FERC Judge Rules Nation’s Largest Rural Electric Co-op Failed to Assess Coal Alternatives

WASHINGTON, D.C. -- A Federal Energy Regulatory Commission Administrative Law Judge issued an initial decision finding that Basin Electric Cooperative failed to meet its obligation to assess cheaper alternatives when the utility spent tens of millions of dollars upgrading overpriced coal-fired power plants, passing the exorbitant costs onto its captive customers. Basin Electric is the largest rural cooperative in the United States. It serves rural customers in 9 states and remains heavily dependent on coal for its electricity generating needs.

“In the absence of competitive pressure or regulatory oversight, Basin has spent its members’ money on costly and polluting generation resources without ever assessing whether cleaner alternatives would better serve customers’ interests. Instead, Basin blindly spent tens of millions of dollars on aging coal plants that were already uncompetitive in the energy market. This initial decision makes significant strides forward in holding Basin accountable for its egregious disregard of customers’ interests: the decision finds that Basin was imprudent in failing to consider whether cleaner alternatives would lower customer costs. We will continue to engage to ensure that the final Commission order or a subsequent rate case will finally provide ratepayers relief for the recognized imprudent actions of Basin,” said Kristin Henry, Managing Attorney for Sierra Club.

If adopted by the Commission, this decision would be precedential in finding that electric cooperatives like Basin are not exempt from accountability under the Federal Power Act, nor from the general regulatory principle that monopoly utilities must seek to minimize costs, examine feasible alternatives to reduce customer costs, and can be found imprudent. This includes rigorously considering the retirement of coal units when market trends or short-term economic performance signal a plant could be replaced, at less cost, by renewable generation.

Holly Bender, Chief Energy Officer for Sierra Club, said, “It is clear that Basin's planning processes have been grossly inadequate for years. This decision sends a clear signal: instead of doubling down on these expensive and outdated coal plants–without even considering alternatives–Basin should commit to replacing coal plants with readily available, low-cost renewable sources of energy. Utilities across the country should take note of Basin’s failures and transition to clean energy sources now.”

The judge’s decision supports two of the central arguments made by Sierra Club in this case:

• Basin acted imprudently by spending tens of millions of dollars on upgrades at the Laramie River and Leland Olds coal-fired power plants to comply with environmental rules without first evaluating whether it was more cost-effective for ratepayers to commit to retire both plants in the 2020s instead.
• Prudent utilities continuously evaluate the costs of generation compared to the market rate of electricity and the cost of alternative means of generating electricity; in contrast, Basin failed to follow standard industry practices with respect to the ongoing operation of its coal plants, Leland Olds, Laramie River, and Antelope Valley. Basin also failed to adequately monitor its plants’ cost or engage in industry-standard planning, and as a result, failed to take advantage of low wind and capacity prices in 2016 and 2017, instead continuing to operate coal units that cost far more than alternatives.

Although the Judge did not recommend disallowances, or ratepayer refunds, associated with the coal-fired generating units, Basin is vulnerable to additional mandated monetary remedy if Sierra Club can present sufficient evidence regarding transmission infrastructure and other perceived deficiencies in future rate dockets.

Basin Electric Cooperative, the largest rural electric cooperative in the country, generates electricity for distributing utilities across Minnesota, North Dakota, South Dakota, Montana, Wyoming, New Mexico, Nebraska, and Colorado. Basin is based in North Dakota, where Sierra Club has worked with its North Dakota Chapter leaders to keep members and volunteers informed. Sierra Club has Chapters in every one of the states where Basin operates.