Supporting Membership Growth Overview
Basin Electric was built because of a growing membership. Decades later, with the same mission to provide reliable, affordable electricity, the cooperative remains innovative and resourceful in serving its membership.
Mike Risan, senior vice president of Transmission; Dave Raatz, senior vice president of Resource Planning; and Ken Rutter, senior vice president of Marketing and Asset Management, answered questions during a panel discussion. Vic Simmons, general manager of Rushmore Electric Cooperative, moderated the panel.
Following are a couple of highlighted questions and answers. Watch the full panel discussion below.
Which parties are involved in the Mountain West Transmission Group, and give us an update on how it is progressing? Also, what are some of the benefits?
Mike Risan: The parties involved in the Mountain West conversation include Basin Electric; Tri-State Generation and Transmission; Western Area Power Association’s Loveland Area Projects and the Colorado River Storage Project; two municipal entities - Colorado Springs Utilities and Platte River Power Authority; and two investor-owned utilities – Public Service Company of Colorado (PSCO), which is an operating company of Excel ; and Black Hills Energy’s three operating companies – Black Hills Power, Black Hills Colorado Electric Utility Company, and Cheyenne Light Fuel & Power Company.
It’s been a much different process than when the IS (Integrated System) joined. When the IS joined, we had three parties with a strong working relationship, common interests, and who were contractually linked.
With Mountain West, you’ve got eight different entities working together. So a lot of the conversation has been negotiating amongst ourselves as to what we need to proceed. We initially started with a conversation of just trying to have a joint tariff similar to what the IS was. That ultimately morphed into a realization that to achieve the full benefits of working together that participation in a full RTO (regional transmission organization) and the market benefits, if we didn’t do that we would be leaving something on the table.
We also recognized, with respect to access to markets, there are others in the west that are interested in access. Right now the only organized market is the California ISO. The Mountain West did consider California ISO as an option but they’ve got a problem with their governance model, that it is California Centrix and that just was a non-starter for the rest of us.
We looked at SPP (Southwest Power Pool), MISO (Midcontinent ISO), and PJM to administer those services on our behalf and are very pleased that SPP did bubble to the top in that analysis. One of the prmary reasons is because of the proximity, and the DC ties and the ability to optimize on each side of that east-west electrical separation.
If we can make the Mountain West project go forward, there are others to the southwest that are waiting at the door. We’re hopeful to the north and northwest that might be able to join that club for further benefits for further win-win for all the parties involved.
Dave Raatz: One of the real advantages from a long-term power supply perspective on Mountain West is the elimination of multiple transmission wheeling paths. Today we have excess generation in the west and we’re moving quite a bit of the power from Laramie River Station and the Dry Forks Station from the west over to the east so we don’t have to build new resources on the east to serve some of that load growth.
Today we have to pay a west-side wheeling, we have to pay a wheeling cost to go across the DC ties and we also have to pay a wheeling expense to serve the load on the east. In Mountain West, like Nick Brown said, it’s kind of a one-shop wheeling, and all we’ll have to do is pay for the wheeling to serve our load on the east. So we eliminate some of that pancake wheeling. That’s one of the other real advantages of a Mountain West-SPP connection.
Explain the difference between marketing electricity and marketing our fertilizer commodities and all the other commodities at Dakota Gas.
Ken Rutter: There are as many similarities as there are differences. The main difference, on the power side, of course, is you can’t store power. That’s why we have a real-time desk for power management, and that’s unique versus the other commodities.
But all the commodities do have the same type of transportation logistic-type issues that we have to coordinate when we’re marketing the product, whether it be transporting by truck or rail or through a natural gas pipeline or over the wires.
With all the commodities, we try to have a diverse customer base so we’re never really tied to one particular product or market segment, and we spread it around. I think the big reason though, why Basin Electric centralized the commodity management was to get the synergies that we have across the Basin family, meaning Dakota Gas produces natural gas, we now have a bunch of natural gas-fired generation that consumes natural gas. It made sense to pull those things together.
At the same time, on a daily basis, when prices are volatile, we want to have the flexibility and be ready if there’s a different value, higher value for natural gas or for fertilizer, etc. We can do some of the product switching and set that right for Dakota Gas on a daily basis.
Tell us about the wind and gas bids that you are seeing, compare that to our cost of coal generation from the variable cost and just how competitive are we, notwithstanding the supply glut in the market.
Dave Raatz: There are really two facets to the competitiveness of our resources.
One of those, is what Ken deals with on a day-to-day basis: what is that economic comparison of our resources and what is our incremental costs, or what is that cost to produce the next kilowatt hour. And today, Basin’s coal plants and gas plants are pretty competitive with the market. There are some times when we’re not. But we’ve got our coal assets right by or located by the coal fields. Some of our gas plants are located in areas where there’s depressed gas prices. So, on a short-term basis, I think our plants are adding to the margin.
The second aspect of that comes to more of the long-term perspective and that’s when you start to bring in both the interest and the depreciation as well as the fuel costs. The folks in Resource Planning look at what are the best long-term alternatives. As we look at that we ask, “Should we retire a plant? Should we keep those plants running? What are the new resource alternatives?” Ultimately, when you talk about the new resource alternatives, wind and gas looks pretty competitive today to building other types of resources.
There are always issues if you need to do something with an existing plant - you’ve got all the sunk costs of that asset. Breaking it into the day-to-day short-term period has a whole different economics. If Ken can produce one extra megawatt hour, bring dollars to increase the margin, that’s a good thing from a long-term resource perspective. In regard to how do you meet load growth - there we need to factor the total cost of the asset, both fixed cost and the variable costs.