Graff honored with Award of Excellence

When Adam Graff joined Heartland in 2008, he quickly immersed himself in Heartland’s power supply portfolio, helping to manage resources to best suit customers’ needs. This led to him quickly being named resource manager.

Today, Graff  serves as director of power supply for Heartland, where he is responsible for the company’s power supply portfolio with additional responsibilities including facility planning, integrated resource planning, system forecasts and more.

For the past ten years, Graff has also served as chair of Public Power Generation Agency’s Engineering and Operations Committee. PPGA is the interlocal agency established for the sole purpose of constructing and operating Whelan Energy Center Unit 2 (WEC 2), a major component of Heartland’s resource portfolio.

To celebrate his years of service and accomplishments on the committee, Graff was honored at Heartland’s recent Annual Meeting with an award of excellence.

Graff’s direction vital to operations

When Graff  began working at Heartland, WEC 2 was three years into design, development and construction. It became commercially operational in May of 2011. Shortly after, Graff took on the role of chair of the engineering and operations committee. As such, he plays a very significant role for PPGA and Heartland.

The 220 megawatt coal-fired generating plant is located in Hastings, Nebraska. As a participant of PPGA, Heartland owns a 36% entitlement share in the project. It serves as the largest generating resource in Heartland’s power supply portfolio, making up 53%.

Exterior of Whelan Energy Center
Whelan Energy Center Unit 2

WEC 2 was built for approximately $700 million and is utilized by five different utilities for reliable, baseload power. It also represents 46% of Heartland’s capacity and 35% of its energy portfolio. The success of the plant is directly linked to the success of Heartland and ultimately, Heartland’s customers.

As chair of the engineering and operations committee, Graff oversees all major operating decisions made at the plant and makes recommendations to the PPGA board. During his tenure, he successfully led the transition of the plant into the Southwest Power Pool, advised and navigated the project on many staffing changes, and consistently ensures sound budgets.

Currently he’s directing the project on environmental concerns regarding Whelan Energy Center Unit 1 that impact WEC 2.

“PPGA is lucky to have Graff in this role, as is Heartland,” said Heartland Chief Operations Officer Nate Jones. “His expertise fortifies our ability to provide reliable, safe power to our customers at the lowest cost possible.”

WEC 2 burns low-sulfer coal from the Power River Basin. It meets all the latest pollution control standards with an air quality control system that includes equipment to remove fly ash, sulfur dioxide, nitrous oxides and mercury. Heartland’s power supply portfolio also includes 51 megawatts of wind power from the Wessington Springs Wind Energy Center located in Jerauld County, SD.

Pictured: Heartland Director of Power Supply Adam Graff, center, was honored for ten years and continued service on the E&O Committee for baseload resource, Whelan Energy Center Unit 2. Presenting the award were Heartland CEO Russell Olson, left, and Chief Operations Officer Nate Jones, right.

Heartland divests of excess resource

Sale will provide long-term stability for customers


Heartland’s vision for the future is to be a trusted leader and partner of choice in the delivery of competitively priced electricity.

However, the prospect of fulfilling that vision was uncertain as a future loomed where excess generation would inhibit the ability to provide low-cost power.

But Heartland also operates by a mission that includes making sound decisions today for a brighter tomorrow.

With that in mind, Heartland recently sold one their longest-held assets, and is now looking toward a more stable future.

Heartland sold its share of the Missouri Basin Power Project, namely its 51 MW ownership of Laramie River Station.

According to Heartland CEO Russell Olson, the sale provides numerous benefits, including rate stability for customers.

“Divesting of LRS achieves many of the long-terms goals we set forth in our strategic plan. Most importantly, it gives customers steady rates and more certainty about the future.”

Goals outlined in Heartland’s strategic plan included stabilizing rates, enhancing customer relations and maintaining sound financial health. A resource divestiture was identified early on as the best way to achieve Heartland’s goals.

“Our strategic plan was adopted after soliciting feedback from our customers, ensuring it was in line with their needs,” said Olson. “We worked with outside consultants to determine the best way to accomplish our goals and a divestiture was kind of our silver bullet.”

Heartland was previously looking at excess capacity of 30% after the year 2020, which would have to be sold in the market, presumably at a loss.

“This sale brings us into balance, with our load more equally matching our generation and reducing our reliance on the market.”

It also decreases the company’s coal exposure, providing a more balanced mix of resources and reducing risk of future regulation costs and will help the company’s continual operation with sound financial metrics.

“At Heartland, our motto is the power of forward thinking. We couldn’t sit back knowing we would have to substantially increase rates. We also weren’t willing to sacrifice our financial health. We turned over every stone possible looking for savings. Divestiture was always the goal, and everyone here worked tirelessly to make that a reality.”

Laramie River Station in Wheatland, WY was constructed as part of the Missouri Basin Power Project, which also includes Grayrocks Dam and Reservoir and nearly 650 miles of high voltage transmission line.

Heartland Board President Mark Joffer, front left, and CEO Russell Olson, front right, recently finalized the paperwork for the divestiture of Heartland’s share of the Missouri Basin Power Project. Also pictured are, from left to right, Board Vice President Lisa Rave, Treasurer Dave Westbrock and Secretary Jeff Heinemeyer.

Heartland had a 3% undivided ownership share of MBPP, including 51 MW from LRS. LRS was the first resource in Heartland’s generating portfolio and began supplying electrical power to their customers in 1980.

“LRS has been reliable and low-cost for the past 40 years,” said Olson. “It’s also a marketable resource for those same reasons. It simply no longer fit in our portfolio.”

Heartland is selling its interest in MBPP to Tri-State Generation & Transmission, a cooperative based in Colorado. Tri-State previously held a 24% ownership share in LRS.

The unit sale will consist of Heartland’s ownership share in MBPP, retroactive to July 1, 2018, including capacity and energy from Heartland’s MBPP entitlement of LRS, transmission and substation facilities, associated land, property and inventory.

Heartland’s baseload resource now consists of 80 MW from Whelan Energy Center Unit 2, which became operational in 2011. Heartland has a 36% entitlement share in the 220 MW plant located near Hastings, Nebraska. It meets or exceeds all current pollution control standards and is well-positioned to meet any future proposed rules.

A purchased power agreement with NextEra Energy provides 51 MW of wind energy from the Wessington Springs Wind Energy Center. Heartland also utilizes contracts with customers and other utilities to acquire low-cost capacity resources.

Olson is excited about what the future holds for Heartland and their customers.

“We look forward to a strong future for our company and for our customers. Now that we’ve accomplished one of our most important goals, we can focus on providing excellent customer service and low-cost power and fulfilling our vision of being a trusted partner to our customers.”

CEO’s Report: The Certainty of Regulation

If there’s one certainty in the electric utility industry, it’s the uncertainty of regulation. Regulation is a reality we must live with, but because it is constantly changing and evolving, there are always unknowns in our future. At Heartland, we believe in protecting the environment. After all, we want to ensure clean air for generations to come. That’s why our newest and largest resource, Whelan Energy Center Unit 2, was built with all the latest pollution control technology. However, we also believe that cost must be considered as an important factor in any regulation as to not place an unnecessary burden on consumers.

The Clean Power Plan (CPP) would have an enormous impact if implemented as written, significantly increasing consumers’ electric bills and creating an unnecessary burden for many. Fortunately, the Supreme Court stayed implementation of the plan pending judicial review. Oral arguments were pushed back to late September and will take place before all the judges on the D.C. Circuit rather than the traditional three-judge panel. The granting of a review by all of the judges on the D.C. Circuit is rare and underscores the importance of the case.

This past June, the EPA proposed changes and clarifications to the CPP’s optional Clean Energy Incentive Program (CEIP), and is giving the public a chance to weigh in on those proposed changes. The EPA said the CEIP was designed to help states and tribes meet their goals under the CPP by encouraging early investments in zero-emitting renewable energy generation and by removing barriers to investment in energy efficiency in low-income communities. The idea is to reward early investments in renewables and demand-side energy efficiency measures.

The changes would provide for a limited expansion of the types of projects that would be eligible for the CEIP. The EPA said its proposal would help guide states and tribes that choose to participate in the program when the CPP becomes effective. While APPA has committed to providing comments on the CEIP, a number of states have stated they will not expend any resources on any CPP-related activities, including commenting on the CEIP, because of the stay.

A group of state attorneys general and other state-level officials on August 1 asked the EPA to extend the comment period for the proposed rule. They argued that the comment period should be extended for at least sixty days following the termination of the CPP stay because if it “does not survive judicial review, the CEIP should then simply be withdrawn.”

The EPA also recently defended itself against a group of states who asserted that a recent federal appeals court ruling supported their arguments against the CPP. The states said a recent decision by the U.S. Court of Appeals for the 5th Circuit on a different EPA-related matter supported two of their key arguments. They argue a July 15 decision supports their arguments that the EPA rule on carbon dioxide requires congressional approval and that the EPA has failed to show that the CPP will not undermine the reliability of the nation’s power grid.

The EPA responded that the 5th Circuit’s ruling has minimal relevance to the CPP because, among other things, it “concerns a different regulatory program.”

Numerous flaws continue to be found with the CPP. FTI Consulting recently issued a white paper stating the EPA “was overly optimistic to simply assume that the nuclear industry would continue to be available to produce clean electricity.” This comes after a stream of announcements of nuclear power plant closures and retirements since the CPP was released. They also stated that the nuclear industry is facing challenges due to economic, regulatory and political pressures, which could “lead to significant reductions in the size of the nuclear fleet in the near future.” Recently announced retirements amount to 8.3 GW or 8 percent of total current nuclear capacity.

On the other hand, new wind power capacity swelled in 2015 and is likely to continue rapid growth over the next five years, according to an annual wind energy report from the Department of Energy. Wind power contributes about five percent of the nation’s electricity supply and represented the largest source of U.S. electric capacity additions in 2015, according to the report.

Wind power continues to grow because of the extension of the federal production tax credit as well as improvements in the cost and performance of wind power technologies. Prices offered by newly built wind projects are incredibly low. However, not everyone is happy with the growth of wind power as many feel turbines dotting the landscape are an eyesore. A South Dakota company recently withdrew its application for a state permit to build a 201 MW wind farm after hearing some pushback from residents.

Heartland resource Laramie River Station is currently affected by a different regulation and will undergo an extended outage in 2017 in order to implement regional haze improvements as required by the EPA. The EPA’s Regional Haze Rule superseded the state of Wyoming’s original state implementation plan and eventually the EPA came to a settlement agreement with plant owners to install one selective catalytic reduction (SCR) and two selective non-catalytic reductions (SNCR). The settlement resulted in large cost savings for LRS compared to the EPA’s original plan.

Because regulations bring on extra and often unnecessary costs, Heartland remains committed to advocating on behalf of our customers. We continue to monitor all activity at the federal and state levels affecting our industry and partner with trusted experts to ensure our message is being heard. While we are committed to producing an environmentally-friendly product, we are also committed to reliability and affordability.

Heartland credit rating increased, savings realized from bond refunding

Persistence is said to pay off and in Heartland’s case, that’s true as we received two pieces of good news the last week of April – good news that came after a significant amount of planning and sometimes tough decision-making.

The first was Moody’s Investors Service upgrading Heartland’s credit rating from Baa1 to A3 with a stable outlook. The rating reflects the A3 weighted average quality of Heartland’s all requirements members, low leverage, improving financial metrics and relatively diverse energy mix.

“This is great news for Heartland and our customers,” said CEO Russell Olson. “The increased rating is not only based on our financial strength, but the strength of our customers. This is a collective rating we can all be proud of.”

Moody’s rating reflects Heartland’s responsiveness to contracting load to new customers through short-term power purchase agreements and timely and adequate rate increases in the last few years.

“It is satisfying to see that our plan to increase our rating has worked,” added Olson. “A strong rating is crucial and we will continue to make decisions to ensure a strong credit future as well as a strong future for our customers.”

The stable outlook is based on Moody’s expectation that going forward Heartland will maintain sufficient credit metrics.

The principal methodology used in the rating was US Municipal Joint Action Agencies published in October 2012. Heartland, as an “all requirements” joint action agency, is graded based on participant credit quality and cost recovery mechanism, resource risk management, competitiveness, financial strength and liquidity, and willingness to recover costs with sound financial metrics.

“Moody’s specifically looks at things like liquidity, debt ratio, fixed charge coverage ratio, and days cash,” said Heartland CFO Mike Malone. “Heartland has slowly been improving these metrics over time and that is reflected in our rating upgrade.”

Heartland’s credit rating is important for many reasons. A lower rating means increased borrowing costs, which are then passed down to customers. Additionally, certain vendors Heartland contracts with require a minimum rating to transact business. Regional Transmission Organizations such as SPP also require additional collateral dependent upon ratings. Potential customers and their consultants also review a company’s rating.

“A higher rating is beneficial to Heartland and our customers,” Malone said. “Positive change doesn’t happen overnight. It has taken a lot of work by all of us to get here and we look forward to continuing to strengthen our company.”

The higher rating helped lead to Heartland’s second piece of good news – approximately $26.6 million in net present value savings for Public Power Generation Agency from the advanced refunding of $150 million in outstanding bonds. PPGA, the collective group formed to build Whelan Energy Center Unit 2, issued bonds to finance the construction of WEC 2 and will now realize lower interest costs.

Malone noted that PPGA’s credit rating mirrors Heartland’s rating due to Heartland’s 36% ownership interest in the plant. The interest rate obtained in the refunding process is a direct reflection of that rating, similar to a personal credit rating – the better credit rating you have, the lower your interest rate when you take out a loan to purchase a house or a vehicle.

The advanced refunding resulted in gross savings of $41.8 million dollars. That translates to annual gross cash flow savings of approximately $1.5 million from 2018-2031 and bumps up to about $2 million in 2032.

“The refunding is interest rate sensitive and the market was in our favor,” added Malone.  “The net present value savings was much higher than we originally anticipated, coming in at approximately 17.37%. That is real savings for the project and for Heartland.”

Moody’s Investors Service is a leading provider of credit ratings, research, and risk analysis. Moody’s commitment and expertise contributes to transparent and integrated financial markets. The firm’s ratings and analysis track debt covering more than 120 sovereign nations, approximately 11,000 corporate issuers, 21,000 public finance issuers, and 72,000 structured finance obligations. Moody’s Investors Service is a subsidiary of Moody’s Corporation (NYSE: MCO), which reported revenue of $3.5 billion in 2015, employs approximately 10,400 people worldwide and maintains a presence in 36 countries.

Triennial maintenance outage extended at Laramie River Station

A scheduled triennial outage at Laramie River Station (LRS) Unit 1 has been extended after inspections revealed unexpected damage to the unit’s low pressure (LP) turbine.  LRS was brought off-line March 14 for a scheduled outage to repair the LP turbine and complete periodic maintenance tasks.  During inspection, additional damage was discovered on a small number of LP turbine buckets.  Due to the unexpected repairs, the outage schedule has been lengthened by 14 days and the unit is expected to return to service June 26.

“The additional repairs to the LP turbine will extend an already lengthy outage, but should not impact Heartland operations significantly,” said Heartland Director of Power Supply Adam Graff.

Laramie River Station Unit 1 steam turbine disassembled for inspection and repairs.
Laramie River Station Unit 1 steam turbine disassembled for inspection and repairs.

LRS is a three-unit, 1,710 megawatt coal-fired generating station located near Wheatland, Wyoming.  It has been part of Heartland’s resource portfolio since it was constructed in 1980 as part of the Missouri Basin Power Project (MBPP).  Heartland owns a three percent undivided share of MBPP, equal to 51 megawatts, which we receive from Unit 1.

MBPP owners have continuously upgraded all three units of LRS to provide up-to-date emissions controls and to ensure optimal output.  Officials also perform a major scheduled outage triennially on each unit.  The current Unit 1 outage is longer than usual due to the need to completely disassemble the turbine and ship components off-site for repairs.  Damaged turbine components must be shipped by train to a facility in New York where they are repaired then returned to the site.

In addition to the LP turbine repairs, significant repairs are being made to a large number of the Unit 1 burners. These low-NOx burners were installed on Unit 1 in 2012 as an emissions-reduction and efficiency measure, and have experienced damage due to overheating of the burner tips.  The overheating is due to design flaws that effect air flow across the burner tips.

Blade sections off LRS Unit 1's high pressure turbine, removed for cleaning and inspection during the triennial maintenance outage.
Blade sections off LRS Unit 1’s high pressure turbine, removed for cleaning and inspection during the triennial maintenance outage.

According to Graff, the burners installed in Unit 1 are the same design and vintage as the burners installed at Heartland resource Whelan Energy Center Unit 2 (WEC2).  Similarly, the damage discovered and the proposed design changes and repairs from the manufacturer are nearly identical to the latest repairs done at WEC2.

“These changes at WEC2 seemed to have alleviated the overheating issues and subsequent damage,” said Graff.  “We expect to see similar results from the repairs at LRS.”

Members of Heartland’s board and staff visited LRS during the outage. For more pictures from their visit, click HERE.

Senate committee backs railroad reform bill

Sen. John Thune (R-South Dakota), chairman of the Senate Commerce Committee, on March 19 introduced legislation that would reauthorize the Surface Transportation Board (STB) for the first time in the STB’s 20-year history.

The move drew praise from the Consumers United for Rail Equity (CURE), a national coalition representing freight rail shippers. Senate Commerce Committee Ranking Member Bill Nelson (D-Florida) co-sponsored the Surface Transportation Board Reauthorization Act of 2015.

The legislation is similar to a bill sponsored last year by Thune and then-Commerce Committee Chairman Jay Rockefeller (D-West Virginia). It was approved by the committee in September 2014. This legislation would provide needed protections to rail freight shippers without any negative impact on the U.S. railroad industry.

Sen. Tammy Baldwin, D-Wisconsin, on March 24 introduced the Rail Shipper Fairness Act of 2015, a bill that would make changes to the STB. The Baldwin bill would expand the membership of the STB to five members from its current three-person structure, and would make other changes in the federal oversight of freight railroads.

On March 25, the Senate Commerce Committee unanimously approved the Thune/Nelson bill, by voice vote, without amendments.

Rail competition and antitrust enforcement was one of the issues Heartland staff and board members visited with Sen. Thune and Sen. Mike Rounds (R-S.D.) about during our recent trip to Washington D.C. as part of the American Public Power Association Legislative Rally. Electric utilities rely on rail transportation to move the vast majority of coal from mine mouths to power plants. Many coal-burning electric utilities have no choice but to receive coal shipments from only one rail carrier and thus are subject to monopolistic behavior. As a result, these rail customers are unable to negotiate the terms of their rail transportation in an open and competitive market. These “captive” rail customers are charged higher rail rates while customers with more than one viable transportation option pay lower, competitively priced rates.

Over the past several years, rail customers also have experienced numerous service and reliability problems, with no relief. Heartland resources Whelan Energy Center Unit 2 and Laramie River Station both experienced coal delivery delays throughout 2014, with stockpiles at times becoming critically low. The railroads blamed delays on weather and staffing issues. Stockpiles at both plants were at target levels and holding steady by the end of the year.

Legislative remedies are required to enhance competitive transportation and improve rail customer protection mechanisms and enforcement implemented by the STB. Absent congressional action, electric utilities and the communities they serve will continue to be subject to unnecessarily higher rates and poorer service for coal transportation.