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.”