Working Together, Cooperative Consumers Protected from Volatile Markets

The older I get, the more I love spring. The warm air is refreshing and signs of life popping up after a bitter winter always gives me a renewed hope. As I write this article it is the first week of March. The weather is beautiful. Of course, by the time this hits your mailbox, we could be in the middle of a blizzard. You can never take the weather for granted in South Dakota. In fact, it was only a couple weeks ago that the country was hit with a brutal cold snap. In this edition of the Cooperative Connections, you will read about the details of this weather event and how it was managed. I want to use my real estate in the magazine to shed a different light on what happened and how fortunate we are to have the Cooperative partnerships that we have developed over the past 80 years.

As we saw during the bitter cold experienced the week of Feb. 14 and the energy emergency alerts that followed, having a stable, reliable, and affordable power supply is critical to our lives. By now, we have all heard the news following the Texas energy emergency of residents in that state getting monthly residential electrical bills of over $10,000. Those astonishing costs are caused by electric utilities being fully exposed to a volatile energy market and, in turn, passing the costs along to their customers.

These shocking stories coming out of Texas have brought many people to ask me, “Can that happen to us here?”.

First and foremost, my heart goes out to those Texas consumers who are experiencing such staggering financial burdens caused by exposure to a volatile energy market. As a member-owner of our electric cooperative, you belong to a broad cooperative network which helps to prevent wild swings in energy prices that we saw in other parts of the country where some utilities are fully exposed to the energy market – simply buying electricity and not generating electricity as well.

The electricity that powers your home begins with Basin Electric Power Cooperative, which owns generation facilities and supplies our cooperative with a diverse energy mix. East River Electric Power Cooperative is the transmission cooperative in our network that owns and operates transmission lines and substations across eastern South Dakota and southwestern Minnesota. Through that infrastructure, East River safely and reliably delivers low-cost wholesale power from Basin Electric and hydropower through the Western Area Power Administration to member distribution systems like Union County Electric Cooperative which, in turn, delivers power to homes and businesses. Our cooperative as an owner of East River has ownership in the Basin generation and East River transmission system. And you, as an owner of Union County Electric have that same ownership.

Basin Electric and East River Electric help provide price stability because they can sell into the energy market when prices are high and purchase from the market when prices are more favorable. Selling generation is a hedge against wild swings in the market. It helps Basin Electric and East River provide stable and affordable electric rates all year long.

Beyond the rate stability these partnerships provide, we have stability in our generation resources as well. It has been well documented that part of the issue with the February outages in Texas and other regions was due to wind turbines shutting down from the cold weather. However, that is not the whole story. There were also limitations on natural gas generation throughout the country. Natural gas generation experienced problems from freezing and limited gas supply. By heavily relying on those two generation sources, when neither of them can produce to their capacity, it sets up for problems. Fortunately, your Cooperative family has a very diverse generation portfolio, which provides us with added reliability. When one or two generation sources are unavailable, another source can pick up the slack.

The events that we saw in mid-February are the reasons we have advocated for an all of the above energy strategy. If we were to limit our generation source, we would be exposing ourselves to greater reliability issues and price fluctuations. Due to government regulations, societal changes, pressure from investment banks and insurance underwriters, we are seeing our generation supply rapidly changing. In 2000, 85% of our electricity was coming from coal base generation. Currently, we have roughly 37% of our generation supply coming from renewable sources such as wind and hydroelectric. In the coming years we will be adding solar to that renewable mix. Today, coal based generation makes up only 43% of generation our supply, with that amount decreasing annually. The remain supply comes from a combination of natural gas, oil and recovered energy.

Our cooperative works together with East River and Basin Electric to share risk and avoid fluctuations in the energy market like we have seen in Texas. Energy brokers can be exposed to fluctuations in the markets and consumers pay the price. Therefore, it is important for a co-op to be part of an organization that owns generation and transmission which can help shield you, our member-owners, against having to pay high market prices. Because of our relationships with East River and Basin Electric, Union County Electric members will pay the same rate during and after the energy emergency as we paid before because we have long term resources to serve our load. That’s the power of being connected to a cooperative power supply, with a diverse generation portfolio, rather than relying on for-profit energy brokers.