Rainy day funds help Basin Electric weather the storm

The rainy day Basin Electric has been preparing for happened in February.

While the storm that began on Feb. 14 didn’t literally come in the form of rain, but rather extreme cold temperatures that stretched from North Dakota to Texas, it was just the type of event that had the potential to cause widespread blackouts and drastically increase member rates.

But when end-use consumers in other parts of the country were paying up to $700 for that one month’s electric bill, members at the end of Basin Electric lines were able to rest easy because their rates stayed the same as they’d always been.

So what did Basin Electric do differently than these other energy providers – the ones that had to borrow hundreds of millions of dollars or even file bankruptcy because of the extremely high gas and power prices during the energy emergency? The co-op planned ahead and saved for situations like this.

“Heading into the cold snap the week of Feb. 14, Basin Electric was well positioned from a liquidity standpoint,” says Kelly Bergquist, Basin Electric senior financial analyst. “We had $1.4 billion in cash and unused lines of credit, as well as strategies in place that eliminated the need to materially draw down on that liquidity.”

The cost of natural gas was one such strategy. “Over the years we’ve talked a lot about the natural hedge that exists between Basin Electric and Dakota Gas and that really came into play during February’s cold weather event,” says Katrina Wald, Basin Electric manager of financial reporting and accounts receivable. “Dakota Gas was able to maximize natural gas production in February to supply gas to Basin Electric’s gas generators.”

During February, natural gas prices went from around $2 to $3/million British thermal units (mmbtu) to over $300/mmbtu on certain days. “During that time Dakota Gas sold $40 million of gas to Basin Electric, so instead of paying that to a third party, the co-op paid it to Dakota Gas, keeping that money in the Basin Electric family,” Wald says.

The same advantage was seen with Dakota Gas buying its electricity from Basin Electric. “With the high energy prices that month, Dakota Gas incurred a very high electric bill – $47 million compared to its usual $3 million,” Wald says. “But instead of paying that to a third party, Dakota Gas paid it to Basin Electric, again, keeping that money in the family. Bergquist compares this to taking cash from your left pocket and putting it in your right pocket.

Another strategy that helped keep Basin Electric’s rates stable in February was its all-of-the-above generation mix. As Basin Electric continues to diversify its generation mix to meet its load growth with wind, natural gas, and market purchases, it has also maintained coal generation. Coal-based generation is considered more reliable because it is the only power generation where several days of generation fuel is stored on site.

“Basin Electric’s overall power and fuel supply strategies protected us from extremely high prices in the market,” Bergquist says.

In addition to the liquidity, Basin Electric has a revenue deferral program that has been put in place for such unforeseen occasions – a kind of “rainy day fund.” At the end of 2020 the revenue deferral program was at about $264 million. If the board of directors chooses, it can use some of that deferred revenue to lessen the financial impact of unanticipated events. This helps Basin Electric stabilize margins, maintain its credit rating, keep costs of debt down, and ultimately preserve stable member rates. It definitely pays to plan ahead.

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