Below is a summary of the Financial Report presented at the 2024 Basin Electric Annual Meeting.
Basin Electric’s Chief Financial Officer, Chris Johnson, presented to the membership about the importance of investing in our members, our people, and our assets, while maintaining sound financial management practices.
Johnson shared that Basin Electric is investing in existing and new generation and transmission assets. “Based on the needs of our members, we have invested over $1 billion dollars in capital projects since 2018,” he said. “We anticipate extraordinary growth in the coming decade. In 63 years, Basin and its members built an $8 billion dollar balance sheet, and we will invest almost $8 billion dollars over the next ten years.”
Planned investments include $5.3 billion dollars in new generation, $1.2 billion dollars in new transmission, and over $1.2 billion dollars in existing generation and transmission upgrades.
On the generation side, at the end of 2023, Basin Electric operated over 5,200 megawatts of maximum winter generating capacity over 8,100 megawatts of generating capacity within our resource portfolio to meet member obligations. The net book value of owned generation assets was approximately $3.3 billion dollars. Included in our total capacity is approximately 4,300 megawatts of dispatchable resources coupled with over 300 megawatts of hydro resources The portfolio of power supply resources includes owned generation, long-term power contracts, and spot market energy purchases. These resources are fueled by a combination of natural gas, coal, wind, hydro, solar, and fuel oil.
On the transmission side, Basin Electric has more than 2,500 miles of high-voltage transmission lines across seven states of its nine-state service territory. “We have transmission assets in both the Eastern and Western Interconnections and have access to DC ties, which allow electricity to flow from one interconnect to the other,” Johnson said. “At the end of 2023, we had an $870 million-dollar net book value in transmission assets.”
Investing for the Future also includes investing in people and technology. “People are our most important asset and through training, professional development, and a strong safety culture we empower them to achieve excellence, foster innovation, and ensure a safe and productive work environment,” Johnson said. “We will continue to develop our next generation of leaders, utilize AI effectively, and deploy evolving best practices across our entire business.”
In closing, Johnson reminded everyone that investing is essential for the future growth and sustainability of Basin Electric. “We will continue to have a steadfast commitment to innovation and sustainability, and by prioritizing investment, Basin Electric will build resilience, drive economic growth, and ensure long-term success for our members,” Johnson said.
Katrina Wald, Basin Electric vice president and controller, provided an update on the 2023 financials. Deloitte was engaged to conduct the independent audit of Basin Electric’s and its subsidiaries’ 2023 financial statements. “We are pleased to report that in 2023, Deloitte issued clean, or unqualified, audit opinions for the consolidated Basin Electric financials as well as the Dakota Coal Company and Dakota Gasification Company financials,” Wald said.
Shifting to 2024 financial performance, through June, the year-to-date consolidated margin was $22 million, $27 million above budget projections. In the first quarter of the year, $20 million of deferred revenue was recognized. However, this was anticipated as recognition of deferred revenue was included in the 2024 budget. In the first six months, utility operations exceeded budget expectations, whereas Dakota Gas and Dakota Coal’s margins have fallen short of the budget projections. On the utility side, member growth is strong with a new all-time system peak established in January at 5,130 MW’s, that is an increase of 9% over the last system peak. Fuel expenses have also come in lower, related to lower natural gas prices and lower coal generation. Conversely, Dakota Gas has been negatively affected by the low natural gas prices. On a positive note, the 45Q carbon capture and sequestration project has been performing well. Total volumes sequestered are two times the volumes assumed in the budget through the first six months of the year. In addition, as part of the 45Q transaction, Dakota Gas received cash up front. The cash was used to pay down debt helping to deliver Dakota Gas’ balance sheet.
Sarah Scherm, Basin Electric vice president and treasurer, discussed how maintaining access to capital is critical for the future success of Basin Electric. “To do this, we will rely on our existing resources and relationships and will also explore new ways to fund projects,” Scherm said. “The members of Basin Electric are key contributors to our capital funding. Through the margin that we collect each year to maintain an equity ratio of 25 percent, our membership is directly funding a portion of our capital spending.”
Through participation in the member investment program, members provide essential liquidity for Basin Electric, while also earning interest at a competitive rate. Another way to access capital is through our banking partners. “In 2023, we borrowed 80 million dollars through the MATCH program at the Bank of North Dakota which helps support economic development in the state. These banks also help us access the capital markets by arranging either private or public bond offerings and bringing investors together to support Basin Electric,” Scherm said.
Access to capital markets is also reliant upon maintaining solid investment grade credit ratings. Moody’s, Standard & Poor’s and Fitch Ratings all confirmed Basin Electric’s A-level ratings in 2023.
An internal team has been working hard over the last several months to prepare an application for the New ERA program, which will be filed with the Rural Utilities Service. The potential to receive a combination of grants and low-cost loans will help fund investments in renewable resources to serve the membership.
“Additionally, for the first time in Basin Electric’s history, in 2025 we expect to issue public bonds that will ultimately be registered with the Securities and Exchange Commission,” Scherm said. “This will allow us to access capital from new lenders at rates lower than what we can achieve in other markets. While we view this as a necessary and beneficial next move to take, we do not venture into this lightly and will be working over the next year to document key financial controls and develop disclosure materials that will be required by the SEC going forward.”
Basin Electric will also continue to utilize traditional sources of financing to help support overall funding needs and continued investment in the future of the cooperative.
