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Circumstances dictate intra-year rate increase

Basin Electric is still strong

Basin Electric Power Cooperative - September 1, 2011

By Ron Harper, CEO/General Manager

During a recent trip to Washington D.C., I happened to be on The Hill during the debt ceiling crisis. The mood of D.C. was full of contempt and dysfunction, and the result created no happy ending for anyone.

These are tough times. We all know that.

And Basin Electric feels it. During its July board meeting, the board took action, calling for a 5-mill intra-year wholesale rate increase. This is the first intra-year rate increase in more than 30 years.

While difficult, Basin Electric still has a proud story to tell, some of the lowest wholesale rates in the nation, and a promising future. As I make this statement, I fully recognize and appreciate the impact at the retail level, and that is really where it matters for our members.

A story on page 12 details the circumstances surrounding this increase. Simply put, a combination of a major construction period ending, declining natural gas prices, and a tanking economy contributed to this. And, considering that the covenants of our loan agreements with the Rural Utilities Service require us to generate certain levels of margins, and that we were approximately $25 million below those levels, action was required.

For the past several years, we enjoyed very low rates as a result of our surplus generation and access to the surplus markets. We had the power, a hungry market, growing member load, and Dakota Gas was experiencing record profits, which were returned to the members in the form of power cost adjustments and bill credits. This created rates far lower than those of our counterparts in the region and assisted our members at the competitive retail level. As member power requirements grew, so did our need to build additional generation.

When you combine the capital cost of such projects, a downward turn in the market and economy, significant hydroelectric generation, and once again low natural gas prices, one could say the perfect storm was created. I typically don’t like to use that term because a storm conveys forces beyond our control. Instead, I think of our situation as a series of challenges that have emerged – all related to one another, and all creating difficult times for Basin Electric and our membership. Yet, we are still in control and still navigating this ship.

While member load growth has slowed, it has not stalled – unlike many utilities in this country. And, in the midst of regulatory uncertainty and the unpopularity of coal, this past Aug. 11, we dedicated the Dry Fork Station, one of only a handful of coal-based power plants to be built in the past five years.

Further, in this atmosphere of loan defaults, banker scrutiny and an overall tightening of the lending industry, Basin Electric navigated through a massive construction period, achieving low loan rates and maintaining a higher-than-average bond rating. At the end of this period, we have a solid, diversified energy portfolio, which not only includes coal, but wind, natural gas, waste heat and nuclear. We’re considered leaders in wind generation in the upper Midwest, and have the nation’s largest wind project solely owned by a cooperative – one that also includes an innovative community-owned component and a partnership with an area college, where teaching meets innovation.

The cooperative story doesn’t stop there. Throughout what seemed like natural disaster after natural disaster – ice storms to epic flooding – the cooperative spirit remains strong. Stepping up to help fellow cooperatives, employees and members, the strength of our unity has shone through this past year, once again demonstrating that when the chips are down, cooperatives and a sense of community are one and the same.

Thanks to the many who gave of their time and energy to help during this very challenging 2011 spring!

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