Agralite fuels rural economic development
with ethanol, vodka
Swift County, Minn., struggled
with the same population shifts and changes in the agricultural
industry that drained so many rural economies over the last
few decades, until Agralite
Electric Cooperative had an idea that would have far-reaching
benefits for both the utility and the community it served.
Ethanol plant offers farming community
many advantages
The idea was to launch a business that would bring new revenue
into the Benson, Minn.-based REC and help to stabilize its members’
electric rates. Chippewa
Valley Ethanol Company grew out of that idea, and it more
than lived up to its founders’ hopes.
In the early ‘90s, Agralite General
Manager Ray Millet
and board member John Carruth were brainstorming potential economic
development projects to build the utility’s load. “John
suggested an ethanol plant,” Millett recalled. “My
first thought was, ‘What do we know about ethanol?’
”
But Carruth persisted. “The next
day, he stopped by my office and said, ‘I’m serious
about that ethanol plant,’ ” Millet continued. “So
we started doing some research and found out that ethanol production
had a lot to offer an agricultural area.”
Any project Agralite chose to pursue would
have to create jobs and increase the community’s tax base.
An ethanol plant would do that and add value to local farmers’
commodities, too—a big plus to a predominantly agricultural
membership. There was also a good profit margin in delivering
power to a manufacturing facility.
Board, bankers, grain elevators,
producers sign on to project
Millett and Carruth decided to take their idea to the co-op’s
board. After discussing a variety of ways to manage such a project,
the board gave the general manager the green light to develop
a business plan. A manual on ethanol production distributed
by the National Corn Growers Association,
proved to be a valuable resource in the planning process and
throughout the project.
With a concept and business plan in hand, it
was time to recruit support for building an ethanol plant. Former
Minnesota Secretary of Agriculture James Nichols and Larry Johnson,
an ethanol expert and state agriculture department contractor,
lent their expertise to the effort. The group presented the
proposal for the first time to Benson bankers and economic development
professionals and got an encouraging reception. A meeting with
grain elevator owners followed. “The grain elevators needed
to buy into the project for it to succeed,” said Millett.
“We had to explain that the ethanol plant would not be
competition to their business.”
The plant wouldn’t succeed without suppliers,
either. Agralite used the local media to promote the project
and to announce a series of public information meetings with
producers in an 80-mile radius of the proposed site in Benson.
“We held 26 meetings in 16 days,” Millett said.
“The response was really positive, so we knew we could
move on to the next step—putting together financing.”
Favorable legislation, builders’
investment clinch loan
Over the next few years, more than 650 producers, elevators
and local investors became shareholders in the Chippewa Valley
Agrafuels Cooperative. Shares cost a total of $2 each and sold
in blocks of 5,000. Investors paid 10 cents per share up front
to be used as seed money. “The other $1.90 was due when
CVAC got the business loan,” explained Millett. “If
the project failed, the shareholders didn’t have to put
up any more money.”
Securing the loan was by no means a sure thing,
Millett admitted. In fact, the St. Paul Bank of Cooperatives
turned CVAC down on the first try. “The bank had seen
some similar projects fail,” said Millett, “and
there was concern at the time that Minnesota’s renewable
energy production tax credit was going to expire.”
Eventually, the state legislature extended the
credit and the bank approved the loan. With funding that consisted
of 50 percent equity and 50 percent debt, CVAC was ready to
build an ethanol plant.
One factor that helped to persuade the bank was
that Delta-T Corporation,
the design-build firm awarded the CVAC construction contract,
was also an investor in the project. The energy and chemical
processing firm was listed among vendors in the NCGA manual
and was one of four facility designers that responded to CVAC’s
request for proposal. “Their design offered a lot of flexibility
for expansion, both in capacity and product line,” explained
Millett.
Construction on the plant began in June 1995
and was completed in April 1996—ahead of schedule and
well within budget. The Chippewa Valley Ethanol Company ground
its first bushel of corn on April 26, 1996 and was producing
ethanol at 100 percent of capacity within 30 days.
Plant grows with new partners and products
CVEC has returned a lot to Benson and the surrounding area since
it produced its first barrel of clean, renewable fuel. The first
year after the plant went on line, Agralite was able to reduce
its electric rates. Ethanol production brought 35 new jobs to
the town, pushed the price of corn up and turned Swift County
from a net corn exporter to a net corn importer. “That
means that more of what our farmers grow stays in the area and
benefits the local economy,” Millett said. “It was
a win-win-win situation that proved that small rural communities
have tremendous revenue potential.”
The success story is expected to continue
with the growing demand for clean, affordable, domestic fuel.
The plant went through a recent expansion, doubling its annual
20 million-gallon capacity to 40 million and making room for
its new partner, Infinite
Spirits, maker of Shakers Original American Vodka. The partnership
enabled CVEC to add distiller’s dried grains, a high-protein
byproduct used in livestock feed, to its product line. Agralite
helped the expansion along with a grant to install energy-efficient
lighting on a new covered loading dock.
Millett sounds a little like a proud parent
when he talks about Agralite’s role in starting CVEC.
“It was the most rewarding project I’ve been involved
in during my 33 years in the utility business,” he declared.
Other rural communities have taken notice
of those rewards and invited Millett to talk about the project.
His advice to power suppliers is that they must be prepared
to be promoters, if not facilitators, of economic development
in their service areas. “I don’t want to sound like
I’m blowing my own horn, but Agralite has been in existence
for 50 years and our people are seasoned veterans in business
and power delivery,” Millett said. “Our experience
helped the community believe in the project. That trust was
instrumental in CVEC’s success.”
