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Foreword

Otter Tail Power Company’s Dayton Hollow hydroelectric station is just a few miles southwest of Fergus Falls, Minnesota. Here, in April 1909, the first kilowatts of electricity began to flow over 25 miles of low-voltage transmission line to our first customer, the Northern Light Electric Company of Wahpeton, North Dakota. The dam still operates and continues to provide electricity. While the dam looks much like it did 100 years ago, our company—that’s a different story.

Dayton Hollow Dam produced our company’s first kilowatts of Today investment in plant facilities has grown electricity in April 1909. from $100,000 to some $900 million. Our service area encompasses about 50,000 square seen in our past. Those challenges include the miles. We have more than 129,000 customers. Our first series of rate cases in more than 20 years, an annual revenues have grown from a few thousand uncertain regulatory environment, and a period of dollars to more than a quarter of a billion dollars. national economic turmoil. And we’ve provided dividends to shareholders without interruption for 70 years.

Like the river

Otter Tail Power Company is a success story despite challenges caused by world wars, economic depression, severe drought, competition from subsidized government power, stagnant growth in our service area’s economy, and devastating ice, sleet, and wind storms.

The Otter Tail River, for which our company is named, runs a varied course. It bends, loops, and reverses its course. It rushes, widens, and narrows. But always it adapts to, changes, and even shapes its surroundings as it forges its way to its destination.

Understanding the history of Otter Tail Power Company’s success is important as we begin the next 100 years. That understanding will help to prepare us for challenges as great as any we’ve

In a sense, Otter Tail Power Company is much like the river. We too change course, adapt, and—when necessary—shape the surroundings in which we operate. The difference, of course, is this: Forces of nature determine the destination of the Otter Tail River, but human actions in response to outside factors determine Otter Tail Power Company’s destination. The countless actions taken to drive our company to its destination during the past century are far too numerous to list. But a few of the important landmarks provide useful insight.

Our service area encompasses approximately 50,000 square miles in 2009.

CANADA Rugby

Devils Lake

Garrison

Crookston Bemidji

Jamestown

Oakes

Wahpeton

Fergus Falls

Morris Milbank

SOUTH D A KOTA

M I N N E S OTA

NORTH D A KOTA

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It began with a dam

A young surveyor, civil engineer, and land examiner named George Burdict Wright, a native of Williston, Vermont, came to Minnesota in 1855. In 1867 Wright bought 160 acres of riverfront property at Fergus Falls. When adjacent acres became available Wright bought them too. On August 10, 1870, he sold a half interest in a dam site on his property to R. J. Mendenhall, a Minneapolis businessman who owned property on the other side of the river. Mendenhall, in turn, sold a half interest in a dam site on his side of the river to Wright. Together the two men built a dam, a sawmill, and a gristmill in what is now downtown Fergus Falls. Central Dam, sometimes called Wright Dam, was completed in 1872. It was the first water wheel in Otter Tail County. Wright and Mendenhall sold the dam later that year, and Wright bought the property back in two installments in 1878 and 1879.

Vernon Wright began to convert customers to electricity in 1902.

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On April 29, 1882, George B. Wright, the man acknowledged to be the founder of Fergus Falls, died at 47 of typhoid fever. In about 1900 Wright’s son, Vernon Ames Wright, a Boston architect, began to take an interest in his father’s holdings in Fergus Falls. In 1900 the City of Fergus Falls was providing electricity

Central (Wright) Dam was complete in 1872.

to local customers for heating, lighting, and power purposes from a dam upriver from the city. At that time the Wright Dam still was serving industrial customers in the vicinity of the dam by direct drive. In 1902, however, Vernon Wright began to convert his customers to electricity. This pluralistic arrangement for supplying electricity to Fergus Falls, with the city serving residential and commercial customers and a private company serving industrial customers, continued until April 1953 when the city finally sold its electric distribution system to Otter Tail Power Company.

Otter Tail Power Company is incorporated

Articles of incorporation for Otter Tail Power Company were filed in the office of the Otter Tail County Register of Deeds on Saturday, July 6, 1907. The incorporators were Vernon A. Wright, Frederick G. Barrows, Fred Leffler, and E. W. Anderson. Anderson’s name disappeared from company records shortly after the incorporation. Fred Leffler served as the company’s assistant secretary until 1943, the year of his death. The principal founders, Wright and Barrows, contributed mightily to the organization and early success of the company.


Dayton Hollow Dam serves first customer

In 1907 work began on Dayton Hollow Dam, which began producing electricity in April 1909. The activity at Dayton Hollow must have been something to see. Men swarmed over the site, digging holes, toting lumber, pushing wheelbarrows full of cement. Towering over the scene was a five-and-a-half-ton derrick with a 150-foot sweep. With derring-do that was typical of the times, workers lugged heavy rocks across 12-inch planks stretched high above the river. They built a dam and powerhouse that the Fergus Falls Daily Journal described as the “largest between Minneapolis and Montana.” Otter Tail Power Company’s first customer was Clinton Baxter Kidder who sold electricity in Wahpeton, North Dakota, under the name of Northern Light Electric Company. Otter Tail Power Company had other prospects as well. Shortly before Dayton Hollow Dam was completed the Fargo, North Dakota, city council passed a resolution to accept Otter Tail Power Company’s offer to furnish electricity to Fargo from Dayton Hollow at 2.5 cents a kilowatt-hour. In September 1909, however, the Fergus Falls city dam washed out, taking with it four other dams downstream and threatening the Dayton Hollow Dam. The result was that Otter Tail Power Company contracted with the City of Fergus Falls to provide electricity to the city’s distribution system, and our company built a highline from Dayton Hollow into Fergus Falls. We did not proceed with furnishing electricity to Fargo. In November 1909 Kidder was hired as general manager of Otter Tail Power Company, and in 1911 he was elected to the Board of Directors. While

Vernon Wright continued to involve himself in engineering, ratemaking, and planning and Barrows handled financing, Kidder, a workaholic even by the standards of his day, looked after the day-to-day operations of the company. Vernon Wright assembled a management team that was remarkably successful in hiring and directing employees who were willing and able to expend the sometimes backbreaking efforts needed to build, operate, and maintain the generating plants and power lines required to serve the ever-increasing number of cities and towns that were clamoring for electric service.

Generation and lines help meet needs of growing service area

Construction of the Hoot Lake project began early in 1913, and its waterwheel began to produce electric power in 1914. By then Otter Tail Power Company’s electric system covered 2,000 square miles and included about 20 towns and villages. In a five-year period, 1914 through 1918, we added 18 towns, including 4 in South Dakota. In 1916, a 1,100-kilowatt hydroelectric unit was added at Hoot Lake, and in 1917 an additional 450-kilowatt unit was installed at Dayton Hollow. In 1918 we agreed to purchase the entire 520-kilowatt output of a new dam and powerhouse called Pisgah Station west of Fergus Falls. Otter Tail Power Company purchased Pisgah Station outright in 1938. Central Dam, which had been repaired after the flood of 1909, was rebuilt in 1922. Shortly thereafter the company began constructing our last power dam on the Otter Tail River at Taplin Gorge, a few miles upriver from the diversion dam for the Hoot Lake hydroelectric plant. Designed by Vernon Wright and patterned after the tomb of the early Italian emperor, Theodoric I, the powerhouse contained a 550-kilowatt waterwheel that went on line in November 1925.

Workers hauled poles to the line in the 1920s.

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The number of towns on Otter Tail Power Company lines grew to 44 by the end of 1919, 31 served at retail and 13 at wholesale. Throughout the teens and twenties more towns were requesting service than could be connected using the construction methods of that time. In most cases, joining the integrated Otter Tail Power Company system resulted in much lower electric rates than had been possible with these communities’ independent operations. The big rush to add territory started in 1924 with the purchase of the Western Electric Company properties serving Jamestown, North Dakota. By 1926 the company’s transmission lines extended to the banks of the Missouri River at Washburn, North Dakota.

Workers shoveled coal into early boilers.

went on line in 1921 adjacent to the Hoot Lake hydroelectric plant at Fergus Falls. We added a second turbine there in 1923. We built our first large-scale lignite-burning steam generating plant in 1926 at Washburn, North Dakota. It contained two 1,500-kilowatt units. We also built a 3,000-kw steam plant called Kidder Station in Wahpeton, North Dakota, in 1927.

The demand for electricity outgrew the capacity of the hydroelectric plants, and mechanical generation became necessary. The company’s first steam generating plant, a 1,500-kilowatt unit,

We added 1,500-kw steam turbines like this at Hoot Lake Plant in 1921 and 1923. 4

While Otter Tail Power Company has a long history of making safety a priority, safety rules were yet to come in these days.


New strategies for a new era

have been at times to those he supervised, was an important factor in bringing the company through some particularly difficult times.

In the first years of the company’s existence, much of our business was conducted from the office of Fred Barrows near Central Dam and from office space scattered among nearby buildings. Directors and shareholders met at the Dayton Hollow Dam powerhouse in Buse Township, the location designated as the company’s principal place of business in the articles of incorporation. But with growth Vernon Wright recognized the need for larger and permanent general office facilities, and he designed and constructed a two-story brick office building south of the Barrows building. He financed the structure himself but sold it to the company in 1924 for $45,000. Late in 1921 Fred Barrows sold his interest in Otter Tail Power Company, mostly to Vernon Wright and Elmer E. Adams. Adams, a local banker and real estate dealer, carried out more and more of the company’s financial functions. His son Samuel P. Adams was elected a director and treasurer of the company in October 1921. C. B. Kidder’s death following an electrical accident in 1920 was a great loss to Otter Tail Power Company. With Kidder’s passing, the company hired Clifford Stewart Kennedy who also was elected a director. C.S. Kennedy was to have a powerful influence over company affairs for the next 25 years. In his mind a day’s work ended when the work was done, not when the workday was over. He insisted that all company property be kept neat and tidy, and he felt that it was his job to supervise all of the company’s activities, no matter how insignificant. His iron-fisted management style, however repugnant it may

The company that had provided electricity to one customer 20 years earlier, by 1929 was serving 314 communities, 258 retail and 56 wholesale. Otter Tail Power Company also served 534 farms, 125 cottages, and 19 wholesale customers. We owned 3,795 miles of transmission lines of various voltages. Our generating capacity totaled about 25,000 kilowatts. Our electric system was interconnected with those of other companies at six different points. Wright’s strategy of growth had been remarkably successful. But the stock market crash of 1929 ushered in a decade that would force Wright to change his strategy dramatically. Several years of severe drought, greatly reduced crop yields, a precipitous drop in agricultural prices, two devastating sleet storms, and competition from governmentsubsidized rural electric cooperatives threatened our company’s existence. During the ’30s our strategy no longer was growth but survival.

Otter Tail Power Company lines pushed out a considerable distance from Fergus Falls by 1932.

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Government subsidies

Survival during the ’30s

Vernon Wright determined the strategy, and his son Thomas Wright continued it. Tom Wright, an electrical engineer, succeeded his father to the presidency in 1933, and Vernon Wright became chairman of the board. Vernon Wright died in 1938, thus ending a distinguished career in the electric utility business spanning nearly 40 years. Steps taken to implement the survival strategy were numerous and stringent. We suspended common stock dividends between 1934 and 1938. We began delivering Tom Wright succeeded his father Vernon Wright as president wholesale electricity to cooperatives in in 1933. 1937. We placed tight restrictions on all expenditures and activities. And employees accepted a 10 percent wage cut. The company’s expansion program came to a gradual halt with only two towns added to the system in each of the years 1934 and 1935. It was all the company could do with depression-limited resources to provide satisfactory service to the towns we already served. To top it off, our service territory experienced a series of devastating sleet storms in the early 1930s. Despite poor earnings, in 1934 the company placed an electric rate reduction into effect, an action taken in recognition of the financial plight of our customers. However costly to the company at the time, such humanitarian action helped to cement the bond between Otter Tail Power Company and the people we served for years to come. 6

As if the electric industry didn’t have enough troubles during the depth of the depression, the federal government chose this time to establish the Tennessee Valley Authority, the Rural Electrification Administration, and a number of other government power agencies and programs. Despite subsidized government competition, no community left Otter Tail Power Company’s system until after the depression had ended. Starting in 1936 numerous rural electric cooperatives (RECs) were established in and near Otter Tail Power Company’s service territory. Initially the RECs had no generating facilities, and they looked to our company to be their wholesale supplier of electricity. Management opted not only to serve the RECs’ electric loads at wholesale but to welcome and encourage them. One of the ways this was done was by offering them preferential rates. By the end of 1948 the company was serving 42 cooperative substations owned by 23 cooperatives. REC loads rapidly became the fastestgrowing segment of our business. By working with and assisting the rural electric cooperatives in our service area, Otter Tail Power Company established a harmonious relationship between an investor-owned electric company and group of electric cooperatives that was at the time unique in the nation. The Bureau of Reclamation, now the Western Area Power Administration, began marketing preference power from dams on the Missouri River in the late 1940s, and Otter Tail Power Company lost rural electric cooperative loads.

After the Rural Electrification Administration (REA) was created Otter Tail Power Company opted to serve rural electric cooperative loads at wholesale and established a relationship that at the time was unique.


After the depression

Starting in 1936 and continuing through the remainder of the decade, Otter Tail Power Company’s fortunes began to brighten. Increased rainfall brought about improved crop yields in the area, and the economy gradually began to show improvement. But the company emerged from the thirties a different company than when the decade began, even though the system experienced little change. For the first 30 years or so of our existence Otter Tail Power Company had been in the appliance business because we often acquired stocks of electrical merchandise along with electrical distribution systems. It wasn’t until 1939 that we abandoned our policy of selling electrical merchandise directly in favor of backing strong dealers in our principal communities by providing store space at low rental cost and by financing major appliances. Negotiations between Otter Tail Power Company and the International Brotherhood of Electrical Workers began in 1937 and culminated in the signing of Otter Tail Power Company’s first labor agreement with employees in February 1938.

During World War II the electric industry was considered essential so employees could have applied for exemption from military service. Few did, however, and by the end of hostilities nearly 20 percent of the company’s employees had seen some form of war duty. As the war dragged on, the shortage of manpower and materials severely curtailed maintenance efforts and, for the most part, halted plant expansion. Meanwhile, our electric loads, particularly those dedicated to the rapidly growing rural electric systems, continued to increase. Our total generation, which was 112,819,000 kilowatt-hours in 1940, nearly had doubled to 213,442,000 in 1945. The end of World War II heralded the beginning of an extended period of catching up for Otter Tail Power Company. Some prewar employees returned, and the company hired additional people to restore and expand the electric system to serve the everincreasing load created by the insatiable demand of customers for new appliances. Electric loads on the Otter Tail Power Company system more than doubled from 169,556,000 kwh in 1945 to 404,210,000 kwh by 1950.

Expansion amid the impact of WWII

Otter Tail Power Company entered The outline of our service area has changed little since 1945. the 1940s with a surge of territorial expansion reminiscent of the 1920s. In 1941 the company made several Langdon Rugby Hallock acquisitions and became the surviving Devils Lake Garrison company in a merger with Union Public Crookston Service Company. The latter brought the Bemidji Canby/Milbank area into the system. Jamestown By the end of 1944 we’d purchased Oakes ND the Bemidji, Crookston, and Hallock Wahpeton Fergus Falls areas from Interstate Power Company Morris of Dubuque, Iowa. Otter Tail Power Milbank Company was serving 496 towns in a Canby 50,000-square-mile service territory in western Minnesota, eastern North MN Dakota, and northeastern South SD Dakota. Except for a few acquisitions and the loss of some towns in the intervening years, our service area then NE IA was about the same as it is today.

WI

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It seemed that there was no end to the load growth the company was experiencing. Building power plants became a way of life, not an occasional necessity.

Federal power threatened municipal, REA loads Meeting growing energy needs

The strategy then became finding ways of providing needed generation. Even after acquiring the Bemidji and Crookston plants, it was clear at the end of 1945 that considerable new generating capacity would be needed. Contracts were let for constructing 5,000-kilowatt power plants at Devils Lake and Crookston and for a 7,500-kilowatt addition to Hoot Lake. The earliest possible date that the first of the new plants could begin service was the middle of 1947. Additional capacity was needed right away so the company installed a dozen or more diesel and gas generating units between 1946 and 1948 The 5,000-kilowatt power plant at Devils Lake, North Dakota, helped to temporarily ease the power shortage in the mid to late ’40s. strategically throughout the system. While the new generating units at Devils Lake, Crookston, and Fergus Falls provided enough capacity to ease the power shortage temporarily, still more generating capacity was needed to accommodate future load growth. A 7,500-kilowatt steam turbogenerator was installed at the Jamestown Plant in 1948, second units were added at both Devils Lake and Crookston in 1949, and a 15,000-kilowatt steam turbogenerator was placed on line at Ortonville, Minnesota, in 1950. 8

At the end of 1948 Otter Tail Power Company was serving 42 cooperative substations representing nearly 19 percent of the company’s system peak. It had become obvious that, if the company were to continue to add cooperative loads, we would have to continue to add generating capacity solely for that purpose. Looming on the horizon, however, was the threat of takeover of the rural electric loads by the United States Bureau of Reclamation, then the marketing agency for electric energy produced at power stations owned and operated by the federal government. Power to be produced incidentally by the mid-1950s at a multipurpose federal dam on the Missouri River near Garrison, North Dakota, was by law to be marketed to preference customers including municipalities, public bodies, and REAfinanced cooperatives. Under the circumstances, we reluctantly decided that we no longer could invest in generating capacity dedicated to rural electric loads. Our headquarters city of Fergus Falls, as the operator of a municipal electric system, would be eligible for an allotment of government power as soon as the dams on the Missouri River began to produce electric energy. The switchover would mean that Otter Tail Power Company wouldn’t have a wholesale customer in our hometown. Such a prospect was unpalatable so the company made an offer to purchase the electrical distribution system of Fergus Falls and operate it under a 20-year franchise. Tied to the offer was the promise to build a new general office building in Fergus Falls. Fergus Falls voters approved on April 7, 1953. On April 8, 1952, The Fergus Falls Daily Journal published a story about citizens voting to keep Otter Tail Power Company in its headquarters city.


Changing the workforce

Cyrus Wright, who succeeded his brother Tom Wright as president in 1952, was quick to recognize that power plants, transmission lines, line and service equipment, and communication techniques were becoming increasingly complex, creating the need for a more sophisticated, better trained workforce. And he also recognized that such a workforce would not respond well to the strong centralized management style of the company’s Cy Wright succeeded his brother Tom Wright as president in 1952. formative years. Wright’s strategy: decentralization. The company hired accountants, business school graduates, and additional engineers for middlemanagement ranks. The company was taking the first hesitant steps toward developing a professional management team. More technical school graduates were being brought into the company as well, many of them having completed their schooling under the federal government’s veterans’ education program, the GI Bill of Rights. Large construction crews also gave way to more mobile three-man crews. Company districts were grouped into five divisions reporting to division managers. Division engineers began providing supervision for the line crews and were in charge of engineering and line construction in their respective divisions.

115,000-volt transmission line that interconnected with the Northern States Power Company electric system. The higher transmission voltage opened opportunities to interconnect with other neighboring power systems, providing additional reliability as well as access to alternate sources of service. Higher transmission voltage and interconnections with neighboring power systems also made it possible for the company to turn over rural electric loads to other suppliers.

Electric sales became top priority

The loss of the rural electric cooperative loads left the company with a temporary oversupply of generating capacity. For the first time since the end of World War II the frantic pace of planning and building power plants was relaxed. Replacing the cooperative loads with more profitable retail electric sales became a top priority. The company purchased the right to use Reddy Kilowatt, the national symbol of the investor-owned electric industry, as it redoubled marketing efforts. In 1956 the company organized a home service department with a model kitchen for conducting cooking, freezing, and other demonstrations. In 1958 the industrial sales department was added. The company promoted electric heat and in 1959 introduced special low rates for Total Electric homes and businesses. Sales rebounded, and the retail sales that replaced the rural electric loads that had been served at bargain-basement rates were considerably more profitable for the company.

Improving service standards Early in the 1950s service standards improved because we had built up our workforce enough so typical maintenance could be resumed and expansions made to the system. One of the major reasons for the upgraded service continuity was a higher-voltage transmission system through the heart of the Otter Tail Power Company electric system. For years 41,600 volts had been the standard for major transmission lines, but with the increased electric loads and larger power plants, work began on a 206-mile double-pole

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Crookston, Bemidji, Devils Lake, and Ortonville— were removed from service, resulting in relocation or reassignment for scores of plant employees and their families.

Antitrust action Plant expansion

To attract the millions of dollars needed to finance postwar construction of power plants, transmission lines, and other electrical facilities, it was necessary to look far beyond the traditional financing methods of the past. Sales of first mortgage bonds, common stock, cumulative preferred stock, and convertible debentures all were conducted from 1946 through 1951. Short-term bank loans provided ready cash during the periods between permanent financings. In 1961 World War II veteran Al Hartl succeeded Cyrus Wright as president. Hartl, a hard-driving management graduate, was a strong proponent of economy of scale. He believed that a few large plants could generate electricity more efficiently, more cost-effectively, and with less environmental impact than a greater number of smaller plants.

During Al Hartl’s tenure, the United States Justice Department filed a civil antitrust action against Otter Tail Power Company alleging that municipalities had the right to use the company’s transmission lines for delivering government power allotments to their municipal electric systems. After nearly four years of decisions, appeals, and legal maneuverings by both sides, the United States Supreme Court ruled four to three against the company in a landmark decision. The precedent established by the Supreme Court’s ruling was of considerable concern to the company’s management. Several communities reacted to the attraction of underpriced government power, but only four voted to leave the Otter Tail Power Company system because the Bureau of Reclamation (now the Western Area Power Administration) no longer had a ready supply of firm power. On the other hand, the company took advantage of opportunities to add three new towns in 1960, the first acquisition since the early 40s, and in 1968 the company purchased our last town.

True to his conviction, he inaugurated a strategy of Al Hartl succeeded Cy Wright as unprecedented plant expansion: Hoot president in 1961. Lake Unit 3 in 1964, Big Stone Plant in 1975, and Coyote Station in 1981. The company also added peaking plants at Jamestown in 1976 and 1978 and Lake Preston in 1978. The strategy ensured that we could continue to provide electricity to our customers reliably, economically, and in an environmentally responsible manner. The strategy for new large plants was not implemented without pain. One by one, the smaller plants—Washburn, Wahpeton, Jamestown, 10

Hartl’s strategy for efficiency gains through new large plants led to removing smaller plants from service.


Financing and rate increases

Huge construction budgets called for unprecedented financing efforts and the necessity of communicating to customers the need for rate increases. Those daunting tasks fell to Bob Bigwood, a University of Minnesota graduate who was serving the company as Vice President, Personnel, when he succeeded Hartl as president in 1976. Bigwood met the tasks head on. His financing strategy Bob Bigwood succeeded Hartl as included offerings of president in 1976. first-mortgage bonds, pollution-control bonds, preferred stock, and common stock. In 1979, $51 million was raised through the sale of various securities. Among the strategies he adopted for promoting the need for rate increases were a series of “Report from the President� newspaper ads and a company speakers’ bureau made up of employees who brought the message directly to customers.

The Arab oil embargo of 1978 brought a period of capacity surplus.

Capacity growth versus load growth

Once again, a change in conditions necessitated a change in strategy. For decades the assumption had been that electric load growth would hold steady at 7 percent. The Arab oil embargo of 1978 changed that. Residential rates for customers served by electric utilities dependent upon oil reached as high as 14 and 15 cents per kilowatt-hour in some regions. For the first time it became apparent that electric use is, as with most other commodities, subject to elasticity of demand. People will use or buy less when the price gets too high. So, with Big Stone Plant on line, Coyote Station coming on line in a few years, and a cogeneration plant at Spiritwood, North Dakota, in the planning stages, capacity growth was approaching 7 percent. Load growth was only 1.5 percent. Bigwood and his successor John MacFarlane noted that excessive capacity growth was occurring throughout the region. It was clear to them that surplus capacity soon would be available for purchase. That meant Otter Tail Power Company could purchase surplus energy from other suppliers more cheaply than we could generate it. And from that realization came a new strategy. Otter Tail Power Company would become a deficit utility in a surplus pool. As a result, plans to build the Spiritwood plant were replaced with exchange contracts and purchase agreements with neighboring utilities. The strategy was successful. But that success did not come without a consequence.

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Flat earnings

In 1984 John MacFarlane, an electrical engineer, became our company’s sixth president. The steps taken by MacFarlane to strengthen our company’s strategy as a deficit utility in a surplus pool were in the tradition of his predecessors, numerous and innovative.

The role of load management

Otter Tail Power Company’s earnings are a function of our rate base. We’re allowed to earn a percentage of the dollars we have invested in buildings and equipment. But here’s the problem. The rate base doesn’t grow when new facilities aren’t being built. In fact, as buildings and equipment depreciate, rate base can decline. Again, Bigwood and his management team devised strategies to counter the negative effects. Perhaps the most effective was the emphasis on load management, designed to make maximum use of existing generating facilities by shaving peaks and filling valleys in electric load. Rebates and special rates encouraged customers to use off-peak heating systems such as underfloor and thermal storage. Residential demand control allowed our company to control electric use at peak times. The benefits of a wide range of load-management programs came not only to Otter Tail Power Company but also to thousands of residential, business, and industrial customers. Other actions included a moderate downsizing, shifting from three-man to two-man crews, and a hiring moratorium. Those strategies were successful for a time, but earnings were flat and threatening to sink.

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In 1987 employees accepted a oneJohn MacFarlane succeeded year wage freeze Bigwood as president in 1984. in exchange for a performance incentive plan called Gainshare. In a bold move toward stimulating job growth in a stagnant service economy, MacFarlane led the move to intensify the company’s long-time strategy of economic development by engaging a professional firm, Thom Consultants, to head economic development efforts. Those efforts included a highly successful loan pool concept for adding thousands of jobs to the area during the next ten years.

Employees educated customers about the value of load management in the early ’80s. Our company continues in this tradition today.


Diversification

Economic development efforts created and saved jobs, but lack of growth still was a concern. Management made the decision to diversify into nonutility businesses. In 1990 Otter Tail Power Company formed Mid-States Development to buy successful businesses with superior growth potential and excellent management. By 1998 Mid-States Development had grown larger than the parent core electric business, and its name was changed to Varistar. At this same time, electric utilities were facing energy deregulation and positioning for retail choice or other scenarios presented by an evolving marketplace. Otter Tail Power Company reorganized into four business units: energy supply, energy delivery, energy services, and diversified operations. Otter Tail Power Company became the operating partner of Coyote Station. Power marketing became an even more important part of company operations. In February 1998, 55 employees accepted a voluntary early retirement program.

Otter Tail Power Company becomes an operating company of Otter Tail Corporation

In 2001 Otter Tail Power Company and Varistar became Otter Tail Corporation, with the utility becoming one of the corporation’s 16 operating companies. John Erickson, a 21-year employee and Executive Vice President at the time, was named President of the corporation and later was named Chief Executive Officer. In 2002 John MacFarlane retired as President and CEO of Otter Tail Power Company and continued in his role as Otter Tail Corporation Chairman of the Board. Doug Kjellerup, Vice President, Energy Delivery, was named President of Otter Tail Power Company. Unfortunately, shortly thereafter a stroke left Kjellerup incapable of continuing his duties. Otter Tail Power Company had reintegrated Energy Supply and Energy Delivery business units when Chuck MacFarlane, who was serving as interim president, was named president in 2003.

Otter Tail Power Company became the operating partner of Coyote Station in 1998. Doug Kjellerup served as Otter Tail Power Company’s president in 2002.

Plant employees remain committed to reliable service.

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Changes to the electric industry

Focus on performance

Strategic initiatives instituted by Chuck MacFarlane point to leadership qualities that will stand the company in good stead in coming years. They include a commitment to Renewable Energy Standards in Minnesota and Chuck MacFarlane succeeded Renewable Energy Doug Kjellerup as president in Objectives in North 2003 after serving as interim Dakota and South president since 2002. Dakota, increased attention to measuring performance by the use of Key Performance Indicators, and continued emphasis on safety and customer service. The company has a long-standing reputation for customer service but, with changes to the energy industry, places even more emphasis on customer satisfaction. A virtual call center and online billpayment option were two of the first changes to customer service. E-commerce led to more selfservice options for customers, such as online energy use charts and bill analyzer data. Customer Care now includes quality assurance and expanded customer survey features.

Federal Energy Regulatory Commission rules required changes to high-voltage transmission systems. The Midwest Independent Transmission System Operator (MISO) was formed and eventually began overseeing regional wholesale electric markets and the electric system across 15 Midwestern states and Manitoba, including operational control of Otter Tail Power Company’s transmission facilities larger than 100 kilovolts.

Commitment to wind energy

As part of our focus on energy conservation, environmental stewardship, and social responsibility, Otter Tail Power Company participated in our first wind-power project near Edgeley, North Dakota, in 2003, purchasing the entire output of the site’s 21-megawatt generating capacity from NextEra Energy Resources-owned North Dakota Wind II. At the time, NextEra Energy Resources was known as FPL Energy. In 2006 Otter Tail Power Company implemented a Community-Based Energy Development (C-BED) tariff. The purpose of the tariff was to optimize local, regional, and state benefits from wind energy development and to facilitate widespread development of community-based wind energy projects throughout Minnesota.

The entire Langdon Wind Energy Center near Langdon, North Dakota, was fully operational January 12, 2008.

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In 2007 we increased our commitment to wind energy with ownership of 40.5 MW of wind generation at the Langdon Wind Energy Center. We also purchase 19.5 MW of output.

In 2003 a new combustion turbine was installed near Bemidji, Minnesota, to improve energy supply. But the most far-reaching plan is the Big Stone II proposal.

In late 2008 the company-owned 48-MW Ashtabula Wind Center went into service. This facility is in east-central North Dakota.

This new strategy is a shift from being a steward of resources to being a developer of resources.

In 2008 Otter Tail Power Company also entered into an agreement with a North Dakota company to own the nearly 50 MW of wind-generated electricity at the Luverne Wind Farm. When combined, the Langdon, Ashtabula, and Luverne resources would increase the amount of economical wind-generated electricity owned or purchased by Otter Tail Power Company to nearly 180 megawatts, which is enough to power approximately 52,000 homes.

Otter Tail Power Company and our partners are proposing to build the new coal-fired plant next to the existing Big Stone Plant. Big Stone II would provide a sound energy future in the region by balancing consumers’ requirements for reliable and affordable electricity with concerns for a healthy environment and reduced carbon emissions.

And in 2008 the Minnesota Public Utilities Commission approved changes to Otter Tail Power Company’s C-BED tariff that expanded eligibility beyond wind energy. The tariff now includes renewable energy sources such as biogas, solar, biomass, biodiesel, and small hydro.

Developing resources

In 2008 Otter Tail Power Company, Xcel Energy, and Manitoba Hydro completed a high-voltage transmission project linking suppliers in Minnesota, North Dakota, and Canada. Another project, CapX 2020, a joint transmission planning effort among 11 utilities, proposed four high-voltage transmission lines to help meet increased demands on infrastructure.

If built, Big Stone II construction would begin in late 2010.

Transmission upgrades and new construction are critical in meeting customers’ growing demand for electricity and maintaining our electrical system’s reliability.

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Like the river

For 100 years, effective employee implementation of strategies developed by dynamic leaders has led the company. We’ve seen a major depression; two World Wars; years of severe drought; devastating ice, sleet, and wind storms; competition from subsidized government power; and a potentially devastating slowdown of the nation’s economy. Like the river for which we’re named, Otter Tail Power Company will continue to run a varied course as our leadership and skilled and innovative employee group adapts to, changes, and shapes the surroundings in which we operate to provide electricity to our customers for the next 100-plus years.

The Otter Tail River walk in downtown Fergus Falls provides a scenic path to Central (Wright) Dam. 16

Celia Benson, compiled the text for this history book based on independent research as well as the writings of Tom Wright, Ralph Johnson, Al Seltz, and Lee Krogh. All are former Otter Tail Power Company employees.


215 S Cascade St Fergus Falls MN 56537 www.otpco.com

5/09

100 years of service - history book  

Otter Tail Power Company

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