Previous Read
Long-term Contracts Provide Stability and Certainty
In an increasingly uncertain world, people need something they can count on. For over 70 years, East River Electric Power Cooperative has been serving its member cooperatives with reliable, affordable and sustainable electricity. The majority of East River’s facilities were built in the 1950’s and 60’s. We are just now in the process of replacing those facilities. Our cooperative founders knew building an electric cooperative was a long-term project, and they were right. We have been using some of these facilities for over 70 years. That is why it is so important to have long-term contracts, so everyone gets the benefit of the facilities and pays their fair share for that service. Our contract with the Western Area Power Administration runs through 2050, providing us with clean, stable hydropower from the Missouri River. Our contract with Basin Electric runs through 2075, providing us with the remaining power we need to serve the end members. This power consists of solar, wind, nuclear, natural gas and coal power. Those coal-fired power plants were the most stable and dependable during this last winter’s February storm.
Generation plants that served consumers through this past winter’s energy emergency have been working for decades because cooperative members invested in them a very long time ago. The long-term nature of our infrastructure means cooperatives need long-term certainty to be able to invest the capital necessary to bring power to the prairie.
Dakota Energy’s board and management took a step to tear apart their relationship with the region’s other electric cooperatives and take a gamble by purchasing electricity on the spot market from a for-profit company named Guzman Energy. Guzman was created by a private equity firm made up of out-of-state investors. Dakota Energy’s management has pointed to the length of the wholesale power contract they just re-signed in 2015 as reason to leave the cooperative family. The best way to explain the wholesale power contract is to look to history as a guide and also look at how the wholesale power contract helps secure our future.
The region’s electric cooperatives created East River Electric 70 years ago because they had been buying wholesale power from for-profit companies because they didn’t have their own generation assets. The founding members of the cooperative system knew that they didn’t want to continue paying far-off investors and worked to create a complete cooperative system to provide their own wholesale power. They knew this shift would give them more control over their future. Each cooperative would have representation on East River’s board of directors no matter their size, following the cooperative principle of one member, one vote. Because of the long-term nature of the utility business, they knew long-term contracts were necessary to provide stability and certainty. They also knew that they could minimize individual costs to each cooperative if they all worked together to invest the money necessary to build expensive transmission, substation and generation assets.
In 2021, East River Electric members still see long-term contracts as a necessary piece of providing power for the long term. A wholesale power contract is a promise among electric cooperatives to work together, take advantage of economies of scale, and procure and provide power at the lowest possible cost. It allows East River and its power supplier Basin Electric to borrow capital at lower interest rates. Lenders have confidence in wholesale power contracts and provide attractive interest rates because of the certainty the contracts provide. Short term, risky contracts would bring higher interest rates, and therefore higher electric rates for consumers.
The bottom line is that long-term wholesale power contracts are a promise that cooperatives make to each other to provide the certainty that we all need right now.