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How Basin Electric’s Subsidiary Dakota Gasification Company Impacts Members of Dakota Energy
As a member of East River Electric, Dakota Energy Cooperative has part ownership in the Dakota Gasification Company, which owns the Great Plains Synfuels plant. You may have heard about losses at the Synfuels plant and its impact on consumers in our region. We’ll explain why Basin Electric owns this plant, the positive impact it has had on member rates over the years, and the true cost of any losses that have been suffered in recent years.
History of the Great Plains Synfuels Plant
Back in the 1970s, America was dealing with an energy crisis. The Great Plains Synfuels plant was built in Beulah, N.D., to help the country’s quest for energy independence. Basin Electric Power Cooperative was not part of the original group of investors in the project, but later acquired the plant in 1988 from the federal Department of Energy. Since then, Basin Electric has owned the Dakota Gasification Company that operates the Great Plains Synfuels plant which is the only commercial-scale coal gasification plant in the United States that manufactures synthetic natural gas. The Synfuels plant is located adjacent to Basin Electric’s Antelope Valley Station, a 900-megawatt electric generator.
Gasification plant produces many agricultural products
The Synfuels plant produces synthetic natural gas and many other byproducts of the gasification process including agricultural fertilizers like urea, anhydrous ammonia and ammonium sulfate. It also produces diesel exhaust fluid, other chemicals and fuels, liquified gases and carbon dioxide that is sent through a pipeline to Canada. Basin Electric and its members benefit from shared services between the Synfuels plant and the generation plant and for decades it has had a positive impact on Basin Electric’s bottom line.
Shared benefits with Basin Electric
Because Basin Electric’s Antelope Valley Station coal-fired generation plant shares the same area as the Synfuels plant, they are able to share expenses and many fixed costs associated with mining coal, water supply and other costs giving a financial benefit of $71 million annually to Basin Electric. Since the plant was put in service it has had an $800 million net benefit to the members of Basin Electric. In some years, the costs associated with low commodity prices have made the plant unprofitable, costing Basin Electric money. However, as you’ll soon realize, shutting down the plant would come with an even greater immediate cost.
Synfuels plant impacted by changing natural gas market
Over the years, the Synfuels plant has seen ups and downs in terms of market prices for its products, largely driven by the market price of natural gas. For years, the subsidiary was making money because it could produce synthetic natural gas at prices much lower than the market. When fracking came into practice a few years ago, the price of natural gas plummeted. After DGC began experiencing financial difficulties, Basin Electric reduced staff, reduced expenses, reduced production at the plant and did whatever it could to absorb extra costs.
The cost of shutting down the plant would be enormous – as much as $1.2 billion in immediate costs. There are existing long-term contracts for products to consider, early debt payoff penalties, and shutdown costs would’ve meant a large financial hit to Basin Electric’s members immediately. Because of continued low commodity prices, Basin Electric is studying an option to shut down the coal to natural gas portion of the plant and continue to focus more on agricultural fertilizer products and other byproducts to make the plant profitable. Rather than huge upfront costs that would be incurred by shutting down the plant, Basin Electric is looking to implement a short-term glidepath toward profitability at DGC. Basin Electric continues to plan for the future by making reasoned decisions that will have the most positive impact on their members.
East River Electric’s rates have gone down despite losses
East River Electric has seen its average wholesale rate to members co-ops fall for three straight years – even with losses at the Dakota Gasification Company’s Great Plains Synfuels plant. Because of cost control measures and added revenue from the Southwest Power Pool in which East River Electric is a Transmission Owner, members have seen several years of declining rates that have a positive impact on member systems.
In the end, cooperative members of Dakota Energy are seeing very little financial impact from any losses at DGC. East River makes up about 13 percent of Basin Electric’s annual sales – meaning East River is responsible for 13 percent of any net costs. Dakota Energy makes up only about 6 percent of East River’s net costs. That means Dakota Energy members are responsible for less than 1 percent of Basin Electric’s total net costs. That’s the power of spreading risk across a broad cooperative membership. Unlike Dakota Energy’s risky plans to buy power from Guzman Energy, Basin Electric and East River Electric are able to spread risk across millions of consumers to provide more stable power prices for its members.