Fixed on Physics: How Basin Electric maintains reliability and stability when the laws won't change

Do you love learning mind-blowing facts about physics?

• Did you know time moves more quickly the farther you get from earth? It's called time dilation and it's related to Albert Einstein's Theory of Relativity.
•  Water can freeze and boil at the same temperature, and it's possible when the pressure of the water is just right. It's called triple point, and the three states of water - solid, liquid, and vapor - coexist in equilibrium.

Now let's talk about electricity. Let's focus on the G&T (generation and transmission) function of the electric business.

• At every second of the day, the amount of electricity being generated needs to match the amount of electricity people are using.

Tom Christensen, former Basin Electric senior vice president of Transmission, Engineering, and Construction, addressed the physics of electricity during the cooperative's 2022 Annual Meeting: "The Laws of Physics are immutable, non-negotiable, and not subject to the rules of man, and the Laws of Physics will prevail every time. ... If the grid is going to operate reliably and maintain 60-hertz frequency, which by the way is absolutely critical, then generation needs to match load."

Basin Electric has 3 million members across a nine-state service territory. Each of these members is represented by meters. Each meter keeps track of the electricity used by hot water heaters, blenders, irrigation systems, oil rigs, data centers, and the list goes on.

The Laws of Physics say that at the very second electricity is being used, it must be generated somewhere. So, every time you turn on a light switch, imagine somewhere machinery is turning to generate electricity and move it out onto the transmission grid to your home.

Keeping electricity reliable

Resource adequacy is the term used to capture what Basin Electric must maintain to ensure reliable electricity. In other words, the resources used to generate electricity and maintain reliability have to be adequate to meet the load (the electricity being consumed). 

Diverse generation sources across a widespread geographical region are vital to Basin Electric achieving resource adequacy. How each unit operates and the fuel each uses both lend to the diversity of the generation.

There are two ways generation can be categorized: dispatchable and non-dispatchable.

Dispatchable generation has a readily available fuel supply like natural gas, coal, or fuel oil. The generation unit is usually situated near the mines, wells, pipelines, or tanks that provide their fuel. Non-dispatchable generation is usually a renewable resource like wind or solar power that generate when the wind blows or the sun shines. Both dispatchable and non-dispatchable generation provide value to the cooperative’s all-of-the-above energy strategy. 

Geographical diversity is a unique strength Basin Electric has thanks to the vast geographical area our member cooperatives occupy and the location of our generating units in relation to that area. The high-voltage transmission system is the link between those units and our members. Barbara Sugg, CEO of Southwest Power Pool, has said, “The transmission grid is the single most complex piece of technology ever built by mankind.”

Our generation units are built in several different transmission regions and in both the Western Interconnection and Eastern Interconnection.

The people who use the electricity, or the load, are located in both interconnections as well. Basin Electric also has access to the facilities called DC ties to move the electricity between interconnections as it is generated to where it is needed, at the most optimal prices.

Basin Electric owns and maintains more than 2,500 miles of high-voltage transmission line and is investing more than $600 million over the next five years in new transmission. Managing how the electricity moves to where it is used is a job done by thousands of highly trained people at several levels from regional transmission organizations, to federal power agencies, to generation and transmission cooperatives, to distribution cooperatives. The balance described by Tom Christensen at the beginning of this article between generation and load, keeping the system at 60 hertz, is vital to keep the grid reliable.

Moving beyond the “what” and “where” of generation and transmission, maintenance is “how” the system remains reliable. Regular maintenance is conducted to ensure systems are ready to run when they are needed, and a program is in place to replace aging transmission infrastructure over the next several years.

“There’s been a lot in the news recently about the country’s aging infrastructure. Our system is not immune to the passage of time either, but we pride ourselves by being ahead of the curve in evaluating and upgrading our substation facilities,” says Gavin McCollam, Basin Electric senior vice president and chief operating officer. “More than five years ago we embarked on a systematic, methodical program to ensure our members’ high-voltage assets are reliable. Also, with the implementation of modern, high-capacity, high-strength conductors in our new transmission projects, we are confident the transmission system across our service territory will be reliable long into the future.”

Keeping rates stable

While it might not be one of the Laws of Physics, it is just as fundamental that the price of electricity must remain affordable and predictable for people to pay their bills, plan their budgets, and grow their businesses.

While inflationary pressures and rising interest rates are impacting all sectors of the economy, Basin Electric was able to lower rates and return value to the membership at the end of 2022 through bill credits and patronage retirements. Take a look at the graphic below, which shows where Basin Electric ranks amongst all the generation and transmission electric cooperatives in the nation. Basin Electric has been able to maintain lower member rates and a strong balance sheet.

The cooperative’s diverse generation fleet, alongside market purchases, is key to making this work. Nearly 60% of Basin Electric’s generating capacity is dispatchable generation that can be counted on to run when electricity is needed. For our coal-based units, that comes from being located near a mine, what is known as a mine-mouth facility, or striving to have enough coal at the generation unit to fuel the unit for more than 30 days.

Our natural gas-based units are located close to where electricity is needed, and Basin Electric’s Marketing team procures the units’ fuel needs on the Northern Border Company and WBI Energy pipeline systems. Basin Electric has a unique advantage in a situation when natural gas prices spike, and that is our subsidiary, Dakota Gasification Company. The company’s facility, the Great Plains Synfuels Plant, turns lignite coal into synthetic natural gas which it sells on the market.

Our Marketing group includes the use of this natural hedge in Basin Electric’s natural gas strategy execution. On an annual basis, a majority of Basin Electric’s natural gas consumption for its generating units is offset by the Synfuels Plant’s natural gas production. This strategy allows Basin Electric to reduce its risks, in particular its price risk, and allows for reduction of risk and volatility across the cooperative.

As an example, during times of extreme spikes in market prices for electricity or natural gas, Basin Electric has some safeguards or natural offsets in place — the cooperative has both dispatchable generation and a facility that produces natural gas.

The Marketing team also helps the cooperative leverage its geographical diversity to capture additional economic value from our assets for the membership. Basin Electric has the ability to purchase lower-priced power in the Eastern Interconnection and flow it across the ties, selling it into markets in the West where prices have been high. This value is passed on to our membership, and it has also created grid stability and reliability for consumers in the West when they need it.

Fund for future risk

Under unique circumstances of high commodity prices and high prices for surplus power, 2022 was a year where everything fell into place for Basin Electric. High natural gas prices and fertilizer prices meant good margins for Dakota Gas’ products. High prices for surplus power in the Western Interconnection and the ability to capture non-member sales meant Basin Electric was able to capture margins and de-risk the cooperative in several ways.

These margins were moved to a Rate Stability Fund which is a savings account to be used in years that don’t turn out as well financially as 2022 did. This fund is yet another cushion for Basin Electric’s membership to stave off rate increases during financially challenging years.

“Our Rate Stability Fund is a classic example of rural American prudence — we have saved something for a rainy day,” says Todd Brickhouse, Basin Electric senior vice president and chief financial officer. “While our diversified resources help us absorb market volatility, we cannot mitigate all risks. The Rate Stability Fund is designed to keep our rates stable for a period of time when these risks materialize.”

The cooperative business model provides the governance to help Basin Electric make sound decisions with members’ capital. The owners of the cooperative, the membership, are the same people who pay the electric bill, determine rates, and make strategic decisions about the direction the business will go.

The Laws of Physics are immutable, as is Basin Electric’s dedication to providing reliable electricity at stable rates to its members.