Hydro Review: Viewpoints from the Board Room with Al Hodnik, ALLETE

ALLETE got its start with Minnesota Power, which was founded on hydroelectric generation more than 100 years ago. In this executive interview, Executive Chairman Al Hodnik discusses the company’s hydro foundation, as well as its near-term goal to move to 50% renewable energy.

Al Hodnik is executive chairman of ALLETE, which is an energy provider in the upper Midwest of the U.S. ALLETE owns four companies: Minnesota Power; ALLETE Clean Energy; Superior Water, Light and Power; and BNI Energy.

Hodnik joined the company in 1981 and served in a variety of roles over the years. He became president in 2009, chief executive officer in 2010 and chairman in 2011.

In this exclusive interview, Hodnik discusses how hydropower fits into Minnesota Power and the ALLETE business, how the company continues its commitment to sustainability, and its hydroelectric energy supply partnership with Manitoba Hydro.

Q: Please give our readers an overview of ALLETE Inc. and Minnesota Power.

Hodnik: ALLETE’s roots go back to 1906, when Minnesota Power got its start by harnessing the energy of the St. Louis River in northeastern Minnesota. In the early days of the 20th century, the company provided hydroelectricity to the city of Duluth, which sits on the North Shore of Lake Superior. Today, Minnesota Power is the premier energy provider in northeastern Minnesota — an area rich in timber, mineral deposits and stunning natural beauty — and is one of four companies owned by ALLETE, which is still headquartered in Duluth.

Minnesota Power supplies electricity to about 145,000 residential and commercial customers, 15 municipal systems and some of the nation’s largest industrial customers. Those industrial customers, including taconite mines and paper mills, represent about three-quarters of our retail kilowatt-hour sales and give us one of the most unique load profiles in the U.S.

In addition to Minnesota Power, ALLETE also owns ALLETE Clean Energy; Superior Water, Light and Power; and BNI Energy. At its core, ALLETE is an energy company and, like Minnesota Power, ALLETE’s other companies also are in the business of providing and delivering essential energy services to residential, commercial and industrial customers.

Superior Water, Light and Power supplies electricity to customers in northwestern Wisconsin and also provides water and natural gas service. ALLETE Clean Energy is our newest company, launched in 2011, and owns, operates, and is constructing and commissioning about 1,340 MW of nameplate capacity wind energy generation across seven states, all contracted under PSAs of various durations. In North Dakota, BNI Energy is building on its history of responsible mining by partnering with others to develop less intense or zero carbon uses of lignite.

ALLETE and its companies are delivering on the imperative from customers and society to provide increasingly cleaner energy. Recent research shows we are on the right track, ranking ALLETE the second-largest investor in renewable energy relative to company size among U.S. and Canadian regulated utilities with a market capitalization of more than $1 billion. Minnesota Power’s EnergyForward strategy will move the company to 50% renewable energy by the end of this year, while also reducing carbon emissions by 50% from 2005 levels. Clean, renewable hydropower from our 11 hydro stations has been part of our clean energy transformation since Day 1.

Our commitment to sustainability goes beyond our companies to include the communities where we live and work. In 2019, ALLETE and its employees donated more than $800,000 in six states to support the nonprofits that make a difference in people’s lives every day. Donations of time and talent often have an even larger impact, and ALLETE’s employees shine in this area. Each year they donate thousands of hours, putting their skills and experience to work on worthy projects to support their communities.

Q: You’ve been with ALLETE for nearly 40 years. What trends have you seen within the company during this time?

Hodnik: Well, any organism or organization does not operate in a bubble or isolation, so it would be difficult to not identify macro forces that have impacted our industry and by extension our company. 

Chief among the macro forces would be consumerism; much more environmental activism; regulatory and permitting; culturally – the way we work; an incredibly high rate of change and considerable asymmetry making strategy formation, decision-making and execution more challenging; technology intrusion; and industry consolidation or need for scale.

While regulatory parlance sort of cemented the notion of “ratepayer” versus customer over the decades, consumerism driven by technology, desire for personal control, convenience and choice has resulted in customer vs ratepayer at the core. Permitting in many ways has evolved since the 1970s from “here is our business proposal in a particular dimensional area – how might we work together as conservationists to make it better or less impactful.” Today, in many ways, all forms of permitting have become highly charged and processes are used to stymie, stall or outright stop initiatives.

Even before the COVID-19 pandemic, company cultures and ways to work were experiencing considerable change. Waves of retirements have taken out a generation-plus of experience, and that has been replaced with super-talented people but, as expected, each with new views on work, work/life balance and careers. That human resources trend is now accelerated further by technology. Still, we remain in the security, comfort and quality of life business and that remains a constant. With waves of great change and asymmetry, the risk is paralysis by analysis and seeking perfection in strategy vs excellence. In this environment, we must learn to assess quickly, fail fast, make adjustments on the run, and celebrate successes to avoid fatigue and burnout. Formation, quality decision-making and execution still require great people, strong leadership and values-based and adaptive cultures.

I am pleased to say that ALLETE has not lost its way with regard to its culture, leadership, talent pipeline, values construct, entrepreneurialism and customer focus. It has overcome all forms of financial and physical storms over its 115-year history, and I am fully confident about its positioning, team and strategy as it embarks on writing the next chapters.

Q: ALLETE is a diverse company with a variety of generating technologies. How does hydropower fit in your overall portfolio?

Hodnik: Even as the energy landscape has changed over the years, hydropower remains an important part of the energy mix at ALLETE’s Minnesota Power, as well as integral to our identity as an energy provider. After all, we began as a hydroelectric utility and until World War II relied mostly on rivers in northern Minnesota for the fuel necessary to generate power for customers.

Today, our 11 hydro stations make up a hydroelectric system with a capacity of 120 MW – we are the largest producer of hydroelectricity in the state of Minnesota. Our hydro stations operate on three river systems – the St. Louis, the Mississippi and the Kawishiwi.

Minnesota Power is on the cusp of a remarkable milestone, expecting to deliver 50% renewable energy by the end of this year. That’s a remarkable transformation for a company that was just 5% renewable – hydro – in 2005. Along with our hydro assets, Minnesota Power also has added hundreds of megawatts of wind and solar in Minnesota and North Dakota, including a 10-MW solar array at Camp Ripley, a National Guard base in central Minnesota.

Q: One of the companies you own, Minnesota Power, is working with Manitoba Hydro on the Great Northern Transmission Line to bring 250 MW of Canadian hydropower into your service territory. What is the status of that partnership?

Hodnik: Our Great Northern Transmission Line came online June 1, so today we’re delivering more hydroelectricity to our customers, thanks to a 250-MW power purchase agreement with Manitoba Hydro that kicked in when the line was energized.

We are proud to have Manitoba Hydro as a partner on this strategic renewable energy initiative and even more proud to say that in January of this year we completed the 500-kV, 224-mile Great Northern Transmission Line that runs from near Grand Rapids, Minn., to the Canadian border. And on June 1, we energized the line, connecting it to Manitoba Hydro’s 132-mile Manitoba-Minnesota transmission project. When the border connection was made, we began delivering 250 MW of carbon-free hydropower from Manitoba to Minnesota Power customers. Manitoba Hydro also is building the 695-MW Keeyask hydroelectric station in northern Manitoba to fulfill its agreement to sell electricity to Minnesota Power.

The heart of this strategic renewable energy initiative is its ability to tap into the complementary nature of wind and water power. The transmission line creates an innovative “battery,” allowing Minnesota Power to balance its abundant but intermittent wind resources in North Dakota with Manitoba Hydro’s reliable baseload hydropower.

On the one hand, you can say Great Northern Transmission Line simply connects the energy grids of Minnesota Power and Manitoba Hydro. But we think it goes much further than that. We believe it will transform the energy landscape of North America by meeting the demand for more renewable energy and reducing carbon emissions related to climate change.

The Great Northern Transmission Line also is part of a broader ALLETE strategy of investments in critical regional transmission and distribution infrastructure to ensure grid integrity and enable cleaner energy.

Q: Minnesota Power has some legacy hydro assets, such as the Thomson plant that you recently returned to service. What is the status of this historic facility?

Hodnik: Thomson Hydro Station is an iconic piece of our company’s history. Built on the St. Louis River, Thomson began generating power in the early days of the 20th century, and with a capacity of 72 MW anchors our 120-MW hydroelectric system, the largest system in Minnesota. But in June 2012 it sustained significant damage in historic rain and flooding.

While the integrity of our hydro dams was maintained, the sheer volume of water and speed at which the flow of the river changed flooded the six turbines at Thomson, overtopped the Thomson reservoir and breached a portion of an earthen dike at the forebay, a small reservoir that feeds water into the Thomson power station. The flood, the largest on record at Thomson, washed out roads and caused mudslides, limiting vehicular access to the powerhouse for months.

Minnesota Power’s hydroelectric team immediately began assessing how to repair the damage and how to strengthen the system against future flood events. We worked closely with the Federal Energy Regulatory Commission and an independent board of consulting engineers on planning and design to restore the forebay and make other improvements to the hydro system.

For months, the site along the lower St. Louis River in Jay Cooke State Park was the scene of a massive construction project, encompassing electrical, mechanical and civil engineering. The reconstruction and improvements, which cost about $90 million, included inspection and cleanup of the turbines that were underwater for several weeks, inspection and refurbishment of the massive pipes that deliver water from the forebay to the plant, replacement of gates, and replacement of most of the electrical infrastructure, including major work in the substation with the replacement of two large transformers.

One of the most visible aspects of Thomson’s restoration was the rebuild of the forebay embankment, which dated to 1905. Sheets of steel were placed into the ground to reinforce almost 3,000 feet of rebuilt earthen embankment, and a concrete spillway was installed at the breach site. By November 2014, the first of Thomson’s six generators had returned to producing electricity.

All of the improvements were made in a way that maintains the historical appearance and character of the site, and today Thomson continues to generate clean and reliable hydropower for our customers.

Q: What are you planning for your hydro plants in terms of future work? Will this primarily revolve around keeping them operating reliably?

Hodnik: Minnesota Power continues to invest in our hydro assets to ensure that they operate safely and reliably to provide energy to our customers for another century. Investment is focused on both long-term capital investments as well as shorter term maintenance work to ensure reliability of the system. The system has performed so well based on reliability that in 2017 hydro operations set an all-time generation production record. Not bad for a system that as a whole had a useful average life of over a century. This truly speaks to the nature of hydro and its service as long-lived renewable generation assets. Our company’s history and commitment to customers began in hydro and we believe hydropower has played and will continue to play a role in our future success.

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