency and add renewable energy to our resource mix have reduced our CO2 intensity. Between 1985 and 2012 we decreased our overall system average CO2 emissions intensity about 25 percent, as shown in the graph to the left. We plan to reduce our CO2 emissions intensity further with an additional wind-power purchase and by replacing Hoot Lake Plant generation, likely with natural gas.
Developing wind energy
We choose a mix of generating resources that are low cost and environmentally responsible and that satisfy our customers’ needs for reliable electricity. While wind is a good environmental choice, it also has been the right choice for long-term cost. Our geography includes some of the nation’s premier wind resources, allowing our wind farms to convert wind energy into electricity more effectively than the national average. Adding wind-generation resources has been good for our communities too, producing welcomed property taxes in addition to increased income for landowners. To learn more about our wind resources read page 7.
TailWinds Since 2002 our TailWinds program has been available to commercial and residential customers who are interested in supporting an even greater level of company investment in renewable energy technologies. TailWinds allows our customers to purchase wind-generated electricity in 100-kwh blocks. In 2012, 623 customers participated and purchased 233,500 kilowatt-hours of electricity each month through the program. Participating customers pay a little extra for their electric energy to cover the incremental cost of renewable energy.
Recognizing challenges Wind power can pose challenges to electric utilities, especially in dispatching electric generating units to reliably meet consumer demand. The Mid-Continent Independent System Operator, Inc., (MISO) is addressing wind uncertainty through the use of Dispatchable Intermittent Resources (DIR). On September 1, 2012, our company’s ownership portion of the Langdon Wind Energy Center entered into DIR. All the rest of our owned wind assets and power-purchase agreements are exempt from participating in DIR either due to age or network resource status. The value of DIR to our company is that the wind farm is automatically curtailed when it is uneconomical to run. Additionally, MISO now will dispatch wind at five‑minute intervals based on the variable cost of operations, similar to all other generation in MISO. This will give MISO additional flexibility in dispatching generation to load, which will benefit all MISO customers.
Using water resources responsibly
Steam generation requires access to a large volume of water. Our plants fully comply with regulations governing the use of regional water resources as set forth in our water permits. We take great care to ensure that we do not negatively impact the rights of other users. That policy has served us well and has helped ensure a balance between environmental and economic interests.
Coyote Station Coyote Station appropriates water from the Missouri River under a permit issued by the North Dakota State Water Commission. The plant uses a cooling tower to meet its cooling needs. A small portion of the water appropriated for cooling tower operation is discharged to the Missouri River under a permit approved by the North Dakota Department of Health. The remaining plant wastewater is recycled and used in other plant processes. Most of the water lost is through evaporation. In 2012 Coyote Station appropriated 6,112.58 acre-feet from the Missouri River and discharged 364.29 acre-feet. During 2012 Coyote Station built a water transfer station for filling an independent company’s trucks with heated water. The independent company obtained its own water-appropriations permit from the North Dakota State Water Commission and pays Coyote Station for the use of its pumping system. The water is heated
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by waste heat from our generation process. The independent company’s trucks transport the heated water, which is vital for oil extraction in western North Dakota. The fees collected for this service help to offset other expenses, and that benefits our customers.
Big Stone Plant The South Dakota Department of Environment and Natural Resources (DENR) granted a permit for Big Stone Plant to withdraw water from Big Stone Lake. The permit includes restrictions that limit water withdrawals when Big Stone Lake is below prescribed levels. During 2012 we withdrew 3,854.17 acre-feet of water from Big Stone Lake. Water used at Big Stone Plant is treated and eventually recycled back into the plant and to the adjacent ethanol plant. This unique cooling water design allows the facility to have no heated-water discharge or process-water discharge into any natural surface-water bodies. We donated $12,000 to support the Glacial Ridge Project near Crookston, Minnesota. Now a National Wildlife Refuge, Glacial Ridge is the largest tall-grass prairie restoration ever undertaken in the United States. Thanks to The Nature Conservancy and its partners including the U.S. Fish and Wildlife Service, one day the refuge will encompass more than 35,000 acres of tall-grass prairie, oak savanna, and prairie wetlands along the ancient beach ridges formed from the shores of Glacial Lake Agassiz. Abundant and rare species of wildlife and plants make this an ideal destination for hiking, wildlife observation and photography, hunting, and environmental education.
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Hoot Lake Plant The Minnesota Pollution Control Agency (MPCA) oversees water quality programs and discharge regulations at Hoot Lake Plant. The Minnesota Department of Natural Resources administers water supply appropriations. Water for the plant is taken from nearby Wright Lake and is classified as either “consumptive” (not returned to the watershed) or “nonconsumptive” (returned to the watershed). Nonconsumptive water is returned to the Otter Tail River under the plant’s water discharge permit, while consumptive water is consumed within the plant. During 2012 nonconsumptive use totaled 63,799.05 acre-feet of water and consumptive use totaled 2.74 acre-feet.
National Pollutant Discharge Elimination System permits Industrial use of public waters is essential to our operations, and compliance with our permits is critical. National Pollutant Discharge Elimination System (NPDES) permits cover the return of public waters to their watershed. The states where we do business issue the required NPDES permits. In 2012 we submitted permit applications for Hoot Lake Plant’s industrial waste water and storm water, Coyote Station’s industrial waste water, Big Stone Plant’s storm water, and our company’s General Office summertime cooling water.
© John Gregor/ColdSnap Photography
Protecting wildlife
Our commitment to wildlife doesn’t end at providing suitable habitat. During 2012 we developed our Avian Protection Plan (APP). The APP details how power lines and structures should be designed and built and how to respond when birds interact with our configurations. Some raptors enjoy the vantage point and security of our power poles and choose to nest there. Unfortunately, these nests are susceptible to catching fire and pose electrocution risks to the birds. They also present a risk to continuous electrical service. We work with state and federal agencies, such as the Minnesota Department of Natural Resources and the U.S. Fish and Wildlife Service, to relocate raptor nests from transmission and distribution structures. In 2012 we received permits to relocate eight osprey nests from power poles to safer man-made structures. This photo shows one of our power poles (right) and a substitute nesting platform (left) that was constructed to improve the safety of the birds and the reliability of our distribution system.
Addressing spills, fines, and sanctions
Despite our commitment to sound environmental stewardship, rare mistakes and uncontrollable events occur. When they do, we correct them as quickly as possible.
Spills We had two oil spills during 2011 and two oil spills during 2012 that required notification to the National Response Center. Three of the four spills occurred during severe storms that damaged oil-containing electrical equipment. The storm-related spills occurred in Lake Benton, Bemidji, and Appleton, Minnesota. In all three instances no transformer oil was recoverable due to high-intensity rainfall during the spills. The nonstorm-related spill occurred at our Bemidji Hydro Plant when less than two gallons of hydraulic oil was released to the Mississippi River due to the failure of a hydraulic gate controller and associated secondary containment. The hydraulic oil released to the river was unrecoverable.
As part of our ongoing commitment to conduct our business in an environmentally responsible manner, we take measures to ensure oil-containing equipment in our substations poses no significant threat to the immediate environment. Every substation housing more than 1,320 gallons of oil and located near a water body or storm drain has been inspected by a professional environmental consultant and modeled using the Mineral Oil Spill Evaluation System. The modeling takes into account terrain, oil quantity, flow distance, soil characteristics, and other parameters to determine the likelihood that oil would reach the nearby water body in the event of a spill. If a risk is shown to exist, we install preventive measures such as concrete secondary containment dikes (as shown below), berms, or aggregate material to eliminate the risk and thereby protect the water of the communities where we live.
In 2011 we entered into contingency contracts with two emergency spill response companies. The contracts ensure that additional resources are available for highvolume or environmentally sensitive spill situations. We also discovered a leak in an underground fuel oil line at our Jamestown, North Dakota, combustion turbine. We worked with the North Dakota Department of Health to assess the environmental impact. The faulty line has been replaced with new piping, and the North Dakota Department of Health has approved our handling of the situation.
Fines and sanctions No fines have been assessed to our company for environmental infractions since 2009.
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Monitoring regulatory proposals
Coal-fired power plants are subject to a multitude of regulations that the U.S. Environmental Protection Agency (EPA) has either recently promulgated or is in the process of revising. The exact impact of these rules is difficult to predict because challengers typically question through court action whether the EPA is adhering to key restrictions and obligations. The outcome of these challenges notwithstanding, regulatory uncertainty will continue to impact our planning and operations. We are paying particular attention to the following rules that the EPA is developing.
Cooling water intake structures We support stewardship of the area’s natural resources and wildlife habitat. Coyote Station provides plant‑owned land for food plots sponsored by Pheasants Forever. Approximately 825 acres of our Big Stone Plant property (as shown above) is managed through an agreement with the South Dakota Department of Game, Fish, and Parks (GFP). GFP beneficially manages the property by planting trees, maintaining food plots, fostering native grasses, and controlling noxious weeds so wildlife can flourish. Public entry points provide access to this area so people can view nature and enjoy excellent hunting opportunities. Additional Big Stone Plant property is enrolled in GFP’s Walk-In Program, which allows free hunting to foot traffic only. Big Stone Plant also financially supports area organizations such as Ducks Unlimited, Pheasants Forever, and the National Wild Turkey Federation.
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Regulatory background The EPA is revising its cooling water intake structure (CWIS) rule under the Clean Water Act for existing steam-electric power plants. The rule requires that the location, design, construction, and capacity of a CWIS reflect the Best Technology Available (BTA) for minimizing adverse environmental impact. Adverse impact results from withdrawing cooling water containing aquatic organisms and subsequent impingement of larger organisms on the intake structure or the entrainment of smaller organisms within the plant cooling-water system. The EPA published the proposed rule April 20, 2011. We expect that the EPA will issue a final rule in mid-2013.
Otter Tail Power Company impact The CWIS rulemaking will affect Hoot Lake Plant because it employs once-through cooling, whereby water is gravity fed from Wright Lake to the plant condensers for cooling and condensing steam and then returned through a discharge canal to the Otter Tail River. In contrast, Big Stone Plant and Coyote Station employ recirculating cooling systems, whereby water is recycled throughout the cooling system. EPA considers recirculating systems to be a BTA. Hoot Lake Plant’s recirculating cooling towers operate only during low river flows or high water temperatures to maintain compliance with the plant’s water discharge permit. Challenges The proposed rule creates challenges because it sets one-size-fits-all impingement mortality standards with no opportunity to seek alternatives. Conversely, the entrainment mortality standards would give state permitting agencies flexibility to conduct site-by-site assessments. Extensive scientific literature on cooling water intake effects shows that environmental impacts differ widely from site to site and that a one-size-fitsall approach does not take into account the wide natural variability in aquatic communities. Moreover, the rule should consider the cost and energy implications of selected technologies compared with their expected environmental benefits. We don’t know what the final CWIS rule will require, but we have submitted comments urging that the rule for existing facilities be applied on a site-by-site basis, recognizing technology constraints and the need for possible modifications at each site.
Hazardous air pollutants
Regulatory background The 1990 Amendments to the Clean Air Act required the EPA to study the effects of emissions of hazardous air pollutants from power plants. Following almost two decades of study and litigation, the EPA proposed air toxics standards that reflect the application of the maximum achievable control technology for all coal- and oil-fired electric generating units. The EPA signed a final rulemaking termed the Mercury and Air Toxics Standards (MATS) rule on December 16, 2011. The rule sets standards for mercury, particulate matter, and hydrogen chloride that units must attain on a 30-day rolling average basis. Power plants have until April 16, 2015, to comply, although the Clean Air Act does provide that sources may be granted up to one additional year for compliance if such time is necessary for installing controls.
Challenges Due to the complexity of the rule and the significant costs that will be incurred, MATS has received a tremendous amount of criticism, including a court challenge by 25 states. Although it will take time to work through the court challenges, we will be prepared to meet the rule’s compliance deadline. We also continue to encourage the EPA to correct several ambiguities that exist within the rule.
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Otter Tail Power Company impact Based on our review of the final rule, it appears our units would meet the requirements by installing the AQCS at Big Stone Plant, upgrading the electrostatic precipitators at Hoot Lake Plant, and adding mercury-control technology on all units. Emissions monitoring equipment and/or stack testing also will be necessary to verify compliance with the standards. The graph to the right shows the anticipated decrease in our mercury emissions after complying with MATS.
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System average includes all owned generation sources and long-term wind power-purchase agreements. This chart is based on the assumptions that the Big Stone Plant AQCS will be completed by 2016, mercury-reduction technology will be installed at Coyote Station and Hoot Lake Plant by 2016, and Hoot Lake Plant will be replaced with natural gas generation in 2020.
Transport rule for sulfur dioxide and nitrogen oxides
Regulatory background The Clean Air Act requires the EPA to address interstate transport of air pollution. Consequently, in July 2011 the EPA issued a rule termed the Cross-State Air Pollution Rule (CSAPR) to reduce sulfur dioxide (SO2) and nitrogen oxides (NOX) in 23 states, including Minnesota. The rule would have required units to manage a new set of SO2 and NOX emission allowances (i.e., a cap-and-trade program) beginning in 2012. A number of states and industry groups challenged CSAPR. On December 30, 2011, the District of Columbia Circuit Court granted motions to stay CSAPR pending resolution of the petitions for review. The court issued an order in August 2012 to vacate CSAPR. The order requires the EPA to continue administering the Clean Air Interstate Rule (which does not apply to Minnesota) pending the promulgation of a valid replacement rule.
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Otter Tail Power Company impact Because the CSAPR region included Minnesota but not South Dakota or North Dakota, Hoot Lake Plant would have been our only covered facility. Based on the emission allowances that EPA was planning to allocate, Hoot Lake Plant would have been significantly short of SO2 allowances and would have needed to make up for this shortfall, likely through purchasing allowances on the open market. Challenges The CSAPR rule would have been a significant challenge due to the extremely short compliance timeframe. Many units would have been forced into purchasing allowances due to inadequate time for installing pollution controls. This could have inflated market prices and caused a shortfall of allowances. We support the D.C. Circuit Court’s ruling, and we’re hopeful that a replacement rule adequately addresses CSAPR’s flaws.
Coal ash regulation
Regulatory background On June 21, 2010, the EPA published a rule containing two alternative proposals to regulate coal ash produced by electric utility generators. Each of the alternatives promotes national regulatory consistency and addresses the perceived shortcomings of current state regulations. The first alternative would regulate coal as a new “special waste” under the Hazardous Waste rules of Subtitle C of the Resource Conservation and Recovery Act (RCRA). The second would regulate coal ash as a nonhazardous waste under Subtitle D of the RCRA with individual state oversight. In the three years since publication of the proposed rule, the regulation of coal combustion products has not been finalized. No mandate has been placed on the EPA to finalize the rule by a specific date. The EPA still is reviewing more than 450,000 comments it received regarding this proposed rulemaking. An environmental coalition and two coal ash recyclers have filed intent to sue regarding the rulemaking in hopes of compelling the EPA to finalize the rule. Alternatively, bills have been introduced in Congress that would prevent the EPA from regulating coal combustion products as hazardous waste and would give primary oversight to the states for its handling.
Otter Tail Power Company impact Our company facilitates the use of products of coal combustion including fly ash, flue gas desulfurization product, boiler slag, and bottom ash. We disagree with the proposed Subtitle C alternative, and we submitted comments to the EPA to that effect. We are concerned that beneficial use could be eliminated due to the stigma of ash being classified as a hazardous waste. This would result in more materials being placed in on-site landfills rather than beneficially being used. Challenges The EPA has conducted more than 20 years of study and issued two reports to Congress regarding coal combustion products. These reports conclude that these products do not exhibit hazardous waste characteristics and are properly managed under state waste regulations. We will continue to follow this important rulemaking.
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Regional haze
Regulatory background The EPA promulgated the Regional Haze Rule in 1999 to address visibility impairment in Class I areas. Class I areas include 156 national parks and wilderness areas, such as the Boundary Waters Canoe Area wilderness and Voyageur’s National Park in Minnesota. States have submitted plans detailing their strategy to reduce haze and setting reasonable progress goals that meet the goal of no man-made visibility impairment in Class I areas by 2064. Otter Tail Power Company impact The Regional Haze Rule includes a provision that sources built between August 7, 1962, and August 7, 1977, found to contribute to visibility impairment in Class I areas must install best-available retrofit technology (BART). Big Stone Plant and Hoot Lake Plant Unit 3 were built within this timeframe. Dispersion modeling determined Hoot Lake Plant Unit 3 did not significantly contribute to visibility impairment and thus is not subject to BART. However, air-dispersion modeling for Big Stone Plant indicated that the plant’s emissions reasonably contribute to visibility impairment in Minnesota, North Dakota, South Dakota, and Michigan. The Big Stone Plant AQCS project will resolve this impairment.
Our Community Connections program supports the Wells County Outdoor Learning Center near Fessenden, North Dakota. The learning center used our funds to create five outdoor learning station shelters. Each shelter contains a work table, discovery trunk full of lesson plans and tools, and interpretive signs. Learning topics explore watersheds, wetlands, soils, trees, and prairies. The learning center integrates conservation education with handson learning activities to provide a comprehensive environmental learning opportunity for all ages.
Although not BART eligible, Coyote Station is required to make NOX reductions as part of North Dakota’s need to achieve 2018 reasonable progress goals. Separated over-fire air controls will allow Coyote Station to achieve neccessary NOX reductions.
Challenges States are required to revise their regional-haze plans by July 31, 2018, and every ten years thereafter. These revisions may require additional emissions reductions over time. The case-by-case basis by which these reductions are determined, and the need to be approved by the EPA, make it difficult to predict the stringency and timing of future controls.
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Promoting energy efficiency
We believe that an electric utility should share employee expertise with its customers and communities. We offer customers proven energy-efficient technology options, rate information to help calculate operating costs, and energy-efficiency programs that best suit customers’ goals and needs. We continue to pursue aggressive energy-conservation goals. In 2012 we offered a portfolio of programs in Minnesota and South Dakota.
Minnesota Conservation Improvement Program Our Minnesota Conservation Improvement Program (CIP) offers customers the opportunity to save energy and money in a challenging economy. Benefits extend to all customers through deferred utility infrastructure investments. In 2009 we launched the Community Energy Challenge in Rothsay, Minnesota, as an effort to reduce energy use in one small town. Students continue to promote energy efficiency within the school and gather annual Energy Pledges from residents and businesses. During 2012 Rothsay residential customers saved 594 kwh, or 3.61 percent, on average. Nonresidential customers saved 2,423 kwh, or 9.64 percent, on average. In June 2012 the program served as a model for other communities when the Clean Energy Resource Teams and Minnesota Association of Small Cities held in Rothsay an event called “Tools and Opportunities for Local Governments in Central Minnesota.� City officials from around the area, representatives from the Energy Services Coalition, and staff from the Minnesota Department of Commerce attended to learn about the Community Energy Challenge partnership and tools that can help local governments complete similar energy-efficiency projects.
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We designed our 2012 programs to comply with The Next Generation Energy Act of 2007. The act sets an aggressive statewide energy-conservation goal of 1.5 percent of average annual Minnesota utility retail sales but sets a minimum amount of savings for utility plans at 1 percent. We introduced new programs and focused additional resources on implementing CIP to achieve this goal. During 2012 we invested more than $4.81 million on CIP and returned more than $25.9 million in lifetime benefits to customers. Savings reached an estimated 30.7 million annual kilowatt-hours of energy and more than 6.4 MW of demand. For the year, that is 1.43 percent of our annual retail sales. At a lifetime cost of less than 2 cents per kwh conserved, our energy-efficiency programs continue to be a cost-effective resource for customers. In addition to designing programs to meet conservation goals, we are working to ensure that savings estimates are measurable and verifiable to meet stringent state program requirements. While 2012 savings results have not yet been approved, we highlight a few Minnesota programs on the following pages.
Energy-efficient lighting installations Our commercial lighting program was our most successful 2012 commercial energyefficiency program. More than 563 participants installed systems that are expected to save approximately 9.17 million kwh annually during the life of the technology. Light Emitting Diode (LED) lamps and fixtures still were relatively new to the market in 2012. But they continue to grow in demand and contributed more to energy savings in 2012 than in any previous year. In addition to those savings, our residential Be Bright program resulted in the sale of 28,034 compact fluorescent lightbulbs (CFLs) and LED holiday lights, which we estimate to save more than 15 million kwh during the life of the bulbs. We typically partner with local retailers in rebating Energy Star-qualified CFLs and LED holiday lights at the point of sale during the fall. In the future we plan to offer the rebate program year-round.
Heat pump rebates This program encourages customers to replace their inefficient electric resistance heating and cooling systems with air-source or geothermal heat pumps. The program, which saved about 2.5 million kwh in energy sales for the year, is designed to reduce both winter and summer peak demands as well as overall energy use. Approximately 164 residential and 132 commercial high-efficiency Energy Star-rated equipment installations qualified for rebates.
Energy-efficient equipment grants Our grant program taps the conservation and efficiency potential of our customer’s commercial and industrial operations by partially funding cost-effective energyconservation projects. We make customized grant awards based on our analysis of the projected energy-saving benefits to be derived from proposals developed and submitted by customers. During 2012 we provided 58 custom grants to customers for industrial and manufacturing installations of energy-efficient process improvements with a total projected savings of about 4.4 million kwh of energy and 919 kw of demand. Motor rebates Motors can account for up to 75 percent of the total electricity costs in industrial plants and up to 50 percent of electricity costs in commercial buildings. Clearly, replacing working or burned-out standard-efficiency motors with energy‑efficient motors can reduce energy use and operating costs. Our motor rebate program encourages our industrial, commercial, and agricultural customers to purchase efficient new, replacement, or retrofit motors. During 2012 customers installed 88 motors with projected savings of 200,000 kwh of energy and 26 kw of demand. Adjustable-speed drive rebates The common induction motor is widely used in virtually every manufacturing plant and office building. The single most potent source of energy savings in induction motor systems lies in the controls that govern the motor’s operation. Adjustablespeed drives (ASDs) are one method of modifying or controlling motor operation and thereby improving drive system performance and efficiency. ASDs can match the speed of an AC motor to the requirements of a fluctuating load, such as a pump. During 2012 customers installed 118 ASDs with projected savings of 2.5 million kwh of energy and 312 kw of demand. Commercial Design Assistance Our Commercial Design Assistance program encourages building owners, architects, and design engineers to incorporate energy efficiency into new building construction. Experts review building plans and specifications and look for opportunities to incorporate efficient design characteristics that exceed energy code requirements. Eligible customers receive incentives for making those energyefficiency improvements. Recommissioning Program Similar to the way cars age and gradually lose fuel efficiency, large commercial buildings age and become less efficient. Our Recommissioning Program (RCx) provides incentives for building owners to complete RCx studies. Commissioning is a process that ensures commercial building systems are operating according to the original design intent. Recommissioning is a process that ensures a building commissioned years ago is running at optimal performance. And retrocommissioning is a process for tuning up a building that never was commissioned after construction was complete. RCx covers both recommissioning and retrocommissioning.
A Recommissioning (RCx) project at West Central Area Schools in Barrett, Minnesota, proved to be a worthwhile investment. Projects identified by the RCx study resulted in energy savings of 378,000 kwh with an annual energy cost savings of $26,485. We project that energy cost savings will pay for the costs associated with the recommissioning in well under one year, proving that tuning up an old building is a great place to start on the path to energy efficiency.
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CoolSavings Since 2010 we’ve offered CoolSavings across our service territory because of the program’s energy savings and summer-season load-management benefits. Residential customers who enroll earn a $7-a-month bill credit June through September in exchange for allowing us to cycle their central air conditioners 15 minutes on and 15 minutes off during peak periods. In 2012, 119 Minnesota customers enrolled in the program. Approximately 1,000 customers are enrolled in CoolSavings in the three states we serve. In 2012 we initiated a pilot CoolSavings program for commercial customers in the Fergus Falls, Minnesota, area. The commercial program is gaining momentum, and we anticipate expanding to other areas to increase participation.
Appliance recycling The appliance recycling program encourages our customers to recycle working but inefficient refrigerators and freezers to receive a $50 rebate. Providing this service across our large, spread-out service territory was a challenge met by our service provider, Appliance Recycling Centers of America. We work with other utilities to offer this program to maintain cost effectiveness. In 2012 the program resulted in 547 recycled and rebated appliances. We’re considering expanding this offer to include other types of appliances. House Therapy for income-qualified customers Our House Therapy program continues to offer income-qualified electric heating customers weather stripping and insulation services, compact fluorescent lightbulbs, controlled water-heating systems, and refrigerator and freezer replacement. Offered through a partnership with Minnesota Community Action Agencies, this program served 148 homes in 2012. Behavioral changes produce savings Because personalized energy-use information drives behavior and behavioral changes produce energy savings, our Energy Feedback program has been a successful and significant part of our residential portfolio of conservation programs. The energy-use information is delivered to customers by mail through Opower Home Energy Reports and online through the Aclara Bill Analyzer tool. Approximately 31,000 residential customers were selected at random for inclusion in the Home Energy Report program. Throughout 2012 each household was sent up to seven reports that outlined how their energy use compared with similar homes in the area. Customers may opt out of the program if the information is of little interest, but less than 1 percent have done so. Customer savings averaged 148 kwh per household. Bill Analyzer is an online service that requires customers to opt in. It incorporates bill history and calculator tools to help customers find personalized ways to save. In 2012, 1,139 Minnesota customers used the tool, and customer savings averaged 529 kwh per household. Overall savings for the two programs totaled 5.6 million kwh in 2012.
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Energy efficiency as a component of our integrated resource plan
Since 1992 we’ve helped our
Because the Minnesota Public Utilities Commission recognizes energy efficiency as a resource in planning to meet future energy needs, our Conservation Improvement Program served a prominent role in our 2010 integrated resource plan (IRP). The IRP called for 55 MW of new conservation and 15 MW of new summer-season demand-response capacity through 2025. See page 5 for more information about our IRP filing.
customers conserve more than 500 MW of cumulative demand and about 2.5 million cumulative megawatt-hours of electricity. That is roughly equivalent to the amount of electricity that 189,000 average homes would use in a year and represents 186 percent of the annual energy sales of our entire residential customer base.
South Dakota Energy Efficiency Plan Our South Dakota residential and business customers continue to require less electricity by using the energy-efficient technologies available to them. Our South Dakota Energy Efficiency Plan approved in 2011 for 2012 and 2013 encourages businesses to install energy-efficient lighting and motors, air-source and geothermal heat pumps, and custom efficiency-improvement concepts developed independently or as a coordinated effort between customers and our company. Preliminary results for 2012 show we invested $309,911 in our South Dakota Energy Efficiency Plan, returning more than $4.5 million in lifetime benefits for customers. Customer energy savings reached 3.85 million kwh, which was 170 percent of our 2012 goal.
North Dakota conservation program Funds that the State of North Dakota allocated to Otter Tail Power Company through the American Recovery and Reinvestment Act (ARRA) for energy-efficiency upgrades in North Dakota were fully expended in 2011. We continue to offer demandresponse programs and incentives to North Dakota customers.  
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Social stewardship
One element of Otter Tail Power Company’s mission is to improve the quality of life in the areas in which we do business. To that end, we work to have open, honest, timely communication with customers, regulators, employees, shareholders, and others. We engage in our communities to strengthen the viability of our region. We place reliability, cost-effectiveness, and environmental responsibility at the forefront. We are active in the processes that shape utility industry changes. And we have fair business practices that comply with regulatory and legislative policy.
In 2012 interested stakeholders participated in public meetings related to the following projects: • Fargo-St. Cloud 345-kv transmission line • St. Cloud-Monticello 345-kv transmission line • Big Stone South-Brookings County 345-kv transmission line • Big Stone South-Ellendale 45-kv transmission line • Casselton-Buffalo 115-kv transmission line • Baseload diversification study focused on retirement and repower options for Hoot Lake Plant
Open involvement
We continue to work with regulatory agencies on the local, state, and federal levels to obtain required project approvals. Through agency and public meetings (see sidebar) project teams make a concerted effort to implement processes that are as transparent as possible. We hope that one-on-one relationships and communication with our customers and local governing officials help to simplify processes and encourage customer participation.
Customer information
Energy conservation is a cornerstone message in our television, radio, print, bill insert, and online communications. Our advertising campaigns during 2012 included CoolSavings, which encouraged customers to allow us to cycle their air conditioners to help manage summer’s high energy-use periods; Appliance Recycling, which encouraged customers to recycle working but inefficient refrigerators and freezers; and Attic Survivor, which encouraged customers to keep heat where it belongs through insulation and weatherization. To help ensure safe and reliable electric service, we provide customers with information about using electricity wisely. Our web sites (www.otpco.com, www.ConservingElectricity.com, and www.EnergyChallengeIsOn.com), advertising, bill inserts, and targeted news releases emphasize safe, efficient energy use. Our goal is to ensure that our customers have convenient access to this information. We also use these methods to inform customers about rate options, available financing and rebates, and the services they can obtain from our customer service centers. Regulatory commissions in the three states we serve require that we share certain information about rates and/or rate changes with our customers through bill inserts, advertisements, or special mailings. Those pieces are included in our communication plan, and we work closely with the commissions to ensure that we meet their expectations. In 2012, as in previous years, we complied with all regulatory notification requirements. Of course, throughout all communication with us, customers can be assured that their private information is kept confidential. We have a privacy plan that complies with national “Red Flags” rules, and we regularly train employees about these policies.
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Preparedness planning
Our company has several situation-specific documents that provide a systematic approach to managing crises without causing major disruption to normal activities. These documents, some of which are outlined below, are general guidelines we supplement with employee education and training.
Emergency-response guidelines Each employee has a copy of our company’s emergency-response guidelines, which we provide to help ensure employee safety and reduce property damage should an emergency or disaster occur. Emergency procedures covered in the guidelines include medical, fire, tornado, workplace violence, elevator escape, building evacuation, bomb threat, and suspicious mail and objects. Our Safety Services Department periodically reviews the emergency-response guidelines.
Crisis-management plan Our crisis-management plan is a thorough, step-by-step checklist that includes a first-hour response plan, key contacts, and situation-specific procedures for major crises. This plan is reviewed annually by the executive team, area managers, plant managers, attorneys, Otter Tail Corporation, and representatives from our Public Relations, Safety Services, System Operations, Regulatory Services, Environmental Services, and Delivery Engineering Departments.
Cyber security and critical infrastructure protection plan The Federal Energy Regulatory Commission initially approved the North American Electric Reliability Corporation Critical Infrastructure Protection Standards in 2008. These standards recognize the criticality and vulnerability of the assets needed to manage reliability and the risks to which they are exposed. The standards provide a framework for identifying and protecting critical cyber assets to support reliable operations of the bulk electric system. In February 2010 the Midwest Reliability Organization (MRO) conducted a compliance audit of our company related to a limited number of Critical Infrastructure Protection Standards and identified no findings. The Critical Infrastructure Protection Standards have been revised since then, and additional requirements are in effect. In February 2013 the MRO conducted its triennial compliance audit including all of the standards.
System restoration plans In the spring and fall of each year we and our neighboring utilities run drills based on our respective system restoration plans. The purpose is to exercise the procedures and processes required to restore the bulk electric system from a blackout condition. By understanding system behavior and having jointly developed and proven procedures in place, Otter Tail Power Company and neighboring utilities help ensure continued system reliability for the region. Because reliability is one of our main concerns, we also maintain a backup control center, which would allow us to work with neighboring utilities if our primary control center were to become unusable.
Information technology business continuity plan and disaster recovery plan These plans provide process guidelines for reestablishing essential business services during the first days and weeks of a disaster that would impact computer and networking systems, software and applications, and communications systems. The documents outline a logical sequence of steps for us to consider in reestablishing a business system and include key contacts and vendors.
Our company’s various preparedness plans incorporate recommendations and compliance measures from: • Federal Emergency Management Administration (FEMA). • Mid-Continent Independent System Operator, Inc. (MISO). • North American Electric Reliability Corporation (NERC). • Federal Energy Regulatory Commission (FERC). • Other key agencies.
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Reliability
We work hard to minimize the frequency and duration of service interruptions. As part of a long-term reliability strategy, we perform critical analyses of our transmission and distribution systems to identify areas requiring proactive maintenance. We track our response to interruptions using four reliability performance indicators. Here are our 2011 and 2012 system storm-normalized reliability results as recorded by our interruption monitoring system.
In the wake of SuperStorm Sandy, 17 Otter Tail Power Company Linemen, Service Representatives, and Mechanics traveled to Long Island, New York, in three digger derricks, four bucket trucks, a mechanic repair truck, and two pickups to help National Grid, the service provider for Long Island Power Authority with disaster recovery. Our crew members started their efforts in Bethpage, Long Island, sleeping in their trucks. Then they slept in tents until strong winds forced evacuation. They ran into heavy blowing snow as they moved to Huntington, New York. It was almost a week before they had their first showers. “But it’s pretty amazing that we joined more than 60,000 electrical workers in a common goal,” said Gerry Bailey, foreman for this restoration effort. Our crews primarily repaired distribution lines and individual lines into homes and replaced broken poles.
26
Social stewardship
System Average Interruption Frequency Index (SAIFI)—The number of interruptions lasting five minutes or more that an average customer experienced during the year. SAIFI
2011
2012
Goal
< 1.4
< 1.4
Actual
1.56
1.46
Customer Average Interruption Duration Index (CAIDI)—The average length of time that a customer was without service during an interruption. CAIDI
2011
2012
Goal
< 55 minutes
< 57.14 minutes
Actual
67.9 minutes
57.66 minutes
System Average Interruption Duration Index (SAIDI)—The average minutes of sustained interruption per customer during a year. SAIDI
2011
2012
Goal
< 77 minutes
< 80 minutes
Actual
105.6 minutes
84.09 minutes
Momentary Average Interruption Frequency Index (MAIFI)—The number of interruptions lasting less than five minutes that an average customer experienced during the year. MAIFI
2011
2012
Goal
<8
<8
Actual
7.5
6.7
Vegetation management Our goal is to prune and remove trees on a five-year systemwide cycle, thereby reducing vegetation- and animal-related outages. In 2012 we spent $935,000 on vegetation management for our transmission system and $1.55 million for our distribution system.
Synchrophasors In 2009 the Mid-Continent Independent System Operator, Inc., (MISO) was among 100 recipients of the U.S. Department of Energy’s (DOE) Smart Grid Investment Grant awards. MISO received a $17.3 million grant to fund the development and deployment of synchrophasors as part of the DOE’s effort to modernize the power grid using Smart Grid technology. Synchrophasors are highly sensitive devices used for monitoring the power system and measuring grid diagnostics. They simultaneously transmit data from substations to control centers with high-speed data collection of about 30 scans per second compared with a typical single scan every two to four seconds. Synchrophasors provide us the ability to view data from our own applications and receive data from our neighbors, which improves the management of the transmission system. Overall, the use of synchrophasors: • Improves system visibility and reliability. • Provides increased accuracy and faster turnaround time with respect to sequences of events, including supplemental data and load-shed schemes. • Improves both generator and load modeling. As a member of MISO, we installed eight synchrophasors from 2010 to 2012. They’re located across our service territory at the Maple River, Jamestown, Rugby, Luverne, and Wahpeton Substations in North Dakota; Canby and Cass Lake Substations in Minnesota; and Big Stone Substation in South Dakota. The DOE and MISO reimburse us for 100 percent of these project costs.
Geographic information system We are in the process of implementing a geographic information system (GIS) to be a single repository for company asset information. The GIS is an interactive database that has attribute and geospatial information associated with each point and line on a single map. It includes information about various components of our electrical system such as transmission and distribution lines, transformers, regulators, capacitors, and poles. In 2012 we developed GIS applications as tools to assist with vegetation management, ground pole inspection, and line patrol. Rather than using several computer-aided drafting (CAD) maps for an area, everything is shown on one map and contains more information than CAD maps are able to show. By early 2013 GIS will replace more than 4,000 CAD maps.
July 2012 brought two rounds of outages from storms in the Bemidji area. On July 2 straight-line winds in excess of 80 mph toppled countless trees and knocked out power. A Fourth of July storm, with 60-mph straight-line winds, hit Bemidji’s western edge and extended north. Crews were out in full force on the July 4 holiday. In Cass Lake 25 Service Representatives and Linemen worked to make repairs. By the next evening all customers who didn’t require the services of independent electricians had been energized. “The storm was widespread, the worst I’ve seen in the area,” said Bemidji Operations Manager Darren Matetich. “At the worst we had about 6,070 customers without electricity, and in 24 to 26 hours we had 90 percent restored. We had 41 guys total working between Bemidji and Cass Lake for the week. What these guys did in the heat and humidity was remarkable.”
Social stewardship
27
Customer satisfaction Relationship survey Since 2004 we’ve engaged the American Customer Satisfaction Index (ACSI) research program to conduct independent random surveys among our residential customers, regardless of whether the customers have contacted our company. ACSI asks them about all aspects of their service relationship. ACSI compares our customer satisfaction ratings with those of the largest investor-owned, municipal, and cooperative electric and natural gas utilities in the country which, combined, serve more than 75 percent of the nation’s residential customers. Our overall customer satisfaction relationship score for 2012 was 85 points (out of 100), which was 3 points higher than the highest-rated investor-owned utility (electric or dual electric/gas) and meets our company’s goal of being in ACSI’s topfive-rated utilities. We scored high in every key driver that ACSI measures, including satisfaction, meeting customer expectations, quality, perceived value, customer loyalty, reliability, and service restoration.
ACSI relationship survey results 2012 Otter Tail Power Company
85
Highest-rated investor-owned utility in the comparison group
82
Industry average
76
Lowest-rated investor-owned utility
65
Numbers are on a scale of 0 - 100
Transaction survey We conduct transaction surveys with customers who have contacted our company within a defined period of time. The surveys measure transaction-specific customer satisfaction and resolution, as well as the number of times the customer called about the same issue. The survey includes all customer contact—phone, web, mail, in-person visits, and after-hours calls. The survey measures the specific aspects of service that our Customer Service Representatives provide as well as field representative follow-up when relevant. In 2012 our customers were satisfied with their contact experiences, rating us 9.2 on a 10-point scale.
Transaction survey results 2012 Overall contact experience satisfaction (10-pt scale) - Mean
9.2
Overall Customer Service Representative handling satisfaction (10-pt scale) - Mean
9.4
Concern resolved (Yes)
92%
First-contact resolution (resolved in first contact)
84%
Overall quality of service (5-pt scale) – Top 2 rating
92%
Results from both surveys indicate strong customer satisfaction. We can apply our knowledge of how customers think about the service we provide to ensure that positive experiences with our company continue.
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Social stewardship
Community commitment Public safety Helping keep customers and the public safe always has been paramount to our company. Our Safety Services Department staff, field personnel, and power plant employees give electrical safety presentations for schools, fire departments, and other organizations throughout our service area. These presentations educate the public about the hazards of electricity and about proper electrical safety measures. We also distribute several public service notices related to electrical safety throughout the year to raise awareness. 2012 messages included: • Portable electric space heater safety. • Call Before you Dig reminder. • Summer storm preparation. • Harvest safety. • Hunting safety near electrical facilities. • Safe burning near electrical facilities. • Wintertime safety. • Holiday safety.
Contributions and volunteer work We volunteer our time and skills to make our communities better places in which to live. Our employees volunteered for a wide range of nonprofit organizations and charitable causes in 2012. They served on boards of directors, organized volunteer projects, and made financial contributions.
Power of Two matching gifts program Our Power of Two program furthers this volunteer spirit. Employees who contribute a minimum of 24 hours of personal volunteer time within the year to a nonprofit organization are eligible for a $100 donation to that organization. Each employee is eligible for one donation to one organization each year. In 2012 Otter Tail Power Company contributed $6,200 to 39 different organizations on behalf of our employees for their 2011 service. Community Connections giving program While we provide financial support to a broad array of activities and organizations, we focus our resources on the rural communities we serve. Please read page 36 in the “Economic stewardship” section of this report to learn more about this giving program.
As part of our Community Connections giving program, we donated $2,000 toward a new fire truck that is being shared by the Bottineau, North Dakota, Fire Department and Rural Fire Department. The new truck has up-to-date technology to help fight fires. Bottineau Lead Lineman Steve Gallagher and Journeyman Lineman Matt Seykora are volunteer firefighters.
Social stewardship
29
Employee commitment
We encourage workforce diversity, offer our employees competitive compensation and benefits, promote a safe work environment, and challenge employees to excel. Our Human Resources Department administers a compensation and benefits program that helps us attract and retain a quality workforce to provide our customers with reliable and economical service. We endorse our Affirmative Action and Equal Employment Opportunity Plan. And we provide open channels of communication with our employees. For our bargaining unit employees (52 percent of our workforce), a grievance process is defined within our Collective Bargaining Agreements. Our 777 employees in Minnesota, North Dakota, and South Dakota expect and deserve a safe workplace where they are challenged, rewarded, and respected. Company leadership works to ensure this. Upon retirement, the average employee has approximately 33 years of service.
Our workplace diversity
To honor Tom Weiss, a financial reporting employee who passed away in January 2012, a team of his coworkers and friends participated in the Red River Valley 5K Heart Walk in April 2012 in Fargo, North Dakota. Team TFW (Trekking for Weiss or Thomas F. Weiss) raised $3,066 to benefit the American Heart Association. Pictured from back, left to right, are Financial Reporting Analyst Gina Ice, General Accountant Julie Kimball, General Accountant Stacy Eklund, Brandee Rensch, Risk Insurance Agent Kim Jacobs, Financial Analyst Lyn Bjorgaard, Kelli Halvorson, and Financial/Rates Analyst Christy Petersen.
30
Social stewardship
We are an equal-opportunity employer with policies and practices that are nondiscriminatory. Our Human Resources Department works to ensure that we comply with all laws regarding labor practices. We respect and value diversity among our employees and all those with whom we do business, and we hold every employee accountable for guaranteeing a workplace free of discrimination and harassment.
Employee compensation and benefits To help retain a skilled workforce through competitive benefits, we routinely benchmark our compensation policy. The table below highlights a cross section of jobs within our company. Position
Annual salary
Entry-level Plant Operator
$45,000 – $65,000
Control Room Operator
$65,000 – $78,000
Electrical Technician
$49,000 – $74,000
Welder
$59,000 – $67,000
Yard/Equipment Operator
$54,000 – $63,000
Starting Customer Service Representative
$29,000
Starting Customer Service Manager
$56,000
Entry-level Engineer
$56,000
Entry-level Apprentice Lineman
$50,000 – $59,000
Journeyman Lineman
$59,000 – $65,000
Lead Lineman
$72,000 – $76,000
In addition to vacation, paid holidays, and sick leave, we offer our employees the following benefits: • 401(k) retirement savings plan and/or pension plan • Employee Stock Ownership Plan (ESOP) • Health plan • Dental plan • Group and supplemental life insurance • Personal Accidental Death and Dismemberment insurance • Flexible benefit plan • Long-term disability plan • Employee allowances for electric heating systems • Employee Assistance Program • Adoption assistance • Travel accident insurance • Stock purchase plan • Safety eyeglasses plan • Safety shoes • Fire-retardant clothing allowance
High-deductible health plan In 2012 we transitioned from a traditional co-pay medical plan to a high-deductible health plan (HDHP) with a health savings account (HSA). The change has provided an opportunity for the company and our employees to better manage healthcare costs. Two benefits of an HDHP are that employees become better educated about their medical benefits and become wiser consumers. Offering an HSA, which can be offered with an HDHP, provides employees with a mechanism to take advantage of tax-deferred benefits relating to current and future medical expenses. Our emphasis now is on actively promoting wellness, prevention, and greater understanding of medical benefits. We want to help employees make healthier choices, live healthier lives, and reduce avoidable healthcare costs.
Tuition reimbursement Employees receive reimbursement for 80 percent of tuition and book costs for company-related accredited coursework. Thirteen employees took advantage of the opportunity in 2012.
Performance evaluations Our company requires managers and supervisors to evaluate their employees’ performance annually. Specifically, these evaluations include setting goals, recognizing employee strengths, and planning for employee development.
Employee communication Our goal is to deliver honest, timely, and easy-to-understand communication to both external and internal audiances. To measure our success, we contract with an independent firm every other year to survey employees about company communications. In 2012, 80 percent of surveyed employees said that they know about and understand our goals, objectives, plans, and directions.
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31
February Employees at Coyote Station received the Occupational Safety Merit Award from the North Dakota Safety Council for achieving an incident rate lower than the industry average. Coyote Station’s incident rate in 2011 was zero because employees had no OSHA recordable incidents. Since 2003 Coyote has received the Merit Award 11 times. Coyote also received the Safety Achievement Award for a 50 percent decrease in the incident rate from the prior year. April For the third time in seven years, Coyote Station earned the Lignite Louie Award from the Lignite Energy Council (LEC). Coyote tied with Montana-Dakota Utilities Co.’s Heskett Station as facilities with the lowest 2011 OSHA incident rate among the LEC membership. May The Minnesota Safety Council recognized Hoot Lake Plant with a Meritorious Achievement Award for above-average performance in incident rates and implementation of at least half of specified safety program benchmarks. The council also recognized our company with an Outstanding Achievement Award for continuing improvement and/ or a continuing outstanding record and implementation of 75 percent of safety program benchmarks.
Employee health and safety
Our comprehensive safety program is based on the premise that the safety of our employees is of utmost importance. We employ capable personnel and provide comprehensive training that enables them to provide optimal service. We provide safe working conditions, extensive safety training, and appropriate protective equipment. We inspect and upgrade equipment and continue to upgrade work methods. And we investigate accidents to determine causes and preventive measures. With these principles and practices, we make safety a commitment on every job site and a focus for every employee. We established a formal safety department in 1949—one of the nation’s first among electric utilities. We consistently have received awards from safety councils in the states we serve for exceptional workplace safety performance. These awards represent the achievement of all employees across all three states. We are proud of our safety tradition, which has shown and continues to yield a lower accident and injury rate than our industry peers. During 2011 and 2012 our company again achieved 12 consecutive months without a lost-time injury.
Safety performance comparisons Otter Tail Power Company
EEI peer
2012 goal
2012 actual
2011 average
0.30 or below
0.13
0.48
OSHA recordable injury rate
2.5 or below
2.41
2.72
Preventable vehicle accidents
11 or fewer
10
37
Lost-time injury rate
OSHA standard recordable injury calculation: Total number of cases x 200,000 ÷ total number of hours worked
Historical safety comparisons (OSHA recordable injury rate) 8 7 6
OSHA Rate
2012 safety awards
Otter Tail Power Company EEI peer
5 4 3 2 1 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: Edison Electric Institute (EEI) 10-year Injury Data for similar industry. Latest industry information available is through 2011.
Continued on page 33 sidebar
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Social stewardship
Safety rule book Management and representatives of our bargaining employees work together on our safety program and rule book. The rule book covers health and safety topics developed by a management-union committee. Among the rule book topics are: • Blood-borne pathogens exposure control plan. • Working on or near energized equipment sites. • Hazard communications. • Confined space. • Forklifts, cranes, and hoisting equipment. • Lineman practices. • Switching, tagging, and grounding.
Best Operating Practices Committee The Best Operating Practices Committee improves cross-departmental communication related to operations, equipment, and training. This committee assists company decision makers by providing research on procedures, policies, equipment, and regulations to support decisions and is composed of ten employees from various areas in our company.
July Liberty Mutual Insurance issued Otter Tail Power Company an award in recognition of our efforts to minimize injury severity in 2011. October Big Stone Plant received the Governor’s Meritorious Achievement Award for Occupational Safety from the South Dakota Safety Council. This award is based on fewer lost workdays and fewer injuries in 2011 compared with the average of industry counterparts in the plant’s Standard Industrial Classification Code.
Power plant emergency program Safety is a priority at all of our facilities, particularly at generating plants where the potential for injury is heightened. When hired, all company power plant workers receive intensive safety training, which is followed by refresher sessions. All power plant employees hold first aid and CPR certifications. In addition, each power plant has an emergency response team composed of volunteers who provide monthly training to their coworkers on hazardous material handling, firefighting, emergency medical technician/advanced first aid, high-angle rescue, and confinedspaced rescue. These emergency response teams also are available to contractors working on the respective plant sites.
Field safety Employees working in the field participate in monthly safety meetings, daily tailgate sessions, and other training opportunities to discuss safe work practices. Approximately 400 employees companywide are certified in CPR and first aid.
Safety visits with peer utilities In 2012 we partnered with Progress Energy, now Duke Energy, to enhance our respective safety programs by learning from each other. We chose Progress Energy because its safety record is in the top 10 percent of utilities reporting to the Edison Electric Institute (EEI). The company earned EEI’s Edison Award, the industry’s highest honor, in recognition of its operational excellence and was the first utility to receive the prestigious J.D. Power and Associates Founder’s Award for customer service. Our safety leaders visited Progress Energy to learn about different safety cultures, visit sites with employees in similar jobs, and discuss safety issues including accident-recovery processes, OSHA compliance, aging workforce, and wellness. Our team came back with new ideas about how to build and strengthen our safety culture. Our Safety Services Department already has implemented some of those ideas.
Social stewardship
33
Employee training Companywide online safety training Our safety culture extends to all employees. We use an online training program to allow employees to complete their required annual training as their schedules allow. Employees are enrolled in safety- and human resources-related classes based on job classifications and are asked to complete all training modules assigned to them in a calendar year. The table below lists the human resources-related classes that we require.
2012 online human resources training classes Number of employees who completed classes
Number of employees required to complete class
Percent complete
Discrimination-free workplace
765
772
99.1%
Drug- and alcohol-free workplace
765
772
99.1%
Ethics
765
772
99.1%
Hiring and lawful termination
112
115
97.4%
Sexual harassment for employees
660
665
99.2%
Sexual harassment for managers
112
115
97.4%
Violence in the workplace
195
198
98.5%
Classes
In 2012, 772 employees enrolled in 12,598 classes; employees completed 12,470 classes, or 99 percent. The following table lists the 2012 average hours of online training completed per employee by classification. Classification
Total training hours
Number of employees
Average hours per employee
Central Stores personnel (warehouse) Technicians/Electricians
135
22
6.1
274
45
6.1
Lineman/Service Representatives
926
188
4.9
Maintenance personnel
263
34
7.7
New employees Office/clerical personnel
8.9 4.3
Operations personnel
509
102
5.0
469
112
4.2
60
13
4.6
3,813
772
4.9
Total
Social stewardship
14 242
Supervisors/Managers Yard operations (plants)
34
124 1,053
Future workforce investment
We typically have a low employee turnover rate compared with other industries. The 2012 employee turnover rate was 6.3 percent including retirements. The rate was 3.1 percent excluding retirements.
2012 employee turnover Reason Retirement
Number of employees 25
Nonretirement attrition 24 Total
49
We expect approximately 40 percent of our workforce to retire in the next ten years taking precious skills and expertise with them. We continue to address this projected labor shortage in our internal succession planning process and by working with current employees to improve efficiencies. In addition, we develop and supply recruitment materials to educational institutions and other sources of qualified workers. For example, we distribute Powerful Possibilities, our interactive career guide, to area high school and college career services offices. It features overviews of jobs in customer service, engineering, and plant and field operations. We also support scholarship programs and internships, participate in job fairs, and accept speaking engagements. We have ties to post-secondary programs and employee involvement in multiple advisory committees at area institutions of higher learning, including: • Mitchell Technical Institute. • South Dakota State University. • Lakes Area Technical Institute. • Minnesota State Community and Technical College—Fergus Falls and Wadena campuses. • North Dakota State College of Science. • North Dakota State University. • University of North Dakota. • University of Minnesota—Crookston and Morris campuses. • Bismarck State College.
The University of Minnesota, Crookston (UMC) and the Northwest Research and Outreach Center presented us with the Torch and Shield Award for our efforts toward development of the university, outreach center, and extension service. This celebration of leadership is the highest honor that UMC presents. Social stewardship
35
Economic stewardship
We are a small electric utility providing exceptional electric service. We measure our success by monitoring key performance indicators such as safety, service, reliability, customer satisfaction, and financial responsibility. We understand our role as sole provider of electricity to our customers. And we have industrious employees helping to build the economic strength and viability of the communities we serve. By means of business planning, risk mitigation, cost containment, and cost-effective operations we provide competitive rates that are structured and suited for the residential and business customers we serve. As noted on page 3, our mission is to produce and deliver electricity as reliably, economically, and environmentally responsibly as possible to the balanced benefit of customers, shareholders, and employees and to improve the quality of life in the areas in which we do business.
Charitable contributions
Our company provides financial support to a broad range of activities and organizations as shown in the 2012 charitable contributions table below. We focus our resources on the rural communities we serve.
Community Connections Through our Community Connections giving program we donate to the following priority areas: • Education • Workforce development • Health and human services • Arts and culture • Community enhancement • Environmental stewardship Collaborative efforts and initiatives that fit more than one of our company’s priority areas receive greater consideration for funding.
Employee and other contributions Not only does our company support our communities, but our employees choose to contribute as well. Through volunteer work, such as our Power of Two matching gifts program (see page 29), and several campaigns held throughout the year, we are helping to make our communities better places to work and to live. The table below provides an overview of our 2012 total charitable contributions. Community Connections donations Customer Service Center and other donations United Way Campaign Employee contributions Company contributions Matching Gift for Higher Education Employee contributions Company contributions Children’s Miracle Network Employee contributions Company contributions Total 2012 charitable contributions
36
Economic stewardship
$286,325 $176,447 $44,290 $29,290 $15,000 $27,950 $13,975 $13,975 $9,640 $6,640 $3,000 $544,652
Economic development
Protecting and improving the quality of life in our communities—especially our smaller towns—means helping them remain vibrant, attractive places to live and do business. Throughout our history we’ve used various tools to accomplish this. Since 1989 our economic development consultants, grants, and loan pools have helped create 20,549 and save 4,366 jobs. Changes in the regulatory environment and the economies of our service territory have required us to modify our economic-development programs. We will continue to be involved in the economic-development efforts of our communities but less through loan pools and more through dedicated employees who live and volunteer in the communities we serve. Our employees realize that the successes of their communities and our company are connected. We will continue to work with companies seeking to locate or expand in our service territory through economicdevelopment assistance that involves financial strategies and other needed assistance and advice. Our greatest impact on attracting and retaining businesses in our communities is providing reliable electric service at manageable rates. The investments we make to carry out that portion of our mission have significant direct and indirect economic value.
Direct economic value
We continued our role as a corporate citizen by making the following economic impact in 2012. Property taxes paid to local jurisdictions
$10,720,000
Wages and benefits paid to utility employees
$89,817,000
Common and preferred dividends paid to shareholders*
$43,754,000
Interest paid
$18,514,000
Amount paid to suppliers and vendors
$299,335,000
2012 total direct economic value generated
$462,140,000
*Visit Otter Tail Corporation’s web site (www.ottertail.com) for more investor information.
Local sourcing opportunities
We positively impact the communities we serve by using local vendors when appropriate. The table below details our 2012 expenditures with vendors in our tri-state service area. Amounts paid to tri-state vendors in 2012 Minnesota
Percentage of total
$129,115,000
43.13%
South Dakota
$11,469,000
3.83%
North Dakota
$98,111,000
32.78%
Total for local vendors
$238,695,000
79.74%
Total payments to all vendors
$299,335,000
Economic stewardship
37
Indirect economic value
During 2012 we engaged in construction and replacement projects as well as ongoing maintenance and operations support that created more than $80 million in indirect economic value. These projects include transmission line upgrades and various equipment replacement projects. The table below details the economic impact of those projects. Labor spending on construction
$14,001,000
New or replacement construction property
$50,570,000
Capital additions to plant in service
$64,571,000
Labor spending on maintenance
$14,768,000
Rents $1,079,000 Economic development spending
$208,000
2012 total indirect economic value generated
$80,626,000
Manageable rates
Keeping our existing low-cost baseload plants available and generating electricity is critical to maintaining manageable rates for our customers.
2012 availability of our baseload generation sources Average 2012 availability
Plant
Comments
Big Stone Plant
93.2%
Big Stone Plant nearly met the 95.84 percent availability record set in 2006.
Coyote Station
71.6%
Coyote had lower-than-expected availability because of a spring planned outage and a forced outage due to generator failure.
Hoot Lake Plant Unit 2
97.2%
Unit 2 had 100 percent availability for six months.
Hoot Lake Plant Unit 3
98.0%
Unit 3 had 100 percent availability for ten months.
Commodity costs
38
Economic stewardship
Maintaining a reliable electrical system requires the ability to access financial markets to finance increasing costs associated with system repairs and upgrades. Costs for crucial commodities are on the rise nationwide, yet electricity remains a value. Percentage of increase 19831983 - 2012 to 2012 Percentage of increase from Consumer Price Index and Otter Tail Power Company Consumer Price Index and Otter Tail Power Company (Revenue per kilowatt-hour based on residential customer class average)
140% 120% 100% 80% Consumer Price Index Otter Tail Power Company
60% 40% 20% 0%
84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 20 08 20 10 20 12
-20% 19
Our accounting employees, many of whom are M-State Fergus Falls alumni, established a scholarship endowment through donations to the Fergus Area College Foundation. Our company provided matching funds for each employeeâ&#x20AC;&#x2122;s donation. Carolyn Glesne (left front), Executive Director of the Fergus Area College Foundation, presented Becky Moe (right front) with the inaugural Otter Tail Power Company Employees Accounting Scholarship. Employees who helped establish the scholarship are in the back row: (left to right) Contoller Jeff Legge, Lead Cost Accountant Darlene Mandelke, (1980 M-State graduate), Cost Accountant Brian Boss (1993), and Financial Reporting Manager Stuart Klovstad (1978).
Countering cost increases To offset significant cost increases we have been controlling our expenses while optimizing plant efficiencies, improving and expanding our load-management system, emphasizing energy efficiency and conservation, managing the size of our employee force, and taking steps to reduce employee benefit cost increases. We are being resourceful, stretching our budgets, and making prudent decisions. The following maps show how our typical electric bills compare with other utilities in the states we serve and with utilities nationwide.
Average commercial electricity rates by state
Average residential electricity rates by state
(cents per kilowatt-hour)
(cents per kilowatt-hour)
No data AK or NE
No data AK or NE
Hawaii
Hawaii
8.00 to 9.5
6.50 to 8.00
9.51 to 10.00
8.01 to 8.50
10.01 to 11.00
8.51 to 10.00
11.01 to 12.50 12.51 to 15.50 15.51 to 18.00 36.71
Otter Tail Power Company’s average residential rate per kwh is 8.12¢ in SD, 7.89¢ in ND, and 9.14¢ in MN.
10.01 to 11.00 11.01 to 14.00 14.01 to 17.00
The national average residential rate is 12.08¢ per kwh.
34.50
Reflects average utility rates for 12 months ending June 30, 2012 Source: EEI Typical Bills & Average Rates Report, Summer 2012
Otter Tail Power Company’s average commercial rate per kwh is 7.93¢ in SD, 8.04¢ in ND, and 9.03¢ in MN. The national average commercial rate is 10.27¢ per kwh.
Reflects average utility rates for 12 months ending June 30, 2012 Source: EEI Typical Bills & Average Rates Report, Summer 2012
Average industrial electricity rates by state (cents per kilowatt-hour)
No data AK or NE
Hawaii
4.50 to 5.50 5.51 to 6.00 6.01 to 6.50 6.51 to 8.00 8.01 to 10.00 10.01 to 13.50 30.29
Otter Tail Power Company’s average industrial rate per kwh is 5.66¢ in SD, 6.40¢ in ND, and 6.46¢ in MN. The national average industrial rate is 6.63¢ per kwh.
Reflects average utility rates for 12 months ending June 30, 2012 Source: EEI Typical Bills & Average Rates Report, Summer 2012
Economic stewardship
39
Rate projections We’re taking proactive steps to keep the price our customers pay for electricity as economical as possible. While environmental objectives and the need for diversity of fuel mix and resources contribute to increasing costs, new technologies and infrastructure investments will help to keep the price our customers pay among the lowest in the region. In our 2010 report we estimated that customers—all customer classes averaged together—would see an average increase in the cost of electric service of about 5 percent a year on comparable kilowatt-hour use between 2010 and 2020. All customers averaged together have seen only a 7 percent increase since 2010. But our anticipated average increase of about 5 percent a year between 2010 and 2020 remains. Increases will vary by size, year, and state. And some customer groups will see more or less than other customer groups.
What’s driving the changes Much of the increases will be driven by state or federally mandated environmental improvements. For example, we estimate that installing the required air-quality control system (AQCS) at Big Stone Plant in South Dakota will cost about $405 million. Our company owns 53.9 percent of the plant, making our share of the investment about $218 million. We anticipate that this will result in an average increase of about 12 percent in our customers’ bills, likely by 2017. It’s important to understand, however, that the AQCS project costs about 30 percent less than other options for meeting federal mandates. Other investments in our electrical system will help ensure the continued reliable service that our customers value. For example, critical projects that we have underway to help ensure a strong and reliable transmission system—the backbone to a vibrant economy and vital region—will result in an average increase of about 3 percent to 4 percent in our customers’ bills, likely by 2017.
Mechanisms that facilitate cost recovery Rate cases and regulatory agency-approved bill adjustments called riders are two mechanisms through which our customers’ costs change. • Rate cases, while more expensive than recovering costs through riders, are appropriate when overall costs are increasing or when cost increases are related to a large investment not covered by riders. • Riders for transmission projects, environmental upgrades, or renewable resource additions benefit customers by reducing the overall cost of financing a project. That’s because riders allow for more timely cost recovery than rate cases. They also are trued up annually, which means no cost over-recovery or under-recovery. Encouraging customers to save Concurrent with internal efficiency improvements, cost containment, and other efforts to keep electricity prices as low as possible, we encourage customers to take advantage of our bill-management programs and incentives. Thousands of our customers are lowering their electricity use—and bills—with the help of more efficient equipment and Otter Tail Power Company rebates. See pages 20-23 to learn about our efficiency programs. We understand that the price of just about everything is going up. In today’s economy any increase in electricity prices can come as unwelcome news. So we ensure that our sound business decisions—and prudent investments—keep customers’ needs at the forefront.
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Renewable Resource Rider bring cost-effective resources online when the price is right Our company makes every effort to be resourceful and economical. It’s what our customers, shareholders, and regulators expect. A standout example is our work with regulators and legislators in Minnesota and North Dakota to create a costrecovery mechanism in those states called the Renewable Resource Rider. It allows electric utilities to make reasonable investments in renewable energy when the price is right—removing the obstacle of lengthy and costly rate case proceedings.
Acting when the price is right Because the Renewable Resource Rider was in place, we were able to act quickly to bring three new cost-effective wind energy resources online between 2007 and 2009. When the opportunities to pursue the Langdon Wind Energy Center, Ashtabula Wind Energy Center, and Luverne Wind Farm presented themselves we had the benefit of good prices, production tax credits, quality sites, and low transmission costs. The Renewable Resource Rider allowed us to act quickly before we lost these opportunities. We wouldn’t have been able to bring all three resources online in such short order under the traditional rate case cost-recovery mechanism. The lag in cost recovery from one investment to the next would have been too long and the risk too great. So we likely would have added one wind farm, maybe two. Delaying any of the investments likely would have increased costs significantly. In separate proceedings we demonstrated to each of our state regulatory commissions that these investments resulted in a least-cost resource plan. Simply put, the investments are forecast to save our customers money.
Attaining multiple benefits The Renewable Resource Rider has allowed us to: • Bring additional generation resources online when the price was right to meet customers’ needs. • Meet renewable energy requirements. • Reduce the amount of power we must purchase from the energy market, thereby reducing the purchased-power component of the Resource Adjustment (Minnesota) or the Energy Adjustment (North Dakota and South Dakota). • Maintain manageable rates. Achieving the goal Together we achieved what our commissions and legislatures had hoped. The Renewable Resource Rider removed obstacles that would have prevented utilities from adding economical wind to the system. This is something to celebrate.
Supply Engineering Manager Bill Swanson along with Bob Drake and Paul Vukonich, both Environmental Compliance Specialists, volunteered to mentor the Fergus Falls High School OtterBots robotics team. For six weeks they guided the team of ten engineering-focused students while they designed and built a robotics unit. At the FIRST (For Inspiration and Recognition of Science and Technology) competition the OtterBots excelled in Rebound Rumble, a form of robotics basketball, in which two teams of three robots shot foam basketballs into regulation hoops. In their first match, the OtterBots dominated with a 9-0 record and the top ranking of all 64 teams. They advanced in the quarter and semifinals, which qualified them to compete in the first Minnesota State High School League Robotics Championship in Minneapolis in May 2012. To watch a video about the 2013 OtterBots visit youtube.com/OtterTailPowerCo.
Economic stewardship
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Demand-response programs
Customer participation in our demand-response programs makes our company unique among utilities. An unmatched one-third of our customers partner with us in load management, which allows a portion of their electrical load to be curtailed during high-demand periods. In 2012 we accredited with MISO a portion of our direct load-control capacity, making it available on a limited basis during MISO system peaks. The amount accredited varies monthly from a winter season high of 90 MW in January; to 85 MW during February and December; 50 MW during March, April, and November; 25 MW during October; and 15 MW May through September. Accrediting a portion of the demand resources is a step to further enhance regional transmission reliability. MISOâ&#x20AC;&#x2122;s accreditation process will change to align with the summer-peaking nature of the MISO territory. Our 2011-2025 integrated resource plan calls for demand-side management resources to increase annually through 2025 to reach approximately 15 MW of additional summer season coincident peak-load-reduction capability and 90 MW of additional winter season peak-load-reduction capability. To achieve this, we connected an additional 21.2 MW of controlled heating, cooling, and water-heating load in 2012. Participating customers save on their heating and cooling bills with rates that are much lower than the price of standard electric service.
New budgeting software
The Utilities International (UI) Planner Budget Module is a new budgeting, forecasting, and cost-of-service software package that our Business Planning/ Regulatory Accounting Department uses to produce forward-looking financial statements and cost-of-service studies. UI provides more flexibility and improved accuracy because all financial information is fully integrated with other existing accounting systems. UI supplies much of the infrastructure needed to file rate cases using a forwardlooking test year, which uses budgeted or forecasted financial data. A forwardlooking test-year rate case reduces regulatory lag by allowing us to receive current recovery of current costs. It also cuts the lead time needed to produce a cost-ofservice study, which gives us the ability to identify potential jurisdictional revenue deficiencies that will be used to determine the need for potential future rate case filings.
Advanced metering infrastructure
Advanced metering infrastructure (AMI) would enable two-way communication between a customerâ&#x20AC;&#x2122;s meter and our company. We are researching the benefits and costs of this investment and the impact to our customers. Installing AMI would improve our reliability and outage management, enhance customer service and demand-side management, and reduce operating and maintenance costs.
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Economic stewardship
Otter Tail Power Company 2012 Stewardship Report GRI-G3 Index (EU = electric utility disclosures and indicators)
Page number or location
Disclosures, strategy, and analysis 1.1 Statement from key executive officer 1.2 Description of key sustainability impacts, risks, and opportunities
2 Full report
Organizational profile disclosures 2.1 Name of the organization 2.2 Primary services 2.3 Operational structure 2.4 Location of headquarters 2.5 Locations of all operations 2.6 Nature of ownership and legal form 2.7 Markets served 2.8 Organization demographics 2.9 Significant company changes during the reporting period 2.10 Awards Organizational profile disclosures specific to electric utilities EU1 Installed capacity (MW) by source and regulatory regime EU3 Number of residential, industrial, commercial customer accounts EU4 Length of transmission and distribution lines (miles), by voltage Disclosures, report parameters 3.1 Reporting period 3.2 Date of previous report 3.3 Reporting cycle parameters 3.4 Company contacts for questions 3.5 Process for defining report content 3.6 Report boundaries 3.7 Limitations on the scope of the boundary 3.8 Basis for reporting on JV’s, subsidiaries, leased or outsourced operations 3.9 Data measurement techniques 3.10 Explanation of restatements of information provided 3.11 Significant changes in report scope/boundary/measurement since last reporting period 3.12 Identification of standard disclosures in the report 3.13 Policy and practice of seeking external assurance of the report Disclosures, governance, commitments, and engagement 4.1 Governance structure of the organization 4.2 Indication of highest officer* 4.3 Information about the unitary board 4.4 Mechanisms shareholders use to provide guidance 4.5 Compensation and performance standards for governance body 4.6 Processes to avoid conflicts of interest among governance body 4.7 Determining qualifications for governance body 4.8 Mission, values, codes of conduct, etc. statements 4.9 Procedures for adherences to compliance 4.10 Process for evaluation of governance body 4.11 Risk management 4.12 Externally developed initiatives endorsed by the organization 4.13 Association memberships (beyond routine dues, participation) 4.14 Stakeholder groups engaged 4.15 Basis for selecting stakeholders for engagement 4 .16 Frequency and type of stakeholder engagement 4.17 Stakeholder issues
Cover 3-8 3-8 4 3-8 3 4 4 About our 2012 Stewardship Report, 5-9 4, 32-33, 35 5-7 4 8
Cover, About our 2012 Stewardship Report About our 2012 Stewardship Report About our 2012 Stewardship Report 45, Back cover About our 2012 Stewardship Report About our 2012 Stewardship Report, 3 About our 2012 Stewardship Report, 3 About our 2012 Stewardship Report, 3 Full report NA NA 43-44 1
3, http://www.ottertail.com/corporate_governance/governance.cfm 2 http://www.ottertail.com/corporate_governance/governance.cfm http://www.ottertail.com/corporate_governance/governance.cfm http://www.ottertail.com/corporate_governance/governance.cfm http://www.ottertail.com/corporate_governance/governance.cfm http://www.ottertail.com/corporate_governance/governance.cfm 3 http://www.ottertail.com/corporate_governance/governance.cfm http://www.ottertail.com/corporate_governance/governance.cfm 10-23, 25-27 5-23, 29, 38-41 5-9, 25-27, 42 2, 5 24-35 24-35, 36-42 Full report
Disclosures on Management Approach (DMA) (mission statements for each indicator category) EC Discuss management approach to performance, market presence, indirect economic impacts, as they relate to overall management policies, goals, and performance 3, 36-42 EN Discuss management approach to overall environmental metrics such as materials, energy, water, emissions, compliance, and transport as they relate to specific goals, policy, and performance 10-23, 36-42 LA Discuss management approach to employment, labor/management relations, health and safety, training and education, and diversity and equal opportunity as they relate to overall management policies, goals, and performance 30-31 * As Otter Tail Corporation’s Senior Vice President, Electric Platform, Chuck MacFarlane is accountable for the operations of Otter Tail Corporation’s largest and foundational business. MacFarlane also is a memeber of Otter Tail Power Company’s board of directors.
Global Reporting Initiative Index
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(EU = electric utility disclosures and indicators) HR Discuss management approach to non-discrimination, collective bargaining, abolition of child labor, prevention of forced labor, complaints and grievance practices, and security practices as they relate to overall management policies, goals, and performance SO Discuss management approach to community, corruption, public policy, anticompetitive behavior, and compliance as they relate to overall management policies, goals, and performance PR Discuss management approach to customer health and safety, service labeling, marketing communications, and customer privacy as they as they relate to overall management policies, goals, and performance Performance indicators G3 Economic performance indicators EC1 Direct economic value generated and distributed EC5 Range of ratios of standard entry-level wages compared with local wages EC6 Spending on locally based suppliers EC8 Impact of investments and services provided for public benefit EC9 Significant indirect economic impacts Economic performance indicators and disclosures specific to electric utilities EU6 Availability and reliability - 5-10-year approach EU7 Demand-side management programs G3 Environmental performance indicators EN5 Energy saved due to conservation and improvements EN6 Initiatives to provide energy-efficient or renewable products and services EN13 Habitats protected or restored EN18(U) Initiatives to reduce greenhouse gas emissions and reductions achieved EN23 Total number and volume of significant spills EN30 Environmental protection expenditures and investments G3 Labor performance indicators LA1(U) Total workforce (employee type, contract, and region) LA3 Employee benefits LA4(U) Percentage of employees covered by collective bargaining agreements LA6 Percentage of workforce represented in formal joint-management worker health and safety committees LA7(U) Rates of injury, lost days, absenteeism, fatalities, etc. LA10 Average hours of training per employee per year by employee category LA11 Programs for skills management and lifelong learning Labor performance indicators specific to electric utilities EU14 Processes to ensure retention and renewal of skilled workforce G3 Human rights performance indicators HR3 Employee training G3 Society performance indicators SO1(U) Nature, scope, and effectiveness of any programs and practices that assess and manage the impacts of operations on communities SO3 Percentage of employees trained in organizationâ&#x20AC;&#x2122;s anticorruption policies Society performance indicators specific to electric utilities EU19 Participatory decision-making processes with stakeholders (+outcomes) EU21 Contingency planning, disaster/emergency management plan, recovery plan G3 Product responsibility performance indicators PR3 Required product and service information required by procedures PR5 Practices to ensure customer satisfaction Product responsibility specific to electric utilities EU23 Programs to improve access to electricity services EU28 Power outage frequency (SAIFI) EU29 Average power outage duration (SAIDI) EU30 Average plant availability factor by energy source and regulatory regime
Page number or location
30-31 24-29, 36-37, 38-41 20-28, 38-41
37 29 37 10-23 38 26-27, 38-41 20-23, 42
20-23, 42 20-23, 42 13 10-13, 20-23, 42 15 10-23
4, 30-31 30-31 30-31 32-34 32-33 34 30-34 30-35
34
24-42 3, 34 24 25-27
24 24, 28 8-9, 24-29, 38-41 25-27 26-27 38-41
Terms not defined within the report Kilowatt (kw) 1,000 watts; a measure of the rate of electricity generation or consumption. Kilowatt-hour (kwh) 1 kilowatt acting over a period of 1 hour. The primary difference betweeen a kilowatt and a kilowatt-hour is that kilowatt measures capacity and kilowatt-hour measures the actual amount of electricity used over a certain period of time. Megawatt (MW) 1,000 kilowatts or 1,000,000 watts. Megawatt-hour (MWH) 1 megawatt acting over a period of 1 hour. Gigawatt (gw) 1,000 megawatts or 1,000,000 kilowatts or 1,000,000,000 watts. Gigawatt-hour (gwh) 1 gigawatt acting over a period of 1 hour.
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Global Reporting Initiative Index
Please share your feedback Otter Tail Power Company sent this report to employees, retirees, various community organizations, city councils, local and state legislators, regulatory agencies, environmental groups, media, and others. We would appreciate your feedback as a way to help ensure that we continue to address topics of interest and to help enhance content in future reports. You may send us your feedback by: 1. Scanning your completed form and emailing it to scasey@otpco.com. 2. Faxing your completed form to 218-739-8944. 3. Mailing your completed form to: Public Relations Department Otter Tail Power Company PO Box 496 Fergus Falls, MN 56538-0496
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Public Relations Department Otter Tail Power Company PO Box 496 Fergus Falls, MN 56538-0496
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Information resources • www.otpco.com • www.ConservingElectricity.com • www.EnergyChallengeIsOn.com • www.bssetransmissionline.com • www.capx2020.com • www.BigStonePlantAQCS.com
Contact information • Customer Service 800-257-4044 • Idea Center 800-493-3299 • Media inquiries 218-739-8297 • Headquarters 218-739-8200 215 South Cascade Street Fergus Falls, MN 56537
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