[image-caption title="Lake%20Region%20Electric%20Cooperative%E2%80%99s%20venture%20into%20the%20natural%20gas%20business%20means%20no%20more%20propane%20price%20volatility%20for%20the%20owners%20of%20turkey%20operations%20in%20the%20co-op%E2%80%99s%20Minnesota%20territory.%20" description="(Photo%20courtesy%20Minnesota%20Turkey%20Growers%20Association)" image="/remagazine/articles/PublishingImages/minnesota-natural-gas-turkeys-1600x650.jpg" /]
As he does every year, Gary Olson marked mid-autumn by wrapping up the soybean and corn harvest and preparing his turkey brood for the opening blasts of Minnesota’s frigid winter winds. But for the first time in decades, no propane trucks were rolling through the farm’s gates.
“We have switched everything from propane to natural gas,” Olson says. “That includes our houses, shops, barns, and corn dryers.”
Olson, who operates Olson and Sons Farm with his brothers, is a member of Lake Region Electric Cooperative. The Pelican Rapids-based co-op recently launched a natural gas subsidiary, Lake Region Energy Services, that’s expected to save farmers money and help the co-op find new customers.
“Other companies were looking at bringing natural gas service into our territory,” says Tim Thompson, CEO of Lake Region Electric. “We looked at the economics of it and decided that if the fuel was going to be made available in our market, it just made sense for us to distribute it.”
The harsh winter weather in Minnesota, the nation’s top turkey producer, means commercial turkey barns are flanked by rows of 1,000-gallon propane tanks. Poults, or young turkeys, grow best in temperatures of 85 to 90 degrees.
“It takes a lot of fuel to heat barns to raise turkeys in the wintertime,” says Dan Husted, Lake Region Electric’s vice president of energy services. Temperatures can drop to minus 10 degrees Fahrenheit and stay there for days, he adds. “Propane doesn’t vaporize well in sub-zero weather, so farmers have to watch their tanks and keep them full.”
Pitching to Poultry Producers
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“When I asked poultry producers and grain farmers what they thought of the idea of their electric co-op bringing natural gas service to them, we could not have asked for a better response,” Thompson says. “We showed them the economics of switching from propane to natural gas, and we heard comments like ‘no brainer.’”
The co-op drew up a business plan and got minimum-burn agreements from large agricultural users, who agreed to switch to natural gas as soon as it was flowing.
“The ups and downs of propane costs have always been a problem for us, so natural gas will take a lot of the volatility out of pricing,” says Olson, whose grandparents were original members of Lake Region Electric. “Until now, all of our turkey contracts have been tied into the price of propane.”
Olson’s farm ships about 90,000 turkeys a year. All of his farm’s heating equipment was modified over the summer, and three turkey barns and two corn-drying units began using natural gas in October.
About 450 Minnesotan turkey farmers send 46 million birds to market each year, and nearly one-third of turkeys sold are consumed during the holidays, says Lara Durben, assistant executive director of the Minnesota Turkey Growers Association. While feed represents 70 percent of production costs, controlling fuel expenses affects profitability, Durben says. “Major increases in costs over a few weeks or months can be quite challenging.”
Making New Connections
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Lake Region Energy Services partnered with Greater Minnesota Transmission for its natural gas supply infrastructure. The transmission organization built and will operate an intrastate pipeline, and the co-op subsidiary is responsible for the distribution pipelines to individual service locations, like Olson’s farm.
Meanwhile, offering natural gas service has opened new markets to the co-op. Franchise agreements and letters of support from the towns of Deer Creek and Parkers Prairie, which previously had no service relationships with the co-op, are bringing natural gas to those communities. Construction of transmission and distribution pipelines serving the two towns, as well as individual service runs, were completed in less than six months, says Lake Region’s Thompson.
Much of the marketing and promotion of the natural gas subsidiary has been a throwback to the co-op’s early days. That includes conversations at kitchen tables and over fences to build interest in the new utility service.
“We held public meetings to educate people on the project much like we have grassroots meetings with our electric members,” Thompson says. “We met with city councils to ask for franchise agreements and wrote letters of support to be exempt from state rate regulation.”
It took just six minutes to get state approval to serve Deer Creek and Parkers Prairie when Thompson and his staff pitched the idea to the Minnesota Public Utilities Commission in July.
“This is going to make an economic impact on our community,” says Deer Creek Mayor Tom Svarvari. “We expect natural gas to be a lot cheaper than other forms of energy we’ve been using, and it is an uninterruptable supply of power. In Minnesota, we’ve got to have heat.”
Some of Deer Creek’s 322 residents completed modifications of their heating systems by mid-autumn, ending their reliance on propane or fuel oil, Svarvari says. Local schools opted in when they realized the cost savings could allow resources to be directed elsewhere.
The addition of natural gas has been beneficial for the co-op as well as consumers, Thompson says.
“Sales to the commercial, institutional, and agricultural accounts, and the new customers in the towns, represent a new revenue stream for the co-op,” he says.
The co-op has incorporated billing, administrative, and technical services for the natural gas customers into existing operations, Lake Region Electric’s Husted says, and existing employees were trained to handle new responsibilities. The co-op’s investment in the natural gas project has totaled less than $1.6 million at a rate of return of 5 to 7 percent.
“This is a way for us to grow our business although our overall electric sales have been flat,” Husted says. “Every dollar we bring in from this venture represents a savings for the co-op.”