Dive Brief:
Basin Electric Power Cooperative should return $471.5 million to its customers for including costs related to a nonutility coal gasification subsidiary in its electric rates, according to an initial decision from a Federal Energy Regulatory Commission administrative law judge.
Also, Basin Electric imprudently failed to consider replacing coal-fired generation with potentially less expensive power supplies, Judge Scott Hempling said Tuesday in his initial rate case decision, which FERC will use to make a final decision. Although he rejected the Sierra Club’s proposal to disallow $207.4 million in costs related to the power plants, the environmental group will be able to seek the disallowances in pending rate cases at FERC.
Hempling also found that Basin Electric discriminated against three of its members — Tri-State Generation and Transmission Association, Minnesota Valley Electric Cooperative, or MVEC, and Wright-Hennepin Cooperative Electric Association — for charging them depreciation rates and handling transmission costs in ways that differed from its other members. He recommended they receive refunds for the discriminatory charges.
Dive Insight:
Basin Electric is reviewing the initial decision, according to Andy Buntrock, a spokesman for the Bismarck, North Dakota-based wholesale power cooperative. “We will continue to aggressively defend our collective interests in the proceeding as this moves to the full FERC commission,” he said in an email.
Basin Electric was exempt from FERC oversight until late 2019 after two of its members fell under FERC jurisdiction. The wholesale power cooperative’s member utilities in Colorado, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, South Dakota and Wyoming have about 3 million customers.
Hempling’s initial decision covering two consolidated rate cases for 2020 and 2021 marks the first time Basin Electric’s rates have been subject to review under the Federal Power Act.
“The act protects customers from the costs of a utility’s imprudent decisions, it prohibits a utility from forcing its customers to cover the costs and debts of its nonutility affiliates, and it protects the minority from undue discrimination by the majority,” Hempling said. “When a cooperative becomes subject to the act, it must adjust to those legal realities.”
Hempling’s decision sets precedent by clarifying that electric cooperatives under FERC jurisdiction have an obligation to assess the economics of their power plants, according to Kristin Henry, a Sierra Club managing attorney involved in the case.
“The ongoing obligation for a utility or a cooperative to analyze whether its existing coal units are in the best interest of rate payers, that’s huge,” Henry said.
That obligation can be triggered, for example, by a new environmental regulation or if a power plant is no longer competitive in wholesale power markets, she said.
The Sierra Club plans to seek disallowances related to Basin Electric’s handling of its coal-fired generation in pending rates cases, which had been put on hold at FERC until the current case is resolved, Henry said.
Hempling agreed with McKenzie Electric Cooperative, one of Basin Electric’s members, that the wholesale power supplier can’t pass on costs to electric customers related to its Dakota Gasification Co., or DGC, subsidiary. “A utility may not include in electricity rates any cost, loss, gain, or anything else, that is associated with the business operations or financial condition of an affiliated nonutility business,” he said.
On issues related to DGC — which uses lignite to make fuels and fertilizer — Basin Electric failed to follow prudent business practices, according to Hempling. The Basin Electric and DGC boards, for example, made key decisions based on “superficial PowerPoint bullets” rather than detailed documentation, he said.
“Passive-voice sentence fragments, in bold, big letters, lacked detailed explanations,” Hempling said. “The presentations seemed designed to pitch rather than empower — to pitch decisions rather than empower decisionmakers.”
Basin Electric’s customers are captive, making its self-regulation ineffective, Hempling said. The cooperative has refused to negotiate exit fees so its members could leave their power supply contracts early, he noted.
“Imagine giving customers true choice: between an electric supplier whose rates reflect only the costs of electric service, and an electric supplier whose rates make the consumer an involuntary risk-taker in a gasification-urea-fertilizer business, a business whose profits and losses depend on national and global commodity prices, where the customer has no legal ability to exit those risks and no actionable information about or influence over them,” Hempling said. “To assume that an ordinary electric consumer would choose the latter supplier is to hallucinate.”
Tri-State, MVEC and Wright-Hennepin have power supply contracts with Basin Electric that run to 2050. The rest of its members have contracts through 2075.
Parties in the case will be able to file “exceptions” to the initial decision that outline where they think Hempling made mistakes in his initial decision. Then FERC will make a final decision, which could reach different conclusions than Hempling’s initial decision.
