Financial Report


Steve Johnson

During Basin Electric’s financial report, Senior Vice President and Chief Executive Officer Steve Johnson, Vice President and Controller Katrina Wald, Vice President and Treasurer Susan Sorensen, and Vice President and Chief Information Officer Brian Matthews gave an update on Basin Electric’s financial condition.

Wald discussed the cooperative’s 2020 financial results and associated audit, as well as the year-to-day financial results. She said the annual independent audit of Basin Electric’s and its subsidiaries Dakota Gasification Company and Dakota Coal Company showed clean or unmodified audit opinions.

The cooperative’s 2021 year-to-date unaudited financial results through September showed electricity sales at 5% higher than the same period last year.

Basin Electric managed winter storm Uri in February fairly well as a result of its diversified generation portfolio and other tools that were used to mitigate risk. The weather event resulted in higher surplus sales revenue of approximately $210 million, as Basin Electric was able to capture high market prices for its surplus sales.

Operations and maintenance expenses increased $287 million during the first nine months of 2021 compared to 2020, mainly due to higher purchased power and increased fuel expenses associated with the winter weather event.  Maintenance expenses are up this year due to the plant outages that were deferred from 2020.

The net loss for Dakota Gas for the first nine months of 2021 was $16 million, “a tremendous improvement from 2020 when the net loss was $89 million through the first nine months,” Wald said.  “Pricing is a strong driver in the improvement.” Revenue is almost $130 million higher than last year. The largest increases come from synthetic natural gas), fertilizers, and diesel exhaust fluid. Average synthetic natural gas prices are more than double last year’s prices.

While the sales volumes for fertilizers are lower than last year, Wald said the prices are significantly higher with urea prices close to 60% higher and ammonia approximately 35% higher. “For diesel exhaust fluid, sales volumes have been stellar – 90% higher than last year and pricing is better than last year too,” she said.

people on a stage
Steve Johnson, left, with Susan Sorensen, Brian Matthews, and Katrina Wald.

 

On a consolidated basis, Basin Electric’s 2022-2031 financial forecast shows net margins and earnings of approximately $75 million per year. “But, the good news doesn’t stop there,” Johnson said. “Even with holding rates constant, we’re projecting sizeable margins.”

Sorensen, discussed liquidity, the cooperative’s Member Investment Program, and the importance of environmental, social, and governance factors to lenders and ratings agencies.

“Liquidity is key to continued growth, service, and overall financial strength,” Sorensen said. “Knowing this, Basin Electric focuses on maintaining a strong liquidity position. The rating agencies point to liquidity as one of our top strengths, right up there with our strong membership and wholesale power contracts.” 

The Member Investment Program has provided liquidity to Basin Electric for years and Sorensen said it continues to be a mutual benefit to members who can pool investments with fellow cooperative members to achieve a higher rate of return, all while providing Basin Electric with a stable source of liquidity. 

There is significant emphasis on ESG factors as they relate to access to capital. “These factors are increasing in consideration not just for Basin Electric in the way we serve our members, but in our ability to access the debt markets and maintain solid ‘A’ credit ratings. Investors and rating agencies alike are placing more and more emphasis on the cooperative’s impact to the environment,” she said. “We will remain committed to achieving the lowest cost source of cash by continuing to make wise investment decisions for our members, nurture the relationships that have brought us to where we are today, continue to be stewards of the environment while remaining steadfast in our commitment to rural America and contributing to the strength of the communities and individuals we serve, and abiding by the governance and guidance of our membership.”

Matthews spoke about cyber security and what Basin Electric is doing protect the cooperative from cyberattacks, saying cybercrime has increased 400% since 2019. 

“It is imperative that our team in Information Systems and Telecommunications works closely with Basin Electric’s security operations center staff to provide a holistic approach to protecting our systems and data,” Matthews said.

Matthews said that the cooperative places a great deal of importance on educating its employees to create what he calls a “human firewall” to protect it against attempts to gain access to data and then money. “Ransomware and cybercrime is not going away,” he said. “We need to stay vigilant and make sure we stay focused on maintaining our IT infrastructure, identifying and secure critical data, and implementing good password techniques for every person on every log in.”

Johnson said that Basin Electric’s short and long-term ratings were affirmed by both S&P and Moody’s. 

He added that on Nov. 9, the Basin Electric board approved the payment of $34.5 million of patronage.  With this distribution, all capital credits through the year 2004 will have been retired.  Over the course of just the past five years, the board has approved the distribution of nearly $154 million of capital credits.

Johnson concluded the financial report by saying, “Basin Electric is in extremely sound financial condition and stands ready to meet the needs of you our members, now and for years to come.”