Basin Electric 2014 Annual Report by Basin Electric

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meeting of the membership is

Basin Electric Power Cooperative

Editor: Andrea Blowers (ablowers@bepc.com) Senior Graphic Designer: Julie Ness Photographers: Steve Crane & Chelsy Ciavarella This 2014 Annual Report was written, compiled and produced by the employees of Basin Electric Power Cooperative and its subsidiaries. Equal Employment Opportunity Employer M/F/D/V

Photo credit: Carbon Power and Light, Wyoming

At a Glance 2 From the President and General Manager 4

Serving the Growth 14 External Pressures Challenge Service 15 Leadership Timeline 17

Owned or Operated Power Resources 24

Committed to People 26 Committed to a Safe A Family of Cooperatives 6 Powered by Excellence 18 Workforce 26 Boards of Directors 6 More Power to the Mix 18 Committed to Education 26 Membership Map 8 Excellence in Reliability Committed to Community 32 and Compliance 20 Community Co-op Management 10 A Powerful System 21 Recognition 33 Driven to Serve 12 Excelling at Ingenuity 22 Evolving to Serve 12

Strength in Numbers 34 2014 Financing Activities 36 DGC Products 37 Operating Results 38 Financial Position 38 Five-year Consolidated Financial Summary 40 Audited Consolidated Financial Statements Insert

2014 Annual Report ● 3

At a Glance Basin Electric Power Cooperative ● Not-for-profit member-owned generation and transmission cooperative ● Incorporated in 1961 ● Serves 2.9 million consumers within 138 member systems ● More than 2,300 employees ● More than 5,400 megawatts of electric generation fueled by coal, gas, oil, nuclear, wind or recovered energy ● More than 2,100 miles of high-voltage transmission

7 Subsidiaries Dakota Gasification Company

Dakota Coal Company

● For-profit subsidiary since 1988

● Owns and operates the Great Plains Synfuels Plant near Beulah, ND

● Finances and markets lignite coal from the Freedom Mine near Beulah, ND, which is owned and operated by The Coteau Properties Company

● Produces pipeline quality synthetic natural gas, fertilizers, carbon dioxide, crude cresylic acid, krypton/xenon gases, phenol, naphtha and tar oil

Souris Valley Pipeline Ltd. ● For-profit subsidiary of Dakota Gasification Company ● Transports a daily average of more than 155 million standard cubic feet of carbon dioxide for enhanced oil recovery in Canada

PrairieWinds ND 1, Inc. ● For-profit subsidiary since 2008 ● Owns wind projects (123 MW) near Minot, ND

PrairieWinds SD 1, Inc. ● For-profit subsidiary since 2008 ● Owns a wind project (150 MW) near White Lake, SD

● Coordinates procurement and transportation of Powder River Basin Coal to Laramie River Station, Dry Fork Station and Leland Olds Station ● Owns a lime plant near Frannie, WY, managed through a division called Wyoming Lime Producers since 1992

Montana Limestone Company ● For-profit subsidiary of Dakota Coal Company since 2002 ● Operates a limestone quarry ● Owns and operates a fine grind plant near Warren, MT ● Owns 50% share of the Bighorn Limestone Company, which owns the surface and limestone reserves that Montana Limestone Company mines

Basin Cooperative Services ● Not-for-profit subsidiary since 1981 ● Acquires resources and services for electric plant generation

The Basin Telecommunications, Inc. subsidiary merged with Basin Electric as of Dec. 31, 2014. It is no longer a subsidiary, however current member IT services remain unchanged, and are now provided by Basin Electric. 4 ● Basin Electric Power Cooperative

“

We’ve made big decisions this year that represent big investments. … This board evaluated all of these projects, asked difficult questions, weighed the pros and cons, and in the end, authorized them with full confidence in staff and a solid understanding of how they will strengthen our family.” Wayne Peltier, board president, Basin Electric

Photo credit: Powder River Energy Corporation, Wyoming

2014 Annual Report ● 5

We tackle each challenge or decision by doing what has kept us strong all these years. We listen to our members and we work in their best interest.

From the President and General Manager

ur members are our foundation. They created Basin Electric for a purpose – to provide reliable, low-cost electricity for their homes and businesses. It’s what we’ve done for more than five decades and it’s what our board and employees are solidly focused on doing every day. However, as a cooperative, Basin Electric’s purpose is greater than generating and transmitting megawatts. Basin Electric is the rancher outside of Newell, SD; the young family making their home near Brighton, CO; the business owner south of Minot, ND. We are member owned, member driven. No matter what part each of us plays in the daily operation of the cooperative, the simple fact is, Basin Electric is about people. We exist to serve our members. Every challenge and decision we have faced, we’ve done so as a cooperative family. 2014 was no different. It brought the decision to join a regional transmission organization (RTO); a change of leadership; the retirement of long-time employees and addition of new employees; the board approved a new urea facility at the Great Plains Synfuels Plant as well as new transmission and generation. We worked through proposed Environmental Protection Agency (EPA) regulations and cyber and physical security standards, and we continued to plan for a growing membership. It’s a lot, but it’s not unlike many other years in our cooperative’s history. We tackle each challenge or decision by doing what has kept us strong all these years. We listen to our members and we work in their best interest. The RTO decision is one example. After years of analysis and evaluation, our members determined now was the time to join. In late 2015, Basin Electric will become a transmission-owning member of the Southwest Power Pool (SPP). Being a member of SPP will give us greater flexibility in the

6 ● Basin Electric Power Cooperative

marketplace. We’ll be able to buy power when we need it and sell power when we have surplus. Like many others, this decision did not come easily. It required us to think differently, and to shift our philosophy from how we have historically operated. It also changes our decadesold partnership with the Western Area Power Administration (Western). Basin Electric and Western will still work together in a number of ways, but as the Integrated System (IS) moves into SPP it will no longer be the IS, it will be the Upper Missouri Zone, a rate zone within SPP. There will be new terms, new processes and new concepts and ways of working. Though “new” might be difficult and maybe even a little uncomfortable at times, nothing about joining SPP will change the fundamental cooperative values that define Basin Electric. It’s a response to a world that’s changing around us. We either sit on the sidelines or we take a seat at the table. Basin Electric has never chosen the sidelines. It’s the same with the EPA regulations. EPA’s proposed 111(b) and 111(d) rules have called for unobtainable limits of carbon dioxide emissions from new and existing facilities. We’re engaged in the process and have taken a number of steps to shape it. From coordinating an Energy-Producing States Coalition to providing our own comments to the EPA, we want reasonable rules that make sense for our membership and our nation. Our facilities are relatively young, and we’re very proud of their strong operating and safety records. They were built in the 1970s and 80s when we were prohibited from using natural gas due to the Fuel Usage Act of 1978. We think it’s irresponsible for regulators to pick and choose fuel and technology winners and losers, and it’s economically detrimental for our nation. At the same time we’re fighting for our baseload facilities, we’re growing. We need more power and more transmission to move power across our membership.

This year’s load forecast showed for the first time in years most of Basin Electric’s membership is growing, however the Williston Basin continues to experience the most significant growth. By the end of 2014, Williston Basin growth had slowed slightly due to a decline in oil prices, but the overall growth trend continues. Basin Electric is responding with a new 345-kilovolt transmission line, Antelope Valley Station to Neset, which is under construction; and our board approved another expansion of the Pioneer Generation Station and the Lonesome Creek Station. In addition, Basin Electric executed contracts by the end of December for another 300 megawatts of wind generation. With previously signed purchase power agreements, Basin Electric will have nearly 1,400 megawatts of wind generation in its portfolio by 2016. At Dakota Gasification Company’s Great Plains Synfuels Plant, we’re continuing a strategy that has shown how foresight combined with human ingenuity and innovation can transform a facility into a one-of-a-kind gem on the prairie. This year, the board approved the addition of a urea production facility to the ever-growing list of products produced at the plant. This is a huge undertaking, but one that is possible because our cooperative is fundamentally strong. We’re strong because we’re standing on the shoulders of incredible people – our members and our employees. They are impressive. They know when to take risks and when to hold steady. We’re not a perfect family, but we’re family nonetheless. And when our mission is to work for and look out for one another, we can’t lose. We are member owned. We are member driven. We are a cooperative. Thank you to our members and our employees for keeping Basin Electric strong.l

Wayne Peltier, President

Paul Sukut, CEO and General Manager 2014 Annual Report ● 7

A Family of Cooperatives Boards of Directors Each Basin Electric director represents one of 11 membership districts. They also serve on local distribution system boards and intermediate generation and transmission system boards, with the exception of Districts 9 and 10, which Basin Electric serves directly. In addition, the directors serve on the boards for subsidiaries Dakota Gasification Company/ Souris Valley Pipeline Ltd., Dakota Coal Company/Montana Limestone Company, Basin Cooperative Services, PrairieWinds ND 1, Inc. and PrairieWinds SD 1, Inc. East River Electric Power Cooperative

Northwest Iowa Power Cooperative

Basin Electric director since 1997 and electric cooperative board member since 1981

Basin Electric director since 1997 and electric cooperative board member since 1966

B.S. in animal science and agricultural education, South Dakota State University

Past director, National Rural Utilities Cooperative Finance Corporation

Farmer/rancher

District 1 Kermit Pearson, vice president

Subsidiary boards: Dakota Gas and PrairieWinds

Farmer

District 4 Don Applegate

L & O Power Cooperative

Tri-State Generation and Transmission Association

Basin Electric director since 1999 and electric cooperative board member since 1987

Basin Electric director since 2014 and electric cooperative board member since 1995

Retired U.S. Navy Reserve and lineman electrician certification

Retired physical plant director at Northeastern Junior College

Farmer

District 2 Gary Drost, secretary/treasurer

Subsidiary boards: PrairieWinds, secretary/ treasurer, and Dakota Gas

Farmer

District 5 Leo Brekel

Central Power Electric Cooperative

Basin Electric director since 2004 and electric cooperative board member since 1979

B.S. in economics and M.A. in school administration, North Dakota State University

Farmer/cattle rancher

Retired farmer; former high school math instructor and former high school principal

8 ● Basin Electric Power Cooperative

Subsidiary boards: Dakota Gas, vice chairman, and PrairieWinds

Subsidiary boards: Dakota Coal/Montana Limestone and PrairieWinds

Central Montana Electric Power Cooperative

Basin Electric director since 2012 and electric cooperative board member since 1986

District 3 Arden Fuher

Subsidiary boards: Dakota Gas, chairman, and PrairieWinds

Subsidiary boards: Dakota Coal/Montana Limestone, chairman, and PrairieWinds

District 6 Roberta Rohrer, assistant secretary

Corn Belt Power Cooperative

Rushmore Electric Power Cooperative

Basin Electric director since 2009 and electric cooperative director since 1997

Basin Electric director since 2013 and electric cooperative board member since 1996

B.S.in agricultural business, Iowa State University

Rancher

Retired farmer

Subsidiary boards: Dakota Coal/Montana Limestone, treasurer, and PrairieWinds

District 7 Mike McQuistion

District 11 Charles Gilbert Upper Missouri G&T Electric Cooperative Basin Electric director since 2012 and electric cooperative board member since 1986 Studied agriculture at Montana State University Partner in Town & Country Repair

District 8 Allen Thiessen

Subsidiary boards: Dakota Gas, treasurer, and PrairieWinds

DGC Director Jim Geringer

District 9

Studied mechanical drafting at Willmar Junior College Served in the U.S. Air Force and the South Dakota Air National Guard Farmer and owner of P&K Fabricating Subsidiary boards: PrairieWinds, chairman, and Dakota Coal/Montana Limestone

DGC Director Alan Klein

Powder River Energy Corporation Basin Electric director since 2013 and electric cooperative board member since 1994 Cattle rancher Subsidiary boards: Dakota Coal/Montana Limestone and PrairieWinds

District 10 Paul Baker

Dakota Gas director since 2012; current director of policy at the Environmental Systems Research Institute; governor of Wyoming 1995-2003; served in the Wyoming Legislature 1982-1995; worked at the Missouri Basin Power Project’s Laramie River Station 1977-1979; served in the U.S. Air Force for 10 years and continued in reserve service for 12 years; B.S. in mechanical engineering, Kansas State University

Dakota Gas director since 2013; retired partner of Eide Bailly LLP; former partner-in-charge of Bismarck, ND, office; Certified Public Accountant, served as a first lieutenant in the military for two years; B.S.B.A. in accounting and M.S. in accounting, both from University of North Dakota

Basin Electric director since 2008 and electric cooperative board member since 1999

District 9 Wayne Peltier, president

Subsidiary boards: Dakota Coal/ Montana Limestone, vice chairman, and PrairieWinds

DGC Director Thomas Owens

Dakota Gas director since 2001; retired University of North Dakota professor/ chairman of the Chemical Engineering Department; senior engineer, Exxon Production Research Company 1967-68 and 1973-74; B.S. in chemical engineering, University of North Dakota; M.S. and Ph.D. in chemical engineering, Iowa State University

2014 Annual Report ● 9

Membership Map 9 STATES l 11 DISTRICTS l 138 MEMBERS District 1

Kermit Pearson

East River Electric Power Cooperative Madison, SD 1 Agralite Electric Cooperative 2 Bon Homme Yankton Electric Association 3 Central Electric Cooperative 4 Charles Mix Electric Association City of Elk Point, SD 5 Clay-Union Electric Corporation 6 Codington-Clark Electric Cooperative 7 Dakota Energy Cooperative 8 Douglas Electric Cooperative 9 FEM Electric Association 10 H-D Electric Cooperative 11 Kingsbury Electric Cooperative 12 Lake Region Electric Association 13 Lyon-Lincoln Electric Cooperative 14 Meeker Cooperative Light & Power Association 15 Northern Electric Cooperative 16 Oahe Electric Cooperative 17 Redwood Electric Cooperative 18 Renville-Sibley Cooperative Power Association Sioux Valley Energy 19 South Central Electric Association 20 Southeastern Electric Cooperative 21 Traverse Electric Cooperative 22 Union County Electric Cooperative 23 Whetstone Valley Electric Cooperative

District 2

Gary Drost

L & O Power Cooperative Rock Rapids, IA 1 Federated Rural Electric Association 2 Lyon Rural Electric Cooperative 3 Osceola Electric Cooperative 4 Sioux Valley Energy

District 3

Arden Fuher

Central Power Electric Cooperative Minot, ND 1 Capital Electric Cooperative 2 Dakota Valley Electric Cooperative 3 McLean Electric Cooperative 4 North Central Electric Cooperative 5 Northern Plains Electric Cooperative 6 Verendrye Electric Cooperative 10 ● Basin Electric Power Cooperative

District 4

Don Applegate

Northwest Iowa Power Cooperative Le Mars, IA 1 Harrison County Rural Electric Cooperative 2 Iowa Lakes Electric Cooperative 3 Nishnabotna Valley Rural Electric Cooperative 4 North West Rural Electric Cooperative Western Iowa Municipal Electric Association 5 Western Iowa Power Cooperative 6 Woodbury County Rural Electric Cooperative

31 32 33 34 35 36 37 38 39 40 41 42 43 44

District 5

District 6

Leo Brekel

Tri-State G&T Association Denver, CO 1 Big Horn Rural Electric Company 2 Carbon Power & Light 3 Central New Mexico Electric Cooperative 4 Chimney Rock Public Power District 5 Columbus Electric Cooperative 6 Continental Divide Electric Cooperative 7 Delta-Montrose Electric Association 8 Empire Electric Association 9 Garland Light & Power Company 10 Gunnison County Electric Association 11 High Plains Power 12 High West Energy 13 Highline Electric Association 14 Jemez Mountains Electric Cooperative 15 K.C. Electric Association 16 Kit Carson Electric Cooperative 17 La Plata Electric Association 18 Midwest Electric Cooperative Corporation 19 Mora-San Miguel Electric Cooperative 20 Morgan County Rural Electric Association 21 Mountain Parks Electric 22 Mountain View Electric Association 23 Niobrara Electric Association 24 Northern Rio Arriba Electric Cooperative 25 Northwest Rural Public Power District 26 Otero County Electric Cooperative 27 Panhandle Rural Electric Membership Association 28 Poudre Valley Rural Electric Association 29 Roosevelt Public Power District 30 San Isabel Electric Association

San Luis Valley Rural Electric Cooperative San Miguel Power Association Sangre de Cristo Electric Association Sierra Electric Cooperative Socorro Electric Cooperative Southeast Colorado Power Association Southwestern Electric Cooperative Springer Electric Cooperative United Power Wheat Belt Public Power District Wheatland Rural Electric Association White River Electric Association Wyrulec Company Y-W Electric Association

Roberta Rohrer

Central Montana Electric Power Cooperative Great Falls, MT 1 Big Flat Electric Cooperative 2 Hill County Electric Cooperative 3 Marias River Electric Cooperative McCone Electric Cooperative 4 NorVal Electric Cooperative 5 Park Electric Cooperative 6 Sun River Electric Cooperative 7 Yellowstone Valley Electric Cooperative

District 7

Mike McQuistion

Rushmore Electric Power Cooperative Rapid City, SD 1 Black Hills Electric Cooperative 2 Butte Electric Cooperative 3 Cam Wal Electric Cooperative 4 Cherry-Todd Electric Cooperative 5 Lacreek Electric Association 6 Moreau-Grand Electric Cooperative 7 West Central Electric Cooperative 8 West River Electric Association

District 8

Allen Thiessen

Upper Missouri Power Cooperative Sidney, MT 1 Burke-Divide Electric Cooperative 2 Goldenwest Electric Cooperative 3 Lower Yellowstone Rural Electric Association

4 5 6 7 8 9 10

McCone Electric Cooperative McKenzie Electric Cooperative Mountrail-Williams Electric Cooperative Roughrider Electric Cooperative Sheridan Electric Cooperative Slope Electric Cooperative Southeast Electric Cooperative

District 9 1 2 3 4 5 6 7 8

Wayne Peltier

Crow Wing Power Grand Electric Cooperative KEM Electric Cooperative Minnesota Valley Cooperative Light & Power Association Minnesota Valley Electric Cooperative Mor-Gran-Sou Electric Cooperative Rosebud Electric Cooperative Wright-Hennepin Cooperative Electric Association

Class D Members A Flathead Electric Cooperative

District 10

Paul Baker

Powder River Energy Corporation Sundance, Wyoming

District 11

Charles Gilbert

Corn Belt Power Cooperative Humboldt, IA 1 Boone Valley Electric Cooperative 2 Butler County Rural Electric Cooperative 3 Calhoun Rural Electric Cooperative 4 Franklin Rural Electric Cooperative 5 Grundy County Rural Electric Cooperative Iowa Lakes Electric Cooperative 6 Midland Power Cooperative 7 Prairie Energy Cooperative 8 Raccoon Valley Electric Cooperative North Iowa Municipal Electric Cooperative Association

Cooperatives that buy power from two districts are identified by number in their voting district.

3 A

3 1

10 2

1 9

11 11

43 29

41 2

5 22

1 2

4 8 3 5

6 1

7 6

2 5

20 44 15

22 10

13 39

18 17

27 40

11 3

23 10

District 10

32 31 8

17 24

6 3 35

2014 Annual Report ● 11

Cooperative Management Senior Management

Paul Sukut

CEO and General Manager; employed with Basin Electric since 1983; experience in the energy industry since 1979; B.A. in business administration and political science, Jamestown (ND) College; M.S. in accounting and tax, University of North Dakota; Certified Public Accountant; Chartered Global Management Accountant Senior vice president of Financial Services and CFO; employed with Basin Electric and the utility industry since 1982; B.S. in accounting and business administration and M.S. in management, University of Mary in Bismarck, ND; Certified Public Accountant; Chartered Global Management Accountant

Steve Johnson

Senior vice president of Transmission; employed with Basin Electric and the utility industry since 1978; B.S. in electrical and electronics engineering, North Dakota State University; M.B.A., University of North Dakota; registered Professional Engineer

Mike Risan Senior vice president of Communications & Administration; employed with Basin Electric since 2002; experience in government relations and communications since 1994; B.A. in history; M.P.A., University of North Dakota

Mike Eggl

Senior vice president and General Counsel; employed with Basin Electric and the utility industry since 1975; B.S. in education, Minot (ND) State University; J.D., University of North Dakota

Claire Olson

Mark Foss will be senior vice president and General Counsel upon Claire Olson’s retirement in May 2015

Robert Bartosh

Senior vice president of Engineering & Construction; employed with Basin Electric since May 2013 and in the utility industry for 35 years; B.S. in mechanical engineering, Bradley University in Peoria, IL; registered Professional Engineer

Matt Greek 12 ● Basin Electric Power Cooperative

Senior vice president and COO of D akota Coal Company and Montana Limestone Company; employed with Basin Electric since 1988; experience in fuel supply development since 1975; B.S. in civil engineering, Michigan Technological University; graduate work, Southern Illinois University; registered Professional Engineer

Senior vice president and COO of Dakota Gasification Company; employed with Basin Electric since 1989; former plant manager of the Great Plains Synfuels Plant; B.S. in mechanical engineering, North Dakota State University

Dave Sauer

Board of Directors Matt Greek Senior vice president of Engineering & Construction

Dave Raatz Vice president of Cooperative Planning

Steven Liebelt Vice president of Marketing & Sales, Dakota Gas

Claire Olson

Ken Rutter Vice president of Marketing & Asset Management

Senior vice president and General Counsel

John Jacobs Vice president of Operations

Robert Bartosh Senior vice president and COO of Dakota Coal Company & Montana Limestone Company

Paul Sukut

Mike Risan Senior vice president of Transmission

CEO and General Manager

Bryan Keller Vice president of Transmission System Maintenance

Dave Sauer Senior vice president and COO of Dakota Gasification Company

Mike Eggl Senior vice president of Communications & Administration

Ellen Holt Vice president of Human Resources

Bob Fagerstrom Vice president of Strategic Studies

Steve Johnson

Mark Kinzler Vice president and CIO

CFO and senior vice president of Financial Services Shawn Deisz Vice president and Controller

Rod Kuhn Chief Risk Officer

Susan Sorensen Vice president and Treasurer

Jon Klein Vice president of Procurement

2014 Annual Report ● 13

Driven to Serve

erving members. Be it through generating megawatts or educating young people about the value of electricity, service is the mission of the cooperative’s daily operations.

joining SPP. The Federal Energy Regulatory Commission gave approval of the membership in November. However, becoming a full transmission-owning member will take many more months to complete.

Created in the spirit of connecting communities, Basin Electric and its members have worked very hard to ensure its decades-old partnerships within the cooperative family as well as with external organizations are preserved. However, over time those relationships have needed to evolve.

The process has been extensive for nearly all of Basin Electric’s departments, with milestones along the way. One example is the real time desk the cooperative established.

Evolving to Serve

or more than 10 years, Basin Electric and its partners in the Integrated System (IS), Western Area Power Administration (Western) and Heartland Consumers Power District (Heartland), have been evaluating an opportunity to join a regional transmission organization (RTO). Standing alone outside of a market has posed challenges for Basin Electric when the cooperative needed access to power in times of deficit supplies and needed to sell power in times of surplus generation. Through its analysis, Basin Electric’s board and staff and the IS partners determined the prudent option was joining the Southwest Power Pool (SPP) as a transmission-owning member. Choosing SPP would ensure Basin Electric could balance the needs of all its members – from cost, transmission, market, philosophical and geographic standpoints. On June 9, SPP’s board approved tariff changes, making it possible for the IS to join the RTO. Heartland’s board approved SPP membership July 8, and Western’s administrator approved membership July 9. Then, on July 16, Basin Electric’s board voted to approve the cooperative

14 ● Basin Electric Power Cooperative

As Basin Electric works to transition the eastern side of the system to SPP, the real time operations for its western load and resource management has already transitioned from Western Area Power Administration to the marketing team at Headquarters. In the early months of 2014, Basin Electric’s real time desk took full control of managing and marketing its west side operations from Western’s Montrose office. When the system cutover happened, the first tag and trade using Basin Electric’s scheduling system was named “Monty” as a sign of support for the staff at Western’s Montrose office.

“

In our more than five decades of providing power for our members, Western has been a vital partner for Basin Electric. Though our relationship with Western will be changing, we remain committed and bound by a common goal of serving our members. That will not change.” Mike Risan Senior vice president of Transmission

Though its operations are evolving, Basin Electric will continue to follow the self-supply model it’s used for more than 50 years, but soon with market access. The access will allow Basin Electric to capture new value for the members. Basin Electric will be a full transmission-owning member of SPP Oct. 1, 2015. The strength of the many and diverse generation assets within SPP become a back-stop to supply energy. There’s efficiency in SPP, which means more effective dispatch of each megawatt-hour. By collectively looking at the commodities within the whole cooperative, including subsidiaries, Basin Electric is able to manage, maximize and hedge resources to

“

If you can’t count on your electric system, the community won’t grow. And as we know, with what’s going on in western North Dakota, there’s been an increase in population, not just in regard to people, but also the businesses coming into our communities. If we can’t provide the need or provide the power that’s going to be needed in the future for these businesses and people, we’re not going to see the growth.” Tom Pearson, controller at Gooseneck Implement, Minot, ND, is a member of Verendrye Electric Cooperative, Velva, ND.

2014 Annual Report ● 15

create added value and mitigate risk with electricity management and opportunities with products at Dakota Gasification Company’s Great Plains Synfuels Plant. Hedging is not a new business practice for the Synfuels Plant. In fact, it’s vital to ensuring the plant can mitigate commodity risk in the market. By definition, hedging is an investment to reduce the risk of price movements in an asset. Dakota Gas has been hedging one of its products, natural gas, for many years. That’s because the commodity is inherently dependent on a number of external factors, which can cause extreme volatility in the market. That’s why the hedges are important to protect the financial impacts caused by market fluctuations. However, Dakota Gas’ hedging strategy had not historically been explicitly defined until 2014.

While the Williston Basin region has experienced a slight slowdown due to decreasing oil prices, Lynn Helms, director of the North Dakota Department of Mineral Resources, is confident the core-producing areas will not slow down.

Early in the year, the Risk Management Steering Committee reviewed a plan with goals and objectives that would reduce the plant’s commodity risks. The plan was taken to the board and approved. The plan moves Dakota Gas from an implicit risk tolerance to an explicit risk tolerance where the plant and product goals and objectives are clearly stated, and it provides an evolving action plan to keep the plant within its future target goals. The concept is defined risk tolerance – revenue or expense certainty. Also during the year, the marketing functions of Basin Electric and Dakota Gas were co-located to build on the opportunities of overall co-op integration and the concept of one Basin

Electric. An example of how this has been valuable is the ammonia sales records Dakota Gas reached in the spring. In February, marketing staff indicated they expected the potential to move a very high quantity of ammonia by truck in a very short amount of time. By mid-May, truck traffic was strong at the Synfuels Plant with 156 anhydrous trucks filled and sent down the road May 16, setting a new daily record in a 24-hour period. A three-day record of 445 trucks loaded May 14-16 was also set, as well as a seven-day record of 924 trucks May 13-19, totaling nearly 21,000 tons of ammonia. The ammonia was delivered throughout North Dakota, South Dakota, Montana and Saskatchewan, Canada.

Serving the Growth

ith a membership that’s growing both in geography and number of members, it’s vital to ensure the most efficient use of the cooperative’s resources.

Though Basin Electric’s membership remained constant at 137 co-op members in 2014, just two weeks into 2015, the cooperative welcomed a new member. On Jan. 14, 2015, Basin Electric’s board approved the Class C membership of Mora-San Miguel Electric Cooperative, Mora, NM. Mora-San Miguel is a member of Tri-State Generation and Transmission Association in Denver, CO. Basin Electric’s cooperative family is now 138 members strong in 11 districts. Spread across nine states through the middle corridor of the United States, in the abundant heartland, Basin Electric’s members have weathered the economic troubles of recent years and as the 2014 load forecast showed, all of the cooperative’s Class A members are growing. The new forecast shows member requirements will increase about 2,460 megawatts (MW) over the forecast period of 20132035, and overall membership demand is expected to grow about 2.32 percent annually. The electrical needs of the cooperative’s members in the Williston Basin are a significant piece of the forecast. About 1,600 MW was forecasted in and around the area of eastern Montana and western North Dakota by 2035. Because of the cooperative’s obligation to serve, Basin Electric is planning for resources to ensure continued reliable energy supply for those members and the entire Basin Electric system. The Cooperative Planning team spends a lot of time working directly with Class A members to ensure the most accurate

16 ● Basin Electric Power Cooperative

forecast is created. The forecasts are developed using weather normalized data, so when temperatures drop well below zero across large portions of the membership, as they did in January 2014, the system can reach new peak member sale levels.

By June, EPA had released its proposed rule for Section 111(d) of the Clean Air Act. As proposed, the rule called for the U.S. power sector to cut carbon dioxide (CO2) emissions 30 percent by 2030 from 2005 levels.

In back to back months, from December 2013 to January 2014, Basin Electric’s system reached new all-time high member billing peaks. The all-time high billing peak in December 2013 was 3,340 MW. January 2014’s final billing showed the new all-time high member billing peak surpassed that peak by more than 200 MW. Basin Electric’s new all-time high billing peak for 2014 was set at 3,558 MW.

According to the rule, states are expected to create their own state implementation plans to reach the 2030 goal. However, Basin Electric is a multi-state cooperative and believes there is significant benefit in having states work together. In fact, before the proposed rule was released, Basin Electric assisted the North Dakota Department of Health with the development of the Energy-Producing States Summit held April 16-17 in Bismarck. The purpose was to give state agency representatives a sense of how an Energy-Producing States Coalition should respond to, or implement, a rule on Section 111(d).

The factors contributing to the peak were continued member load growth over the entire membership and the extreme cold. But, even when challenged by weather extremes and growing demand, the cooperative’s coal-based fleet ensures reliable continuous power is available when a member flips the switch.

External Pressures Challenge Service

n recent years, that reliable coal-based power has had its share of challenges. It has continued to be poked and prodded by the Environmental Protection Agency’s (EPA) unending parade of regulations. 2014 was the year for EPA’s carbon rules. On Jan. 8, EPA published the proposed rule for Section 111(b) of the Clean Air Act to regulate greenhouse gas emissions from new fossil fuel-based power plants. The emissions levels EPA set within the rule are based on claims that partial carbon capture and storage (CCS) is available technology for new coal-based facilities. Many believe that’s questionable. The rule effectively precludes any new coal generation without CCS, and CCS is neither commercially available or cost-effective. The comment period for Section 111(b) ended in May and the final rule was expected in January 2015, however, EPA has delayed the ruling until mid-summer 2015.

The summit included information sharing via group sessions with attendance by EPA’s Shaun McGrath, administrator for the agency’s Region 8 office in Denver, CO. Environmental officials representing 13 states and industry representatives with customers in 22 states gathered for the event.

A little more than a month following the summit, the Energy-Producing States Coalition sent a letter to the White House Office of Management and Budget (OMB) identifying key issues surrounding carbon rules. The coalition addressed its focus on the proposed rules. The top issues the coalition wanted OMB to consider The current approach included: ensuring the states have the to carbon regulation is wrong primary responsibility for implementing for our country and our energy federal rules or guidelines; understandfuture. Developing a rule in iso- ing the current timeline for implementing the 111(d) rule is unrealistic and unachievlation from a comprehensive able; understanding the rule must not global energy policy will not only adversely affect the ability to maintain do almost nothing to curb CO2 affordable, accessible and reliable elecemissions worldwide, but it will tricity; and recognizing the concern that limit the potential for innovative carbon capture technologies identified solutions that would keep coal a as being available for new or retrofit viable part of our energy future applications have not been proven and successfully operated.

“

and economy.”

Mike Eggl Senior vice president of Communications & Administration

Basin Electric stands on the idea that the Clean Air Act is not the proper tool to accomplish carbon dioxide reduction. 2014 Annual Report ● 17

Developing regulation in the absence of legislation could stifle innovation and industry ingenuity. The comment period for the 111(d) rule opened June 18 and after an extension, it closed on Dec. 1, but not before Basin Electric could submit its 120-pages of comments. Organizing the coalition and providing comments were only part of Basin Electric’s engagement in the regulatory process for Section 111(d). Staff participated in EPA listening sessions in Washington, D.C. and Denver speaking about the ambiguities in the rule, the renewable energy credits and the skewed projections tied to Basin Electric’s Deer Creek Station in South Dakota.

EPA Administrator Gina McCarthy (second from left) visited the Great Plains Synfuels Plant in February to hold a listening session on proposed greenhouse gas regulations. U.S. Sens. John Hoeven (at left) and Heidi Heitkamp and U.S. Rep. Kevin Cramer (at right) participated in the session.

The cooperative also engaged U.S. Energy Secretary Ernest Moniz and EPA Administrator Gina McCarthy directly. With invitations from U.S. Sens. Heidi Heitkamp and John Hoeven, both McCarthy and Moniz traveled to North Dakota, and Basin Electric staff and others had opportunities to discuss the challenges with the federal government’s regulatory approach. EPA has said it will publish the final rule for Section 111(d) at the same time it publishes Section 111(b) in mid-summer 2015. The carbon rules weren’t the only topic of conversation Basin Electric staff had with EPA in 2014. On Jan. 10, EPA announced its decision for Wyoming’s regional haze plan. EPA partially approved and partially disapproved of the state’s plan to address regional haze, which focuses on nitrogen oxides (NOx), sulfur dioxide and particulate matter.

The decision could collectively cost Basin Electric and other coal-based facilities across Wyoming more than $1 billion. Basin Electric may be required to install selective catalytic reduction (SCR) technology in addition to the over-fire air and low NOx burners on all three of Laramie River’s units. Capital costs of installing SCRs within the timeframe EPA defined are estimated to be more than $750 million for all three units. The strict emissions limit EPA set, 0.07 lb/MMBtu on a 30-day rolling average, can only be achieved with SCRs in addition to the over-fire air and low-NOx burners on all three units. Though Basin Electric’s legal team was immersed in appeals to the courts and EPA, the timeframe to reach full compliance by March 2019 with SCRs is so tight, engineering staff had to begin work in 2014 to determine the scope of installing SCRs. Basin Electric staff proceeded with Phase 1 engineering, which is the conceptual engineering studies on various aspects of the SCR project. Phase 2 is detailed engineering and procurement. Phase 3 is construction, and the last phase is startup and commissioning. The legal proceedings running parallel to the front end engineering and design (FEED) studies were the motion to stay filed June 6 through the 10th Circuit Court of Appeals and a petition for reconsideration and motion to stay filed May 5 with EPA Region 8. On Sept. 9, the 10th Circuit Court of Appeals granted the motions for stay, which halt further legal processes regarding the regional haze fight until the court renders its final decision. The court’s granting of the motion to stay provide an opportunity to delay costs for the cooperative and its members. The court also granted the request that the compliance deadline for EPA’s federal implementation plan be extended for the duration of the stay. Regulatory challenges aren’t confined to generation resources. Both generation and transmission resources must meet a separate set of standards and requirements with regard to system reliability. The North American Electric Reliability Corporation (NERC) sets and enforces standards that address the reliable operation of the electric grid on two fronts: operations and planning,

18 ● Basin Electric Power Cooperative

and cyber and physical security. First, with regard to operations and planning, Basin Electric is preparing for NERC compliance audits in 2015 and 2016. The audits are completed every six years.

days-worth of coal on the pile or 900,000 tons. At its lowest point, Laramie River’s stockpile was down to 17 days. The rail addition project started August 2013 and was complete at the end of February 2014.

Second are the critical infrastructure protection, or CIP, standards. These are developed from input from the industry and ultimately approved by the Federal Energy Regulatory Commission (FERC). They address a broad range of areas including sabotage reporting, identification of critical cyber assets, security management, physical access and disaster recovery.

Difficulty with rail reliability extended to coal shipments from the Freedom Mine as well. In late 2013 and early 2014, in addition to rail deliveries, trucks were hauling coal to Leland Olds Station from the mine for a number of reasons. The extreme cold coupled with some BNSF crew shortages caused the depletion of the lignite stockpile to under 100,000 tons. Leland Olds was forced to truck additional lignite coal.

Version 5 of the CIP standards becomes effective April 1, 2016, so staff is actively working to get policies, procedures and processes ready to comply with the new version. In addition to regulation, Basin Electric continues to address other factors with potentially serious consequences for its facilities as well as the reliability of the entire electric grid. Rail service for many of Basin Electric’s business units fell short of ideal again in 2014. As in recent years, the cooperative struggled with lost revenue and dwindling coal stockpiles, which threaten grid reliability, due to unreliable rail service. In some cases throughout the year, trucks were used instead of trains to get product where it was needed. At the Laramie River Station, the co-op didn’t sit idle waiting for the problem to be resolved. A project to add sections of railroad tracks was completed in the spring. The project makes it possible for the plant to store three 136-car trains on site, which in turn allows the plant to build a coal stockpile by giving BNSF Railway more options for unloading, without being tied up on the main line. The goal was to have 38

Basin Electric has experienced numerous changes over the years. Retirements, growth and changes evolving in its operations have resulted in new and greater job opportunities across the entire organization. Employees have stepped up and accepted the opportunity to lead.

BNSF responded offering enhanced service at no additional cost per ton, meaning instead of running two crews, they ran three crews for three months. It helped. Approaching the winter months in late 2014, BNSF committed to doing the same thing to make sure Leland Olds had a sufficient stockpile. Rail reliability also challenged the operations at Wyoming Lime Producers, a division of Dakota Coal Company. Typically, the plant ships about 90 percent of the lime by rail to power plant customers. With the decline in reliability, the plant had to increase truck traffic in 2014 to the plants to ensure they had what they needed. The complexities of Basin Electric’s system mean the cooperative constantly faces big challenges and big decisions. It may seem daunting, and at times the right choice may be unclear. But, in every case, as long as the mission of serving members remains priority number one, Basin Electric will be successful and will be able to weather the ups and downs of external pressures, member growth and the need to evolve.l

January

February

March

May

November

Paul Sukut named interim CEO and General Manager

John Jacobs named vice president of Operations

Paul Sukut named CEO and General Manager

Steve Johnson named interim senior vice president and CFO

Matt Greek named senior vice president of Engineering and Construction

Chad Edwards named plant manager of Antelope Valley Station

Susan Sorensen named vice president and Treasurer

Jamey Backus named plant manager of Leland Olds Station

Steve Johnson named senior vice president and CFO

2014 Annual Report ● 19

All of the facilities within Basin Electric and its subsidiaries operated at 100 percent environmental compliance throughout the year and systems are in place to ensure that continues.

n the past 10 years, Basin Electric has diversified its energy portfolio and built a robust renewable program. In its history, the cooperative has championed several innovative projects and stepped up when the opportunity arose to further explore advanced technologies and new ideas. Like Basin Electric’s incorporators, today’s co-op members are forward thinking with a desire to do what’s best for Basin Electric and the membership. The current generation fleet consists of four baseload power plants, an intermediate generation combined-cycle, several peaking power plants, nuclear, wind and recovered energy generation. Basin Electric has generation capacity of 5,478 megawatts (MW) and owns more than 2,100 miles of transmission line.

More Power to the Mix

n 2014, the board added to the cooperative’s resource mix. With continued growth across the membership, the financial forecast shows Basin Electric will be investing more than $2.8 billion in generation and transmission assets over the next 10 years. Additions to two of Basin Electric’s newest facilities came online during the year. On Feb. 1, Unit 2, which is a 45-MW natural gas-based peaking facility, became commercial at the Pioneer Generation Station northwest of Williston, ND. Pioneer Unit 3, another 45-MW unit, started commercial operation on March 1. Three total units are now in operation at the plant at a generation capacity of 45 MW each. Another 90 MW was completed and added to Basin Electric’s resource mix at the Lonesome Creek Station west

20 ● Basin Electric Power Cooperative

of Watford City, ND. Lonesome Creek is also a natural gasbased peaking station. The second phase of Lonesome Creek included 45 MW each on Unit 2 and Unit 3. Construction began in the spring and the units were declared commercial Jan. 1, 2015. At their July meeting, the board approved the expansion of both Lonesome Creek and Pioneer Generation stations. Phase III for Lonesome Creek will consist of the addition of two 45 MW combustion turbines. Like the existing units, the planned units will use a dry low-emission combustion process. “Dry” means they will not use water for nitrogen oxides emission control. Phase III for Pioneer will consist of 112 MW of additional peaking capacity. The additional generation includes 12 9.3 MW natural gas-based reciprocating engines. The benefit of reciprocating engines is they are more efficient than combustion turbines. Construction on Phase III at both Lonesome Creek and Pioneer is anticipated to begin in late spring 2015, with the projects projected to be complete in June 2016. In addition, Basin Electric signed power purchase agreements for 300 MW of wind capacity in November and December.

“

People will continue to be our primary focus. We’ll continue to invest in the tools, technology and training to keep our employees safe and prepared, and keep Basin Electric’s facilities running safely and efficiently to provide safe and affordable electricity for our members at the end of the line.” John Jacobs Vice president of Operations

NextEra Energy is developing one of the projects, a 150-MW wind farm, near Dickinson, ND. That project is expected to be operational in 2015. Tradewind Energy is developing the other project, also 150 MW, in Williams County, ND. The anticipated completion on that project is 2016. When both projects are complete, Basin Electric will have nearly 1,400 MW of wind in its generation portfolio. That magnitude of wind generation will help manage

“

When I was nine years old they turned the power on. We never had electricity at our place (before that). We were out shocking grain and dad came out and got us. That was quite a milestone for us. We used to have to study at night and we just had an old kerosene lamp, but when we got electricity, you could turn it on and sit anywhere in the house and read.” Keith Willard, former co-op employee, rancher and insurance agent, near Belle Fourche, SD, is a member of Butte Electric, Newell, SD.

2014 Annual Report ● 21

Basin Electric’s exposure to natural gas price fluctuation and it could help limit the cooperative’s greenhouse gas exposure.

which translates to higher generation percentages than most wind facilities.

Excellence in Reliability and Compliance

Peaking and renewable resources provide diversity within the cooperative’s generation mix and the newest are joining an already outstanding fleet.

asin Electric’s current wind resources are performing well and have had consistent availability. That means they’re producing electricity whenever the wind blows,

Out of 87 power plants in the Midwest Reliability Organization (MRO) and Southwest Power Pool (SPP) footprints, Basin Electric historically has had the lowest delivered cost of coal resources to Dakota Gasification Company Operating Highlights the MRO and SPP utilities. That means someRevenue (in millions) 2014 2013 % change thing, especially because Basin Electric’s goal is providing low-cost, reliable electricity for Synthetic gas sales $ 276.9 $ 203.9 35.8 the members. Byproduct, coproduct and other sales 305.9 292.4 4.6 Interest and other income 4.3 3.9 10.3 All of Basin Electric’s resources also performed Total $ 587.1 $ 500.2 17.4 well during the year, due in part to the safety Synthetic gas sold (dekatherms in millions) 56.7 45.3 25.2 and efficiency of subsidiary Dakota Coal ComCoal consumed (tons in millions) 5.9 5.6 5.4 pany’s operations. From the coal used to fuel the baseload facilities to the lime and limestone used in emissions controls, each plant Dakota Coal Company Operating Highlights is dependent on Dakota Coal’s products to run efficiently and reliably. Revenue (in millions) 2014 2013 % change A project in the works at Montana Limestone Coal sales $ 214.7 $ 226.3 (5.1) Company’s fine grind plant will help the plant’s Lime sales 13.9 13.1 6.1 Limestone sales 5.8 5.3 9.4 overall production balance its different size Interest and other 5.7 4.6 23.9 products. To do that, the plant will be installing Total $ 240.1 $ 249.3 (3.7) a pin mill and a new pad mounted transformer Sales (in tons) 2014 2013 % change of larger capacity. Coal (in millions) Lime (in thousands)

14.3 13.8 3.6 160.3 152.7 5.0

Electric Operating Highlights Energy Sales (in millions of megawatt hours)

2014

To Class A and Class D members To others Total

22.1 20.4 8.3 6.2 6.2 28.3 26.6 6.4

Coal Consumed (in millions of tons)

2014

Wyoming sub-bituminous North Dakota lignite Total Forced-outage rate (five-year average)

8.2 9.3 (11.8) 7.9 8.4 (6.0) 16.1 17.7 (9.0) 3.28% 4.09% (19.8)

22 ● Basin Electric Power Cooperative

2013

% change

At Wyoming Lime Producers, several projects over the last year have increased production and reliability. Basin Electric’s facilities are Wyoming Lime’s primary customers, but there is also demand in the secondary markets, which allows the kiln to be more efficient. Companies within the Williston Basin have great demand for calcium oxide lime in their mud recovery process. Efficient production of the baseload facilities’ supporting resources is vital to the efficient operation of the power plants themselves. Conservation keeps the cost of electricity low for members. All of the facilities within Basin Electric and its subsidiaries operated at 100 percent

environmental compliance throughout the year and there are systems in place to ensure that continues. As of Dec. 31, 2014, Basin Electric has invested more than $1.5 billion in power plant emissions control technology. More than $176 million was spent in 2014 alone to operate and maintain those controls. At the March meeting, the board approved two projects to capture and remove mercury emissions from the Antelope Valley Station and Laramie River Station. The projects are in response to the Environmental Protection Agency’s Mercury & Air Toxics Standard (MATS). Mercury will be removed from plant emissions by injecting powdered activated carbon (PAC), a sorbent material, into the flue gas at both Antelope Valley units and all three Laramie River units. The PAC reacts with and captures the mercury, which is then disposed of through the plant’s electrostatic precipitators and bag houses. The projects include installation of silos measuring 14 feet in diameter and 70 feet in height at each of the five units. The facilities must be in compliance with MATS by June 1, 2015. Another project to ensure Antelope Valley remains compliant with EPA rules included the construction of a natural gas pipeline from the Great Plains Synfuels Plant to Antelope Valley. The 3.5-mile, 10-inch diameter pipeline delivers natural gas from the Synfuels Plant to Antelope Valley for use as start-up fuel, instead of fuel oil. Construction of the pipeline was completed in summer 2013, and became operational May 24 during a plant maintenance outage. At the Leland Olds Station, a project to install selective non-catalytic reduction (SNCR) equipment at the facility began in early August. SNCR is the last nitrogen oxides (NOx) control technology to be installed to be fully compliant with the level of NOx control identified in the North Dakota Department of Health’s Regional Haze Implementation Program. Plans are to begin testing in spring 2016. Leland Olds must be in compliance with regional haze regulations by April 2017.

A Powerful System

trong generation resources are only half the equation of providing reliable electricity for members. Thoughtfully planned and maintained transmission infrastructure is the other half.

At the cooperative’s Logan Substation near Minot, ND, substation staff installed the protective relays and controls for two new 115-kilovolt (kV) capacitor banks and the circuit breakers used to switch them. The capacitor banks support the transmission system voltage during system outages and other periods of heavy system loading. Staff also supported the addition of a new transformer at the Laramie River Substation and a 115-kV addition at Squaw Gap Substation in western North Dakota. The crews installed new protective relays at Charlie Creek Substation and at Leland Olds Station 230-kV Substation. Telecommunications staff supported the installation and commissioning of new microwave radios and associated equipment at 56 microwave sites in North Dakota and South Dakota. The upgrade will provide the additional bandwidth required by new generating and transmission system facilities. Staff will also place in service a new microwave communications link between Laramie River Station and Teckla Substation for improved network connectivity between Laramie River and Headquarters. The new microwave system provides six times the bandwidth of the previous system.

Transmission Highlights Transmission additions and substations completed in 2014 North Dakota Judson

New 230/345KV

Squaw Gap 115kV Additions

Charlie Creek 345kV Additions

Logan Capacitor Banks

AVS

345kV Additions

South Dakota

Dry Creek

New 115/230kV

Completed Under construction

In addition to maintenance and upgrade activities, line crews from Minot and Mandan, ND; Groton and Gettysburg, SD, and Gillette, WY, also strung new conductor from the Logan Substation to the SW Minot Substation. The new conductor will help increase the reliability of the system that supports the Williston Basin, including the Minot area.

2014 Annual Report ● 23

The cooperative is also working to build new transmission lines to support system growth. Planning and construction for transmission projects in 2014 included the Antelope Valley Station to Neset line and the North Killdeer Loop project.

was required before construction could begin on the project. In September, the Forest Service and RUS authorized Basin Electric to begin construction on the approximately 200-mile line.

On June 30, the Rural Utilities Service (RUS) and Western Area Power Administration public comment period ended for the Antelope Valley Station to Neset transmission project, and on July 25, the U.S. Forest Service’s comment period ended. A record of decision from all three agencies

Construction started on the portion of line from Antelope Valley to Judson and on the Antelope Valley Station, Charlie Creek and Judson substations. Completion of the Antelope Valley to Judson line and associated substations is targeted for late 2015 with overall line completion scheduled for 2017.

Pollution Control Costs Capital cost Facility (costs in thousands) life-to-date

2014 Operations & maintenance, depreciation & interest

Antelope Valley Station $ 361,912.1 $ 33,503.3 Culbertson Generation Station 4,818.9 314.5 Deer Creek Station 28,599.7 2,056.6 Dry Fork Station 296,342.4 29,857.3 Groton Generation Station 4,543.2 377.6 Laramie River Station (Basin only) 192,764.7 20,163.8 Leland Olds Station 434,390.1 33,012.7 Lonesome Creek Station 2,975.5 206.2 Pioneer Generation Station 6,581.0 411.4 Spirit Mound Station 99.8 0.6 Subtotal: Basin Electric 1,333,027.4 119,904.0 Dakota Coal/Montana Limestone Company 26,942.0 2,902.5 Dakota Gasification Company 188,678.3 54,131.3 Subtotal: Subsidiaries 215,620.3 57,033.8 Total: Basin Electric & subsidiaries $ 1,548,647.7 $ 176,937.8 Dry Fork Station, Deer Creek Station, Pioneer Generation Station and Lonesome Creek Station amounts are estimated; finalized amounts will be available after the capital costs have been unitized.

Transmission System Joint Ownership

Total Basin Basin Circuit Electric Electric Miles Owned Maintained

Integrated Basin Electric, Western Area Power Administration, System Heartland Consumers Power District 9,447 Common Use Basin Electric, Black Hills Power, Powder River Energy Corporation 910 Missouri Basin Basin Electric, Tri-State G&T, Wyoming Municipal Power Project Power Agency, Missouri River Energy Services, Heartland, Lincoln Electric System 681 Other Total Basin Electric miles

24 ● Basin Electric Power Cooperative

Basin Electric Planned

1,570

1,534

335

279

346

288 47 2,184

301 88 2,269

0 0 335

The North Killdeer Loop project is also being pursued due to the significant load growth projected in McKenzie County, ND in the 2016 time frame and beyond. North Killdeer Loop is an additional 60 miles of 345-kV line and three additional substations. The project is being permitted in two phases, with the first 28-mile phase siting application submitted Nov. 12, 2014. Construction is scheduled for mid-2015 following receipt of all state and federal approvals, and the project is expected to be operational in late 2016.

Excelling at Ingenuity

asin Electric’s ability to construct and maintain a stable transmission network and resource portfolio for its members is only possible because of its deep-rooted self-reliance. It has helped Basin Electric staff stay focused and open to new, innovative ideas for serving members. Over the years, the cooperative has explored opportunities for solar generation. Though Basin Electric is not directly part of developing new solar projects, the members are. To help facilitate the development of small solar generation within the membership, Basin Electric’s board approved two new purchase rates in the spring – the Renewable Energy Purchase Rate and the Solar Pass Through Rate. The two new rates allow Basin Electric’s All-Requirement Members to own or directly purchase the output of small renewable generators, under 150

kilowatts, while maintaining the integrity of the Basin Electric All-Requirement contracts. That’s one example of serving members beyond the one-way transmission of electricity to their homes and businesses. Truly serving members is about more than maintaining sound generation and transmission resources, it’s about listening to members’ needs. Everything the cooperative does, in all areas of its business, is part of that mission. Dakota Gasification Company’s Great Plains Synfuels Plant represents a legacy of innovation. From purchasing the fledgling facility to the technologies that make it the cleanest energy plant in North Dakota, and part of the largest carbon capture and storage project in the world, it’s definitely a shining star example of the great things Basin Electric and its members can do in the industry. On Jan. 27, 2014, the Dakota Gas board approved the addition of a urea production facility at the Synfuels Plant. Urea is produced using anhydrous ammonia and carbon dioxide. It’s used as a solid nitrogen fertilizer and costs less to handle, store and transport than other nitrogen-based fertilizers. Because of the process to make urea, another product will be created and marketed from the plant – diesel emission fluid (DEF). DEF is used to reduce NOx emissions in diesel engines as mandated by the federal government on all new diesel engines. The project is expected to be complete in 2017. Dakota Gas directors approved a project in February to reduce ammonia and nitrogen oxides emissions at the Synfuels Plant. The ammonia stripper debottleneck project consists of installing a kettle reboiler to provide a source of heat for the stripper column in the Synfuels Plant’s ammonia recovery area. The $9.2 million project will reduce ammonia and NOx emissions by creating optimal conditions for the recovery of both gaseous ammonia at the boilers and liquid ammonia at the Synfuels Plant’s cooling towers. It will also reduce operating costs. The heat source for the stripper column is steam. Steam will be replaced with the reboiler, so it can be used

elsewhere. It will allow the plant to increase ammonia sales. Project construction is targeted for completion in early 2015. Other projects approved by the board to improve operations at the Synfuels Plant included a project to replace a corroded 18-inch primary water supply line that brings water from the Antelope Valley Station to the Synfuels Plant. Construction was completed during the summer.

Troy Johnson, process operations field technician, at the Great Plains Synfuels Plant.

The board also approved a project to reduce water flow to a deepwell system. The project involved installing a reverse osmosis system to concentrate low-pressure blowdown water – water purged from low-pressure boilers to reduce impurities in the boilers during continuous steam evaporation – prior to it being sent to the deepwell system. The project will reduce the volume of water sent to the deepwell system, thus making room for other streams to be sent to it. The $4.1 million project was completed during the summer. From investing millions to bring the Synfuels Plant into environmental compliance and diversifying its products, to having a solid transmission grid and producing megawatts in the cleanest, most efficient way possible, Basin Electric’s story continues to be one of innovation, ingenuity and technological success. Solving problems for the members, offering services and delivering solutions. It’s simply the cooperative way.

On Feb. 5, 2015, the Great Plains Synfuels Plant celebrated its 30 millionth ton of carbon dioxide delivered through a 205-mile pipeline to Saskatchewan, Canada. 2014 Annual Report ● 25

Owned or Operated Power Resources

Antelope Valley Station

Leland Olds Station

Location: Beulah, ND Capacity: 900 mw Fuel: Coal Purpose: Baseload Units: 2

Location: Stanton, ND Capacity: 667 mw Fuel: Coal Purpose: Baseload Units: 2

Dry Fork Station

Deer Creek Station

Location: Gillette, WY Capacity: 386 mw Fuel: Coal Purpose: Baseload Unit: 1

Location: Elkton, SD Capacity: 300 mw Fuel: Natural Gas Purpose: Intermediate Unit: 1

Basin Electric has a 92.9-percent ownership share.

Laramie River Station Location: Wheatland, WY Capacity: 1,710 mw Fuel: Coal Purpose: Baseload Units: 3 Basin Electric has a 42.27-percent ownership share. 26 ● Basin Electric Power Cooperative

Culbertson Generation Station Location: Culbertson, MT Capacity: 95 mw Fuel: Natural Gas Purpose: Peaking Unit: 1

Earl F. Wisdom Station Unit 2

Pioneer Generation Station

Wind Generation

Location: Spencer, IA Capacity: 80 mw Fuel: Natural Gas/Oil Purpose: Peaking Unit: 1

Location: Williston, ND Capacity: 135 mw Fuel: Natural Gas Purpose: Peaking Units: 3

Location: Chamberlain, SD Nameplate: 2.6 mw Fuel: Wind Purpose: Renewable Turbines: 2

Basin Electric owns 50 percent (40 mw) of the plant. Operated by Corn Belt Power Cooperative, Humboldt, IA.

Location: Minot, ND Nameplate: 122.6 mw Fuel: Wind Purpose: Renewable Turbines: 82 Basin Electric operates the projects and has 100 percent ownership through PrairieWinds ND 1, Inc.

Spirit Mound Station Groton Generation Station Location: Groton, SD Capacity: 196 mw Fuel: Natural Gas Purpose: Peaking Units: 2

Location: Vermillion, SD Capacity: 120 mw Fuel: Oil Purpose: Peaking Units: 2

Location: White Lake, SD Nameplate: 162 mw Fuel: Wind Purpose: Renewable Turbines: 108 Basin Electric operates the project and has 92.6 percent ownership through PrairieWinds SD 1, Inc.

Committed Projects Lonesome Creek Station Phase III Location: Watford City, ND Capacity: 90 mw Fuel: Natural Gas Purpose: Peaking Units: 2

Wyoming Distributed Generation Lonesome Creek Station Location: Watford City, ND Capacity: 135 mw Fuel: Natural Gas Purpose: Peaking Units: 3

Locations: Hartzog, Arvada and Barber Creek, WY Capacity: 54 mw Fuel: Natural Gas Purpose: Peaking Units: 9

2016 expected completion.

Pioneer Generation Station Phase III Location: Williston, ND Capacity: 112 mw Fuel: Natural Gas Purpose: Peaking Units: 12 2016 expected completion. 2014 Annual Report ● 27

Education is vital for cooperative and community sustainability. Basin Electric is tuned in and annually invests in resources to help keep kids in school, help them go on to college and ultimately prepare them to be leaders in their communities.

Committed to People

he power and the service provided by Basin Electric can’t exist without people. People are the foundation of everything. They are members, employees, individuals in the community. Simply put: people power the cooperative.

new safety inspection processes that involve everyone from the CEO to the newest employees.

Committed to a Safe Workforce

The first CI team piloted the safety inspection initiative at Laramie River Station March 26-27. The process was then rolled out at Dakota Gas in May and the rest of the cooperative’s facilities throughout the balance of the year.

riority number one within the cooperative is ensuring employees return home each day the same or better than when they arrived to work.

Basin Electric has an above average safety record, but it’s not yet reached zero safety incidents. That’s not good enough. So Basin Electric retained Caterpillar Safety Services in 2013 to help the cooperative and its employees move from a philosophy of safety, where information is provided and safety is encouraged, to a safety culture, where employees put their own well-being and that of their co-workers ahead of the job. In 2014, the campaign called Our Power My Safety initiated implementation. The steering team met for the first time Jan. 9, 2014. The steering team was charged with guiding and prioritizing the initiatives identified from survey data of employees completed in 2013. The team identified inspections of working conditions as the first initiative to roll out throughout the cooperative. The first Continuous Improvement (CI) team met Feb. 17 to tackle the initiative. The team composed of front-line employees from the power plants, wind facilities, transmission maintenance outposts and the Great Plains Synfuels Plant, developed

28 ● Basin Electric Power Cooperative

The new processes are not intended to replace the safety programs already in place, but rather improve and enhance the safety processes.

In early September, the second CI team met to begin work on the next initiative, improving group safety communications. Team members defined activities and accountabilities to improve group safety communications. In November, the team met with internal experts on training and employee development to discuss options and strategies for supervisor training on communications.

“

We believe in investing in our employees because our employees contribute to making us the great organization we are. We recognize this; we celebrate this. We will continue to focus on making Basin Electric a great place to work for all employees as we continue to serve our members and their interests. Ellen Holt Vice president of Human Resources

CI team #2 will continue working on the second initiative into 2015. Zero incidents. That’s the ultimate goal and employees across the cooperative are engaged in the process of seeing that happen.

Committed to Education

afety isn’t the only driver to a strong workforce. Basin Electric also needs passionate employees. Employees guided by a purpose, who understand the cooperative mission is to serve members. In recent years, Basin Electric has lost a number of experienced long-time employees to the natural retirement cycle. That kind of commitment and

“

I think the flood (2011) really highlighted, for me, what I’ve always thought of a co-op. And, that is community driven, the sense of family and the sense of support. During that situation, that’s what my cooperative really gave me and really reinforced in me is that they are focused and consciously thinking about the community they’re operating in and the members they’re supporting and what’s most beneficial for them.” Elizabeth Redding, owner of Bloom in Color, a mobile floral business, is a member of Verendrye Electric Cooperative, Velva, ND.

2014 Annual Report ● 29

knowledge is difficult to replace. But, it must be done. As part of its strategy, Basin Electric has made succession planning and employee development high priorities. The cooperative has plans in place to restructure and revamp the employee orientation program; provide more training and development opportunities including a four-year apprenticeship program; institute a cooperative internship program to allow more communications between departments and between Basin Electric and the membership; and institute a succession planning and development process utilizing effective tools to develop high-potential employees. Because Basin Electric’s strongest asset is its people, losing any one of them is significant let alone the more than 300 who have retired in the last three years and those eligible for retirement in the coming years. Education is vital for cooperative and community sustainability. Basin Electric is tuned in to investing in tomorrow’s workforce and annually invests in resources to help keep kids in school, help them go on to college and ultimately prepare them to be leaders in their communities. Each year, the cooperative awards $1,000 scholarships to more than 180 students in its communities. Scholarships are awarded to children of member cooperative consumers, member cooperative employees and Basin Electric and subsidiary employees. Since the program’s inception in 1991, Basin Electric has given more than $3.9 million to nearly 4,000 students. In addition to scholarships, Basin Electric provides assistance through dollars and training opportunities to schools to help educate the future workforce. One example: the cooperative

employs students from Bismarck State College to work at its plant facilities to help them fulfill their required two-week internships. The benefit is two-fold. Students gain experience and Basin Electric gets to meet potential new employees. Basin Electric also provides the Story Behind the Switch program for grade school kids and helps organize career days and tours of its facilities to people of all ages. During National Engineers Week, students from the Campbell County School District in Wyoming toured Basin Electric’s Dry Fork Station. Students toured the turbine deck and air cooled condenser unit, peeked inside the boiler, and learned about the plant’s Emerson Process Management Ovation control system. Staff also talked with the students about the job skills necessary for future employment in the utilities industry, including the importance of safety, communication and a positive attitude. Another example of Basin Electric’s commitment to education is the investment in the North Dakota Heritage Center. Touchstone Energy® Cooperatives of North Dakota, including Basin Electric, were an integral part of the project. The cooperative family gave more than $1.3 million in contributions to the 97,000 square foot Heritage Center expansion. Basin Electric alone donated $250,000 in funds and $250,000 in in-kind services to the $52-million project. Committing to the project afforded an opportunity for electric cooperatives to tell their story. Electric cooperatives have played a significant role in North Dakota’s history. Because of their early contribution, the Governors Gallery was named the Touchstone Energy Governors Gallery and the first exhibit in the 5,000 square foot gallery is the depiction of the history

en years ago, the former Glenharold Mine site, a lignite coal operation that started supplying Basin Electric’s Leland Olds Station in the 1960s, was covered in a yellow weed. Leafy spurge was spreading, which was a problem on multiple fronts, including cattle grazing. Today, the reclaimed mine site is a different picture, with 80 percent of the leafy spurge contained. The task of eliminating leafy spurge was one that evolved over time, with less focus on the use of chemicals. Instead of chemicals, Basin Electric plants beetles in different pockets through the Glenharold Mine. A similar practice was also implemented at the Freedom Mine north of Beulah. Controlling the leafy spurge has been a great benefit for land users and wildlife in the area. Basin Electric has long been proactive when it comes to reclaiming land, taking its own reclamation practices further than government standards. Taking good care of the land and resources is personal to the members and employees of Basin Electric.

30 ● Basin Electric Power Cooperative

Leland Olds Station

2.5

million work-hours

without a DART incident

YEARS

without a lost-time accident

Freedom Mine

Montana Limestone Company Fine Grind Plant

Wyoming Lime Producers

YEAR

without a lost-time accident

Basin Electric Headquarters

YEARS

Montana Limestone Company Quarry

million work-hours

without a DART incident

YEARS

without a lost-time accident

2014 Safety

Antelope Valley Station

2.4

Basin Electric

million work-hours

Dakota Gasification Company

2.4

1.9

Industry

without a DART incident

PrairieWinds 1

YEARS

without an employee injury

1.2 0.7

0.5

DART

days away, restricted or transferred

TCIR

total case incident rate

2014 Annual Report ● 31

of rural electrification in North Dakota. The North Dakota State Historical Society opened the doors of all the Heritage Center galleries in November 2014. During the year, Basin Electric sought out other unique and interesting ways to help further educate employees and the community about cooperatives. A food cooperative in the Bismarck-Mandan, ND, area has sprung up in recent years, and Basin Electric put its money where its mouth is by offering employees a taste of what it means to be part of helping launch the new co-op.

Kim Kranz (center), demonstration coordinator, travels across Basin Electric’s service territory to present Story Behind the Switch to elementary kids.

For those employees who wanted to become members of the cooperative, Basin Electric paid $50 of the $200 membership investment for the first 100 employees. The BisMan Community Food Co-op is a start-up food cooperative being created by members of the community for the community.

500 POUNDS donated to local

CHARITIES 32 ● Basin Electric Power Cooperative

In its first season, nearly 500 pounds of produce was donated to local charities from Basin Electric’s Backyard Garden. Employees and their families planted and maintained the garden. Pictured from left are Chris Gessele, Steve Crane, Alyssa Gessele, Tracie Bettenhausen, Sheila Renner and Karen Will.

CAMPAIGN

9 EVENTS

NEARLY

$1.5

MILLION raised since 2008

NEARLY

more than

340 SHAVEES

Brave the Shave honoree Dash Ohlsen shaves his dad Taner’s head during the main event at the YMCA. Dash had just received a cancer diagnosis the month prior.

6th

$400

THOUSAND raised in 2014

TOP ST. BALDRICK’S CAMPAIGN worldwide in 2014

2014 Annual Report ● 33

In addition to supporting education, Basin Electric is proud to employ and support members of the United States Armed Forces. The cooperative strives to go above and beyond what the law requires for employees and their families at home and while deployed. Nearly 10 percent of the cooperative’s workforce is veteran or active military and, in fact, Basin Electric emphasizes the recruitment of veterans and current military service members.

Committed to Community

f all the principles defining cooperatives, commitment to community sets Basin Electric apart from other businesses. The cooperative’s story is deeper than simply providing electricity to members, it’s about the people themselves and what they need – whether it’s help fixing up a house, money for college, or assistance in serving meals to the homeless. Basin Electric and its employees give time and resources consistently, year-round with the hope of helping their communities be better.

Basin Electric employees Sheila Renner (left) and Dean Anderson were part of the team that helped Papa’s Pumpkin Patch refresh and refurbish its charitable operation during the Missouri Slope Areawide United Way Day of Caring.

Charitable Contributions 2014 Distribution Cultural & Arts

14%

Community Development & Enrichment

43%

34 ● Basin Electric Power Cooperative

Health & Human Services

22%

Education & Youth Development

21%

Each year, Basin Electric and its subsidiaries give $1.3 million to charitable projects, events and organizations. More than a third of that is set aside to match member charitable donations. The cooperative’s Charitable Giving Program is broken down into four categories: community development and enrichment; education and youth development; health and human services; and cultural and fine arts, and it supports major fundraising campaigns throughout the year for larger local and national organizations. In 2014, Basin Electric supported two major campaigns – United Way and Brave the Shave. In its seventh year, Brave the Shave 2014 was the most successful yet. The annual campaign culminated in several rapid hair-shaving events in Bismarck and Beulah, ND; Gillette and Wheatland, WY; Boise, ID; Baker, MT; and Brookings, SD, to raise money to fund childhood cancer research. Basin Electric jumpstarted the campaign in the region and each year the campaign has exceeded its goal. Fundraising totals for 2014 topped $399,000 and since Basin Electric started the campaign in 2008 the events have raised a combined total of more than $1.5 million through head shaving and other activities.

Basin Electric’s United Way campaign also exceeded its goal in 2014. Employee contributions surpassed $107,000 and with Basin Electric’s 100-percent match and through various fundraisers at several Basin Electric facilities, the total grew to more than $232,000 for United Way chapters across Basin Electric’s service area. On Jan. 29, 2015, Missouri Slope Areawide United Way recognized Basin Electric as the top corporate contributor to the 2014 campaign. The cooperative and employees also supported the United Way’s Day of Caring in August. A team of employee volunteers spent the day at Papa’s Pumpkin Patch helping prepare the patch for the 2014 season. Finally, employees had a unique opportunity to volunteer as gardeners in Basin Electric’s first cooperative garden. The cooperative provided full support and space on the lawn for employees to grow and harvest vegetables for the community. Basin’s Backyard Garden allowed employees to learn more about gardening as well as give back to the community. In total, nearly 500 pounds of produce was given to local food pantries during the season. Because cooperatives are about people and working to improve quality of life for members, being directly involved

within the community and allowing employees opportunities to do the same is second nature. Basin Electric will always do what it can to ensure there’s enough food and shelter for all, and that every child has the tools and opportunities they need to succeed.l

The Touchstone Energy Governors Gallery at the North Dakota Heritage Center features the life-size image of a Kress coal hauler.

Community Recognition in 2014

Missouri Slope Areawide United Way Executive Director Jena Gullo (left) presented Basin Electric’s Ellen Holt with a plaque to recognize Basin Electric as the top corporate contributor to the MSA United Way’s 2014 fundraising campaign.

In July, the Bismarck Tribune recognized Basin Electric as the Best Large Company to Work For with 75-plus employees in the Bismarck-Mandan area. The award is part of the newspaper’s Best of the Best – Readers’ Choice Awards 2014 list. Basin Electric has been and continues to be a very strong employer in the community and a very good employer to work for. The St. Baldrick’s Foundation recognized Basin Electric’s charitable efforts by naming a $44,700 childhood cancer research grant after the cooperative. The St. Baldrick’s Foundation awarded

$44,700 childhood cancer research grant named after Basin Electric

the Basin Electric Power Cooperative St. Baldrick’s Infrastructure Grant to Sanford Medical Center. The grant, one of 39 infrastructure grants awarded as part of the foundation’s grant cycle, will fund additional education for nursing staff

caring for oncology patients to ensure safe, consistent care for all patients. Basin Electric received the Golden Eagle Award for its support of employees who are in the military at the Bismarck-Mandan Chamber of Commerce’s annual Celebrate Bismarck-Mandan event on Aug. 7. Basin Electric employs more than 100 veterans, offers benefits such as supplementing military pay for its employees while they are deployed, continues benefits during deployment, provides cell phones and laptops to deployed employees and grants extra leave after an employee returns from deployment.

2014 Annual Report l 35 ● 35

Basin Electric’s financial strength and flexibility is rooted in integrity, an important part of the electric cooperative business model.

Strength in Numbers

rom its healthy balance sheet and cash flows to its associated credit worthiness, Basin Electric is in sound financial condition. That kind of financial strength is no accident.

Cooperative staff have always and will always concentrate their attention and energy on the financial affairs of the organization. The members deserve nothing less, especially as the system continues to grow and generation and transmission needs remain high.

cities in the cooperative’s service territory continue to benefit from the urban growth. All told, Basin Electric is anticipating more than $2 billion of new infrastructure will be required to meet the needs of the members out to 2017. To secure that amount of capital, Basin Electric actively seeks opportunities from multiple lending institutions including the private and public debt markets.

Though growth in the Williston Basin is significant, Basin Electric recognizes the needs of all its members in every state.

The cooperative’s financial strength, financial flexibility, member support including long-term power sale contracts through the life of the obligations, competitive member power rates, its well-run and valuable generating resources and sound management policies have enabled the organization to borrow money at very attractive rates, which lowers the overall cost of service to members.

In South Dakota, for example, East River Electric Power Cooperative had an increase in its Class A member sales of approximately 4.2 percent from 2013 to 2014. Central Power Electric Cooperative in North Dakota had growth of nearly 5.8 percent from 2013 to 2014. It’s important to note that this growth encompasses many different sectors – agriculture, small industrial/commercial, as well as residential as many

Current long- and short-term financing resources include private placements, tax-exempt and taxable bonds, bank lines of credit, loans from the Farm Credit System and the National Rural Utilities Cooperative Finance Corporation, single investor and leveraged leases, internally generated funds and investments from the membership through the Member Investment Program.

Projects such as Dakota Gas’ new urea facility, which is projected to cost more than $400 million, and a 200-mile, $350-million transmission line reaching into northwestern North Dakota, are moving along.

Consolidated Financial Highlights For the years ended Dec. 31 (in millions)

2014

Total utility and nonutility revenue $ Total expenses Net margin and earnings $

2,288.8 $ 2,066.1 10.8 2,239.1 2,020.2 10.8 49.7 $ 45.9 8.3

As of Dec. 31 (in millions)

2014

Net electric plant and nonutility property Total assets Long-term debt Equity

36 ● Basin Electric Power Cooperative

$ 5,024.2 $ 6,431.8 $ 3,155.7 $ 1,307.3

2013

$ 4,764.5 $ 6,089.8 $ 3,371.2 $ 1,273.9

% change

5.5 5.6 (6.4) 2.6

In early October, directors and staff visited the three agencies that rate its bonds; several banks that support a $500 million revolving credit facility that back-stops its commercial paper program; as well as many lenders, both existing and those seeking to lend into Basin Electric’s future. All three rating agencies provided positive comments to Basin Electric; the banks and lenders did as well. The comments were well-deserved. As of Dec. 31, 2014, Basin Electric had nearly $4.1 billion of debt outstanding at a weighted average interest rate of just over 3.8 percent. That’s quite impressive.

“

I favor the cooperative model because I think it’s member-driven and its focus is on the needs of the members, as opposed to investor-owned operations, which have to be focused on the needs of the investors and serving the investors needs and concerns. I take pride in being part of a co-op.” Darin Larson, a farmer near Baltic, SD, is a member of Sioux Valley Energy, Colman, SD.

2014 Annual Report ● 37

Consolidated Gross Revenue Before intercompany eliminations For the year ended Dec. 31, 2014

In millions of dollars

Basin Electric

Dakota Coal

$1,517.9

$240.1

Other

Total $2,386.4

$41.3

Dakota Gas

$587.1

Basin Electric Consolidated Capitalization As of Dec. 31, 2014

Leases

7.0%

Federal Financing Bank (FFB)

Equity and Deferred Taxes

22.1%

Public Debt

21.6%

24.8%

Financial Institutions

24.5% 38 ● Basin Electric Power Cooperativev

The cooperative has grown from total consolidated assets of $2.5 billion in 2005 to a projected $6.7 billion in 2015 – nearly tripling in size. Because of the cooperative family’s ability to work together, the system is a very reliable generating and transmitting network for supplying electricity to members.

2014 Financing Activities

asin Electric did not complete any long-term financing in 2014. However, on Nov. 14, 2014, Basin Electric extended the maturity date of a $500 million revolving credit facility used to back-stop the cooperative’s taxable commercial paper program. The maturity date on the facility was extended from Oct. 27, 2016, to Nov. 14, 2019. Basin Electric’s financial strength and flexibility is rooted in integrity, an important part of the electric cooperative business model. Electric rates – The 2014 average Class A member rate was 53.7 mills per kilowatt hour. In August, Basin Electric’s board approved the Class A member rate package for 2015 to meet the member revenue requirement of $1.27 billion. Beginning Jan. 1, 2015, the average Class A rate remains unchanged at 53.7 mills per kilowatt hour. Basin Electric’s rates remain slightly lower than in 1985. Thirty years ago, the rate was 55.6 mills per kilowatt hour. That, in and of itself, is quite astounding. What has changed since then, however, is the fact that, today, Basin Electric has a diverse energy portfolio. Senior Secured Bond ratings – Fitch Ratings affirmed the cooperative’s senior secured A+ rating and Moody’s Investors

Award: In October, the National Cooperative Bank ranked Basin Electric as the top electric cooperative with 2013 revenues of more than $2 billion in their annual Co-op 100 list. The list sites the top revenue-generating cooperatives in the country. Across all industries, Basin Electric ranked No. 21, up from 24 in 2013.

Beyond natural gas, the gasification process yields valuable products, which Dakota Gas markets. Following are the 2014 production of each commodity and examples of end use. In 1988, when Basin Electric purchased the gasification plant, one of the philosophies was to develop products that would produce a revenue stream to serve as a hedge against the volatility of natural gas prices. Back then, approximately 2 percent of the plant’s revenue came from such products. Today, the Synfuels Plant is projecting approximately 65 percent of Dakota Gas’ revenue will come from products other than natural gas. That number is expected to increase going forward with the addition of urea, diesel exhaust fluid and tar oil products.

Other

The gasification plant remains a viable long-term asset for Basin Electric’s members. The ongoing analysis continues to show that the Synfuels Plant provides a yearly benefit in excess of $40 million to the membership, well in excess of one mill.

0.5%

Total

$582.8

Natural gas

47.5% 40.4

Anhydrous ammonia

21.2% 188.5

thousand tons

in millions

million dekatherms

fuel

agricultural fertilizer

Liquid nitrogen

Phenol

0.0% 172.5

3.0% 26.5

million pounds

polycarbonate products, oral analgesics, household cleansers, automotive parts, oriented strand board, plywood, counter tops, exterior siding, insulation

Crude cresylic acid

2.5% 27.3

million pounds

wire enamel coatings, pesticides, vitamin E, antioxidants, dyes, solvents, insecticides, semiconductors, electronic chips, alkylphenols, resins

coolant, refrigerant, preservative

Ammonium sulfate

5.1% 95.9

thousand gallons

Tar oil

thousand tons

DakSul® fertilizer

Naphtha

2.0% 5.1

million gallons

feedstock for benzene, toluene, and xylenes, gasoline additives, paint thinners, solvents

6.8% 16.8

Carbon dioxide

million gallons (salable)

fuel

Krypton/xenon gases

0.4% 3.6

11.0% 51.4

billion standard cubic feet (salable)

enhanced oil recovery

million liters

halogen headlights and light bulbs, lasers, window insulation 2014 Annual Report ● 39

Service affirmed the cooperative’s A1 rating. Standard & Poor’s Financial Services rating of the cooperative is A. All include a stable outlook.

Services and P-1 from Moody’s Investors Service. Basin Electric uses short-term commercial paper as a source of bridge financing until it can secure long-term financing.

Short-term ratings – Basin Electric’s short-term ratings are F1 from Fitch Ratings, A-1 from Standard & Poor’s Financial

Strong business model – An indication of Basin Electric’s financial strength lies in the number of firms that contact the cooperative with lending offers. This is attributable to the strength of the cooperative business model and the effective leadership of the board of directors and management.

Consolidated Net Margin & Earnings In millions of dollars - for the years ended 120.6

45.9

49.7

8.8

2011

2012

2013

2014

Total Electric Sales to Member Systems and Others Members

22.5 6.0 16.5

In millions of megawatt hours

Others

23.5 6.4

17.1

25.9 7.2

18.7

onsolidated results – Basin Electric’s financial statements are consolidated with those of its subsidiaries. For the year ended Dec. 31, 2014, the consolidated net margin and earnings was $49.7 million. This is $3.8 million more than the 2013 consolidated net margin and earnings of $45.9 million.

98.3

2010

Operating Results

26.6 6.2

20.4

28.3 6.2

22.1

Electric – Basin Electric’s total utility operating revenue for 2014 was $1.5 billion, an increase of $143.7 million from 2013. Revenue from member systems totaled $1.2 billion in 2014, an increase of $88.3 million from 2013. Revenue from non-member sales totaled $264.1 million, an increase of $45.1 million from 2013. Total utility operating expenses plus interest and other charges before income taxes for 2014 were $1.5 billion, which is $144.1 million greater than in 2013. Basin Electric’s utility margin before income taxes, combined with Basin Cooperative Services’ net operating results, yielded a combined margin of $52.0 million to be allocated to members. Subsidiary earnings – Dakota Gas incurred a net income of $7.8 million during 2014. Dakota Gas did not declare or pay any dividends to Basin Electric in 2014; however, since 2007, Dakota Gas has paid $198.5 million in dividends to Basin Electric.

Financial Position

ssets – The total assets of Basin Electric and its subsidiaries as of Dec. 31, 2014, were $6.4 billion, an increase of more than $342.0 million from a year earlier.

2010

40 ● Basin Electric Power Cooperative

2011

2012

2013

2014

Cash position – The consolidated cash balance, including restricted cash, as of Dec. 31, 2014, was $372.1 million. Basin Electric also had $237.5 million deposited in a cushion of credit account at the U.S. Treasury, which is reflected on the balance sheet as a reduction of long-term debt.

The Rural Utilities Service (RUS) has historically been Basin Electric’s preferred lender of choice. However, the National Environmental Policy Act (NEPA) rules proposed by the U.S. Department of Agriculture Rural Development office early in 2014 are an area of concern. The proposed rules could potentially impact the cooperative’s ability to conduct and transact business with RUS in a timely and efficient manner. This is an issue Basin Electric is taking very seriously. The cooperative has voiced its objection to the proposed rules, and will continue to do so. Member Investment Program – Basin Electric’s Member Investment Program ended the year with $165.2 million. The program offers members an additional investment option and a competitive rate of return while providing Basin Electric with an additional source of capital.

Member Investment Program In millions of dollars - at year end 158.4

165.2

112.3

101.8 75.7

2010

2011

2012

2013

2014

4.07

3.97

3.83

2012

2013

2014

Average Interest Rate on Utility Debt As of Dec. 31 - in percent 3.96 3.50

Debt – As of Dec. 31, 2014, Basin Electric had approximately $4.1 billion of debt outstanding including Member Investment Program obligations, at a weighted average interest rate of less than 4.0 percent. Equity position – At year-end 2014, Basin Electric had total equity of $1.3 billion, an increase of $33.4 million from 2013. At the end of 2014, equity represented 28.0 percent of Basin Electric’s total capitalization on its balance sheet. Basin Electric has an equity-to-asset ratio of 20.3 percent. Capital credit allocations and retirements – In March 2014, Basin Electric allocated $57.4 million to its patrons. Since 1966 Basin Electric has allocated more than $770.2 million in capital credits to its members. Also, in March 2014, Basin Electric returned $5.0 million of capital credits to its members, and has retired $224.6 million over the history of the cooperative. Return of cash to members – Since 2000, Basin Electric has returned nearly $605.2 million to the membership through patronage capital retirements, bill credits and power cost adjustments.l

2010

2011

Margin Disposition In millions of dollars - for the years ended

Allocated to members 57.4

55.2 45.9

18.0

Bill credits 52.0

42.6

19.5 37.2 26.4

2010

2011

2012

2013

2014 2014 Annual Report ● 41

Basin Electric Power Cooperative and Subsidiaries

Five-year Consolidated Financial Summary for the years ended December 31, (dollars in thousands)

2014 2013 2012 2011 2010 Utility operations: Operating revenue: Sales of electricity for resale $ 1,459,155 $ 1,325,737 $ 1,184,132 $ 1,028,832 $ 945,282 Other electric revenue 22,346 12,072 12,812 8,219 8,454 Total utility operating revenue 1,481,501 1,337,809 1,196,944 1,037,051 953,736 Operating expenses: Operation 987,388 905,289 807,629 779,575 747,406 Maintenance 163,433 124,436 130,081 130,909 103,640 Depreciation and amortization 148,028 131,421 108,328 69,058 56,004 Taxes other than income 2,959 2,908 2,255 2,802 2,248 Total utility operating expenses 1,301,808 1,164,054 1,048,293 982,344 909,298 Interest and other charges: Interest on long-term debt 155,679 149,669 130,719 58,010 56,893 Other 8,338 8,044 7,933 10,307 7,106 Total interest and other charges 164,017 157,713 138,652 68,317 63,999 Operating margin (deficit) 15,696 16,042 9,999 (13,610) (19,561) Nonoperating margin: Interest and other income 32,614 34,267 29,646 30,978 23,765 Patronage allocations from other cooperatives 3,777 7,133 2,988 1,816 2,224 Total nonoperating margin 36,391 41,400 32,634 32,794 25,989 Utility margin before income taxes

52,067

57,442

42,633

19,184

6,428

Nonutility earnings (loss) before income taxes (1,575) (16,854) 82,529 77,754 32,192 Provision for (benefit from) income taxes Net margin and earnings

811 $

49,681 $

(5,359) 45,947 $

4,606 120,556

(1,349) $

98,287

29,843 $

8,777

Electric sales information: Electric energy sales (in thousands of MWh) Members 22,074 20,382 18,715 17,156 16,523 Others 6,251 6,171 7,183 6,361 6,015 Total 28,325 26,553 25,898 23,517 22,538

42 ● Basin Electric Power Cooperative

On the cover: Lance Steiger, with his son Brodey, is a lineman for Basin Electric Class C member West River Electric Association in Wall, SD. Photo credit: West River Electric Association.

1717 East Interstate Avenue Bismarck, ND 58503 701.223.0441 basinelectric.com

“

This rating affirmation shows Basin Electric’s strong financial condition, which is very important as we continue to work to support the generation and transmission needs of our growing membership.” Steve Johnson, CFO and senior vice president of Financial Services, Basin Electric

Independent Auditorsâ&#x20AC;&#x2122; Report Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements

1 2 3 4 4 5 6-28

Independent Auditors' Report

Deloitte & Touche LLP 50 South Sixth Street Suite 2800 Minneapolis, MN 55402-1538 USA

INDEPENDENT AUDITORS’ REPORT To the Board of Directors and Members of Basin Electric Power Cooperative Bismarck, North Dakota

Tel: +1 612 397 4000 Fax: +1 612 397 4450 www.deloitte.com

We have audited the accompanying consolidated financial statements of Basin Electric Power Cooperative (a North Dakota cooperative corporation) and its subsidiaries (the "Cooperative"), which comprise the consolidated balance sheets as of December 31, 2014 and 2013, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Cooperative's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Cooperative's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Cooperative as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

March 11, 2015

Member of Deloitte Touche Tohmatsu

2014 Annual Report l 1

Consolidated Financial Statements Basin Electric Power Cooperative and Subsidiaries

Consolidated Statements of Cash Flows for the years ended December 31, (dollars in thousands)

2014

2013

Operating activities: Net margin and earnings $ 49,681 $ Adjustments to reconcile net margin and earnings to net cash from operating activities: Depreciation and amortization of property, plant and equipment 221,165 Increase (decrease) in reserves 22,621 Other amortization 3,858 Patronage capital and other (6,289) Deferred income taxes 544 Other, including regulatory revenue deferral 5,000 Income attributable to noncontrolling interest 17,903 Changes in other operating elements: Customer accounts receivable 7,592 Other receivables (5,553) Coal stock, materials and supplies (3,079) Prepayments and other current assets (32,423) Accounts payable 33,094 Taxes and other current liabilities (5,278) Net cash provided by operating activities 308,836

(36,527) (6,668) (15,395) 24,185 22,079 5,222 306,564

Investing activities: Acquisition of electric plant Acquisition of nonutility property Purchase of investments Sale of investments Purchase of other assets Net cash used in investing activities

(246,091) (101,105) (473,221) 594,514 (26,345) (252,248)

(205,424) (89,161) (297,401) 455,306 (21,916) (158,596)

45,947 205,256 (22,634) 58,875 (8,397) (2,257) 19,207 17,671

Financing activities: Loan advances 19,161 38,644 Principal payments of long-term debt (165,814) (142,077) Purchase of funds held by U.S. Treasury (13,238) (10,956) Payment of debt issue costs (5,000) (849) Proceeds of notes payable - affiliates 1,238,102 991,846 Payments of notes payable - affiliates (1,231,320) (946,079) Proceeds of notes payable 1,154,631 1,139,790 Payments of notes payable (949,690) (1,109,805) Payments under capital lease obligations (15,714) (3,581) Dividends paid to noncontrolling interest (17,993) (16,753) Net cash provided by (used in) financing activities 13,125 (59,820) Net increase (decrease) in cash and cash equivalents 163,365 (5,504) Cash and cash equivalents, beginning of year 123,410 128,914 Cash and cash equivalents, end of year $ 286,775 $ 123,410 Supplemental disclosure of cash flow information: Cash paid for interest, net of amounts capitalized $ 164,817 $ Cash paid (refunded) for income taxes $ 2,228 $

164,710 (1,226)

Non-cash investing and financing activity: Acquisition of electric plant and nonutility property through short-term financing $ 22,326 $ Acquisition of electric plant and nonutility property through capital lease $ 158,223 $

22,462 15,200

The accompanying notes are an integral part of these consolidated financial statements. 2014 Annual Reportâ&#x20AC;&#x201A; lâ&#x20AC;&#x201A;5

Notes To Consolidated Financial Statements (dollars in thousands) Basin Electric Power Cooperative and Subsidiaries

Notes to Consolidated Financial Statements (dollars in thousands)

1. Organization... Basin Electric Power Cooperative (Basin Electric) is an electric generation and transmission cooperative corporation, organized and existing under the laws of the State of North Dakota. It serves member electric service needs in a nine-state region of North Dakota, South Dakota, Montana, Wyoming, New Mexico, Colorado, Nebraska, Minnesota and Iowa. Basin Electric’s power supply resources are composed of its own generating facilities and contractual power purchase arrangements. It delivers power and energy over its own transmission facilities and through contractual arrangements with other power supply entities in the region, primarily the Western Area Power Administration. Basin Electric’s accounting records are maintained in accordance with the Uniform System of Accounts prescribed by the Federal Energy Regulatory Commission as adopted and interpreted by the Rural Utilities Service (RUS). The rates charged to its members for electric service are established by Basin Electric’s Board of Directors and require concurrence from the RUS. Basin Electric has four wholly owned for-profit subsidiaries, Dakota Gasification Company (Dakota Gas), Dakota Coal Company (Dakota Coal), PrairieWinds ND 1, Inc. (PrairieWinds ND), and PrairieWinds SD 1, Inc. (PrairieWinds SD) and one wholly owned not-for-profit subsidiary, Basin Cooperative Services (BCS). Another wholly owned for-profit subsidiary, Basin Telecommunications, Inc. (BTI), was merged with Basin Electric on December 31, 2014. Dakota Gas has a wholly owned for-profit subsidiary, Souris Valley Pipeline Limited (SVPL). Dakota Coal has a wholly owned for-profit subsidiary, Montana Limestone Company (MLC). Dakota Gas owns and operates the Great Plains Synfuels Plant (Synfuels Plant) which converts lignite coal into pipeline-quality synthetic gas and anhydrous ammonia as a coproduct, as well as a number of byproducts including carbon dioxide (CO2), and is located adjacent to Basin Electric’s Antelope Valley Station (AVS) electric generating plant. These plants share certain facilities, and coal and water supplies. Basin Electric also supplies the Synfuels Plant with electric capacity and energy, and Dakota Gas supplies Basin Electric’s peaking stations with synthetic gas. SVPL owns and operates a CO2 pipeline in Saskatchewan, Canada. Dakota Coal purchases lignite coal from the Freedom Mine, a coal mine in North Dakota that is owned and operated by The Coteau Properties Company (Coteau), a wholly owned subsidiary of The North American Coal Corporation (NACoal). Coteau is a variable interest entity of Dakota Coal. Pursuant to the coal purchase agreement, Dakota Coal is obligated to provide financing for and has certain rights with respect to the operation of the coal mine. The lignite coal is used in Basin Electric’s Leland Olds Station (LOS), AVS, and Dakota Gas’ Synfuels Plant. Dakota Coal coordinates procurement and rail delivery of Powder River Basin coal to the Laramie River Station (LRS), the Dry Fork Station (DFS) and LOS. Dakota Coal also owns a lime plant that sells lime to AVS, the Missouri Basin Power Project (MBPP) and others. MLC operates a limestone quarry and owns and operates a fine grind plant, both in Montana, and sells limestone to Dakota Coal’s lime plant, LOS and others. PrairieWinds ND owns wind projects near Minot, North Dakota. PrairieWinds SD owns a wind project near White Lake, South Dakota. BCS provides certain nonutility property management services to Basin Electric. Basin Electric is a 42.27 percent owner of the MBPP and acts as the operating agent for the 1,710 megawatt LRS generating plant in Wyoming, associated transmission facilities and the Grayrocks Dam and Reservoir. Basin Electric is a 92.9 percent owner of the DFS generating plant in Wyoming and acts as the operating agent for the 386 megawatt plant.

2. Significant Accounting Policies... PRINCIPLES OF CONSOLIDATION–The consolidated financial statements include the accounts of Basin Electric, its wholly owned subsidiaries and its variable interest entity, Coteau. All intercompany investments, debt, and receivable and payable accounts have been eliminated in consolidation. Charges from BCS, Dakota Gas, Dakota Coal, MLC, Coteau, PrairieWinds ND and PrairieWinds SD to Basin Electric and charges from Basin Electric to BCS, Dakota Gas, Dakota Coal, MLC, Coteau, PrairieWinds ND and PrairieWinds SD are not eliminated as Basin Electric includes the results of these activities in the determination of rates charged to its members (Note 13). USE OF ESTIMATES–The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates are used for items such as plant depreciable lives, actuarially determined benefit costs, valuation of derivatives, asset retirement obligations, and provision for (benefit from) income taxes. Ultimate results could differ from those estimates. CASH AND CASH EQUIVALENTS–Basin Electric considers all investments purchased with an original maturity of three months or less to be cash equivalents. The fair value of cash equivalents approximates their carrying values due to their short-term maturity.

6 l Basin Electric Power Cooperative

Notes To Consolidated Financial Statements (dollars in thousands) Certain financial instruments valued at $29,511 and $16,619, at December 31, 2014 and 2013, meet the criteria for hedge accounting under ASC 815, Derivatives and Hedging, and as a result, unrealized gains or losses on the instruments were recognized in equity in Accumulated other comprehensive income and will subsequently be reclassified to synthetic gas revenue in the Consolidated Statement of Operations when the hedged sales are recorded. Dakota Gas evaluates and quantifies any hedge ineffectiveness on a quarterly basis, and Dakota Gas’ natural gas cash flow hedges had no ineffectiveness in 2014 or 2013. Financial instruments valued at $(81) and $1,381, at December 31, 2014 and 2013, did not meet the criteria for hedge accounting under ASC 815, and as a result, changes in market value of these instruments were recognized on the Consolidated Statements of Operations as synthetic gas revenue. In the December 31, 2014 Consolidated Balance Sheets, the fair value of the current portion of these financial instruments ($10,524) was included in Prepayments and other current assets and the noncurrent portion ($18,906) was included in Other investments. In 2014, Dakota Gas also entered into derivative financial instruments for the purpose of hedging the risk of market fluctuation in tar oil prices. These financial instruments effectively fix the price of tar oil between $53.50 and $86.80 per barrel for a portion of the forecasted sales (33% to 48% on a monthly basis) for tar oil sales through December 2015. These financial instruments attempt to provide for sales prices in excess of Dakota Gas’ average before tax cost of production and are held only to hedge the risk of tar oil price movements. None of the tar oil derivatives, valued at $11,490 and $267, at December 31, 2014 and 2013, meet the criteria for hedge accounting under ASC 815, and as a result, all changes in market value of the instruments are recognized in Byproducts, coproduct and other revenue on the Consolidated Statements of Operations. In the December 31, 2014 Consolidated Balance Sheets, the fair value of the current portion of these financial instruments ($469) was included in Prepayments and other current assets and the noncurrent portion ($11,021) was included in Other investments. Basin Electric entered into various interest-rate swap agreements to reduce the impact of changes in interest rates on certain of its variable rate long-term bonds. There were four interest rate swaps outstanding at December 31, 2014 that effectively change the interest rate on $100,000 of Basin Electric’s variable rate bonds due in 2032 to a fixed rate of 6.18 percent, the interest rate on $50,000 of Basin Electric’s variable rate bonds due in 2032 to a fixed rate of 4.95 percent, and the interest rate on $50,000 of Basin Electric’s variable rate bonds due in 2030 to a fixed rate of 5.33 percent. In October of 2013, Basin Electric’s Board of Directors took action to defer accumulated and future changes in the fair value of these swaps as a regulatory item to be recovered through rates in the future. Only current settlements of these interest rate swaps are included in earnings, which resulted in charges to interest expense for the years ended December 31, 2014 and 2013 of $11,022 and $10,936. The change in fair value for the year ended December 31, 2014 resulted in a deferred loss of $34,381. At December 31, 2014 and 2013, the fair value of the obligation related to the interest rate swap agreements of $90,571 and $56,190 were included in Deferred credits, taxes and other liabilities on the Consolidated Balance Sheets. A regulatory deferred asset, which represents the amount to be recovered through future rates, is included in Deferred charges on the Consolidated Balance Sheets (Note 6). Basin Electric entered into a series of floating-to-fixed swap agreements valued at ($5,098) and $453 at December 31, 2014 and 2013, for natural gas to manage the variable price risk associated with the forecasted natural gas exposure through 2016. In October 2013, Basin Electric’s Board of Directors established a policy to defer changes in fair value as a regulatory item to be recovered in future rates. At December 31, 2014, the fair value of the liability related to Basin Electric’s natural gas swap agreements was included in Deferred credits, taxes and other liabilities ($56) and Taxes and other current liabilities ($5,042) on the Consolidated Balance Sheets. A regulatory deferred asset, which represents the amount to be recovered through future rates, is included in Deferred charges on the Consolidated Balance Sheets (Note 6). Basin Electric and Dakota Gas are exposed to credit risk loss in the event of nonperformance by the counterparties to their derivative financial instruments. However, Basin Electric and Dakota Gas do not anticipate nonperformance by the counterparties as all counterparties’ credit ratings are in compliance with Basin Electric’s and Dakota Gas’ risk policy requirements. Basin Electric and Dakota Gas also enter into contracts for the purchase and sale of various commodities for use in its business operations. ASC 815 requires a company to evaluate these contracts to determine whether the contracts are derivatives. Certain contracts that meet the definition of a derivative may be exempted from ASC 815 as normal purchases or normal sales. Basin Electric and Dakota Gas evaluate all of their contracts when such contracts are entered into to determine if they are derivatives and, if so, whether they qualify to meet the normal exception requirements under ASC 815. ASSETS AND LIABILITIES MEASURED AT FAIR VALUE–ASC 820, Fair Value Measurements, defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The standard applies to reported balances that are required or permitted to be measured at fair value. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize observable market data in active markets for identical assets or liabilities. Level 2 inputs consist of observable market data, other than that included in Level 1, that is either directly or indirectly observable. Level 3 inputs consist of unobservable market data which are typically based on an entity’s

2014 Annual Report l 9

Notes To Consolidated Financial Statements (dollars in thousands) 12. Commitments and Contingencies... POWER PURCHASE COMMITMENTS–Basin Electric entered into various power purchase contracts from one to 25 years. The estimated commitments under these contracts as of December 31, 2014 were $273,479 in 2015, $346,149 in 2016, $365,242 in 2017, $368,937 in 2018, $353,760 in 2019, and $4,885,847 thereafter. Amounts purchased under the contracts totaled $275,322 in 2014 and $236,147 in 2013. Basin Electric entered into various power purchase agreements with its Class A member, Corn Belt Power Cooperative (Corn Belt), under which Basin Electric buys substantially all of the output from Corn Belt’s generation resources at cost, which approximates market, through December 2050. Basin Electric also entered into a transmission lease agreement with Corn Belt which expires in December 2050. ASC 810, Consolidation, requires that certain of Corn Belt’s generation assets and liabilities associated with the power purchase agreements be consolidated in Basin Electric’s balance sheet. At December 31, 2014 and 2013, the assets and liabilities of Corn Belt included in the Consolidated Balance Sheets totaled $17,053 and $14,472. Basin Electric accounts for the costs associated with these assets and liabilities as operation, maintenance, interest and depreciation expense, rather than purchased power expense. CONSTRUCTION CONTRACT COMMITMENTS–Basin Electric is constructing two 45-megawatt natural gas-fired peaking stations in northwest North Dakota and multiple transmission projects. Dakota Gas is constructing capital projects for operational improvements. Various outstanding contractual construction commitments for Basin Electric and its subsidiaries totaled $206,819 as of December 31, 2014. Coteau has outstanding equipment commitments of $13,724 as of December 31, 2014. INVENTORY PURCHASE COMMITMENTS–Coteau entered into various diesel fuel contracts through February 2015. The estimated commitments under these purchase contracts as of December 31, 2014 were $18,946. MINE CLOSING COSTS AND COAL PURCHASE COMMITMENTS–Under the terms of the Coteau Lignite Sales Agreement (Agreement) between Dakota Coal and Coteau, Dakota Coal is obligated to purchase all of its lignite requirements from Coteau, and Coteau is obligated to sell and deliver the required coal to Dakota Coal from contractually defined dedicated coal reserves. The coal purchase price includes all costs incurred by Coteau for development and operation of the dedicated coal reserves and may include costs to be incurred in connection with the Freedom Mine closing. During 2014 and 2013, Dakota Coal paid $212,634 and $208,475 to Coteau for coal purchased under the lignite sales agreement. As a result of applying ASC 810, Consolidation, Coteau is consolidated with Dakota Coal and coal purchases from Coteau are eliminated within the consolidated financial statements. Under certain federal and state regulations, Coteau is required to reclaim land disturbed as a result of mining. Reclamation of disturbed land is a continuous process throughout the term of the Agreement. Costs of ongoing reclamation are charged to expense in the period incurred and are being recovered as a cost of coal as tonnage is sold to Dakota Coal. Costs to complete reclamation after mining has been completed in a specific mine area are reimbursed under the Agreement as costs of reclamation are actually incurred. Coteau accounts for its asset retirement obligations under ASC 410, Asset Retirement and Environmental Obligations, which provides accounting requirements for retirement obligations associated with tangible long-lived assets and requires that an asset’s retirement cost be capitalized as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method. Coteau’s annual costs related to amortization of the asset and accretion of the liability totaled $3,126 and $4,333 in 2014 and 2013. Coteau made payments of $3,970 and $7,529 in 2014 and 2013 for costs of reclamation that were incurred. Dakota Coal has established designated funds for mine closing costs. The Agreement includes provisions whereby, upon expiration of the agreement, Dakota Coal has the option to purchase the outstanding common stock of Coteau for its book value from NACoal. Dakota Coal may exercise this option only if Coteau has not exercised its right to extend the Agreement. NACoal has the option to require Dakota Coal to purchase the outstanding stock of Coteau for its book value in the event all of the plants Dakota Coal presently sells lignite coal to are closed or if lignite coal may no longer be legally mined in North Dakota and Dakota Coal exercises its right to terminate the Agreement with Coteau. COAL PURCHASE AND FINANCING COMMITMENTS–Basin Electric, on behalf of the MBPP, has executed an agreement with Western Fuels Association, Inc. (Western Fuels) requiring coal purchases of approximately 6,700,000 tons per year through 2034, with an option to extend the contract with approval by both parties. The average price of coal under this agreement during 2014 and 2013 was approximately $20.06 and $19.73 per ton. Basin Electric executed an agreement with Western Fuels requiring coal purchases of approximately 1,800,000 tons per year beginning in 2011 through the life of the DFS, with an option to extend the contract with approval by both parties. Coal purchased under this agreement is used at the DFS. The average price of coal purchased under this agreement during 2014 and 2013 was approximately $9.76 and $11.14 per ton. The MBPP provides financing to Western Fuels and Western Fuels-Wyoming, Inc. (WFW), a wholly owned subsidiary of Western Fuels for mine development costs associated with coal deliveries to LRS. Basin Electric provides financing to Western Fuels and WFW for mine development costs associated with coal deliveries to DFS.

2014 Annual Report l 23

Notes To Consolidated Financial Statements (dollars in thousands) On June 15, 2012, the STB provided the detailed recommendation on their allocation and affirmed their earlier decision. On July 23, 2012, BNSF appealed the decision to the Court. On January 31, 2014, the DC Circuit remanded the case back to the STB noting that the STB, under the previous remand, should have also considered whether to apply alternative ATC to the allocation or provided a reasonable explanation for STB actions. Basin Electric filed a motion with the Court asking for a rehearing. On April 28, 2014, the Motion for Rehearing was denied. On May 7, 2014, the DC Circuit issued its mandate and returned the case to the STB. On June 17, 2014, Basin Electric filed a Motion with the STB for leave to file initial comments, as well as filing the initial comments. On June 30, 2014, BNSF replied to our filing, not objecting but asking for a 60 day response period after the Board grants Western Fuels/Basin Electric’s request to file comments. BNSF comments were filed September 19, 2014. On October 9, 2014, Western Fuels/Basin Electric filed a request for leave to respond to BNSF’s comments and a response to those comments. On October 28, 2014, BNSF filed a response in opposition to Western Fuels/Basin Electric’s October 9, 2014 filing. On January 28, 2015, Western Fuels/Basin Electric and BNSF filed a joint petition at the STB asking the STB to hold the remanded case in abeyance. In this filing, the parties informed the STB that they had reached a preliminary settlement agreement that called for the dismissal of the case. The parties also informed the STB that the preliminary agreement was contingent upon the parties’ development and execution of a rail transportation contract. Although the preliminary settlement agreement is contingent upon the parties reaching agreement on certain unit train transportation contract terms, an estimated settlement obligation was recorded by the MBPP in December 2014. Basin Electric deferred recognition of its share of the estimated settlement until finalization of contract terms in 2015. CLIMATE CHANGE–There are efforts underway in the United States to regulate greenhouse gas emissions through regulatory changes and litigation through the courts. Basin Electric is currently unable to predict with any degree of certainty when (or if) a comprehensive regulatory scheme for greenhouse gases will be in place. Since a significant portion of Basin Electric’s generating assets are coal based, greenhouse gas regulation may have a significant impact on future costs. ENVIRONMENTAL PROTECTION AGENCY (EPA) SECTION 114(a)-LRS–Basin Electric received a Section 114(a) letter in September 2011 from the EPA requesting information about capital additions at the Station. Responsive documents were submitted to the EPA in December 2011. In January 2012, the EPA requested additional information on twenty-five of the earlier identified capital projects which has been submitted. The EPA contacted Basin Electric regarding work that was conducted on the superheater for Unit 3 in 2011. Discussions were initiated with EPA regarding whether this constituted a maintenance action that required a permit to construct, and the appropriate way to address any disagreement regarding this issue. Basin Electric will respond appropriately when any additional steps are required. In August 2014, the Enforcement Division of EPA Region 8 notified Basin Electric of their concern with one or more projects and requested a meeting. Representatives of EPA and Basin Electric met on September 23, 2014. An engineering consultant was retained and provided a draft technical Best Available Control Technology (BACT) review. Discussions with Wyoming EPA continue, and management is unable to predict the impact to the consolidated financial statements. NORTH DAKOTA BART–The Clean Air Act’s Regional Haze Program requires each state to adopt a State Implementation Plan (SIP) that includes requiring certain existing major sources of visibility impairing pollutants to install Best Available Retrofit Technology (BART) to control emissions of such pollutants. The LOS Unit 2 was subject to the BART review. On November 29, 2010, the EPA notified the North Dakota Health Department (NDHD) that it intended to propose a Federal Implementation Plan (FIP) because a portion of North Dakota’s SIP is inadequate. The letter noted that the proposed nitrogen oxide (NOX) controls for LOS Unit 2 are inadequate. On February 20, 2011, the EPA notified the NDHD that EPA may also propose additional Reasonable Progress controls in a FIP for a portion of the North Dakota Regional Haze Plan, which includes AVS. The state of North Dakota contested these EPA proposals. On September 21, 2011, EPA published notice of its proposed rule to partially approve and partially disapprove North Dakota’s SIP. Included in the disapproval was North Dakota’s determination of BART for NOX emissions for LOS Unit 2 and its “reasonable progress” plan for AVS. Basin Electric presented comments at a public hearing in October 2011 and submitted written comments on November 21, 2011. In a final decision issued on March 2, 2012, the EPA approved the North Dakota SIP for the BART at LOS but disapproved the state’s “reasonable progress” plan for AVS. The EPA notice requires each unit at AVS to reduce its NOX emissions by 2018 to not more than 0.17 pounds per million Btu averaged over a rolling 30-day period. Management believes this new emission rate is achievable through modifications to the low NOX burners at AVS. Several parties, including the state of North Dakota, Great River Energy and the National Parks Conservation Club, have filed appeals of EPA’s decision with the Eighth Circuit Court of Appeals. Basin Electric has intervened in the appeal and has filed briefs. The Court heard oral arguments on the issues on May 14, 2013. EPA held a public hearing on May 15, 2013 to take comments on the Petition for Reconsideration of its BART decision regarding LOS and Milton R. Young Station filed by Environmental Groups. On June 17, 2013, Basin Electric also submitted written comments on the reconsideration proposal. On September 23, 2013, the United States Court of Appeals for the Eighth Circuit issued its Opinion in the North Dakota/EPA Regional Haze appeals cases.

26 l Basin Electric Power Cooperative

Notes To Consolidated Financial Statements (dollars in thousands) The Court concluded it was without jurisdiction to hear the Environmental Groups challenges to EPA’s approval of the North Dakota BART determinations for Milton R. Young Station and the Leland Olds Station. The Court found that because the Environmental Groups had filed a Petition for Reconsideration with EPA on this issue which is still under consideration, that the matter was not ready for the Court of Appeals to render its Opinion. Management is unable to predict the impact to the consolidated financial statements. WYOMING BART–In June 2006, the WDEQ notified Basin Electric that the LRS was subject to BART requirements. A settlement agreement between Basin Electric and the WDEQ was approved by the Wyoming Environmental Quality Council in November 2010. The terms of the agreement were incorporated into the Wyoming Regional Haze SIP. On June 4, 2012, EPA issued its proposed action regarding the Wyoming Regional Haze SIP. EPA proposed to approve all of the Wyoming SIP except for the NOX BART for certain coal-fired electric generation stations, including LRS. EPA proposed the addition of selective non-catalytic reduction (SNCR) equipment to LRS Units 1, 2 and 3. Written comments were submitted on August 3, 2012. The deadline for EPA to issue a Notice of Final Rulemaking regarding Wyoming was moved to September 22, 2013. EPA requested more time to review new cost and visibility analyses for several of the units subject to review. On May 24, 2013, EPA issued its reproposed NOX BART FIP for LRS of 0.07 lbs/mmBtu on a 30-day rolling average. The emission limit would require selective catalytic reduction (SCR) technology in addition to low NOX burns and overfire air. The EPA sought public comments on the proposal and held public hearings in June and July of 2013. The EPA issued its final determination for BART for NOX controls on January 10, 2014. The final rule action requires the installation of SCR technologies on all three units at LRS to meet an emission standard of 0.07 pounds of NOX emissions per million BTUs on a thirty day rolling average. The EPA, in its final determination, encouraged the State of Wyoming to consider resubmission of their state plan based on EPA’s final action. Under EPA’s final determination, SCRs would have to be installed on all three units by March 2019. On March 5, 2014, Basin Electric, along with 11 other utilities filed with the United States Supreme Court an Amicus Brief in Support of the Petition for a Writ of Certiorari filed by Oklahoma, et al. to the United States Tenth Circuit Court of Appeals. On March 10, 2014, Basin Electric filed a Petition for Review with the Court of Appeals for the 10th Circuit. On May 5, 2014, Basin Electric submitted a Petition for Reconsideration with EPA, and on May 27, 2014, the United States Supreme Court denied the Petition for Writ of Certiorari filed by Oklahoma and North Dakota respectively. On June 6, 2014, Basin Electric filed a Motion to Stay with the 10th Circuit and on September 9, 2014, the 10th Circuit issued an Order granting the Motion for Stay filed by the State of Wyoming, Basin Electric and PacifiCorp. The Department of Justice requested an extension to file their Motion on the Merits. On September 22, 2014, the Court approved a new briefing schedule. The final deadline on the merits briefing is scheduled for mid-March 2015. On February 3, 2015, Basin Electric filed its Reply Brief in the 10th Circuit litigation. Basin Electric continues to consider its legal and technical options, and management is unable to predict the impact to the consolidated financial statements.

13. Related Party Transactions... Other receivables include $2,862 and $2,584 at December 31, 2014 and 2013, for amounts Basin Electric, as operating agent, and its subsidiaries, have billed to MBPP. Included in special funds is Basin Electric’s advance to MBPP of approximately $12,346 at December 31, 2014 and 2013. CONTRACTUAL COMMITMENTS–Basin Electric provides and receives power, various materials, supplies and services to and from affiliates which are under the following agreements through 2020, except as noted below: • POWER SUPPLY–Basin Electric provides all electric capacity, energy and transmission service needed to meet Dakota Gas’ Synfuels Plant requirements under an agreement that extends through 2050. • POWER SALES–PrairieWinds ND and PrairieWinds SD sell electric power to Basin Electric under an agreement that extends through 2034. • SCREENED COAL–Dakota Gas’ Synfuels Plant provides screened coal to Basin Electric under an agreement that extends through 2037. • COAL SUPPLY–Dakota Coal provides all coal requirements of Dakota Gas’ Synfuels Plant and Basin Electric’s AVS. It also supplies a majority of LOS’s coal requirements. This agreement extends through 2037. • PROJECT ADMINISTRATIVE SERVICES–Basin Electric provides various administrative and financial services to Dakota Gas, Dakota Coal, BTI, PrairieWinds ND and PrairieWinds SD. • LIME SALES–Dakota Coal provides lime to Basin Electric’s AVS and LRS. • WATER SUPPLY–Basin Electric provides water supply facilities for use by Dakota Gas’ Synfuels Plant. • SALE OF NATURAL GAS–Dakota Gas sells natural gas to Basin Electric for operation of utility peaking plants. • PROJECT SERVICES–Basin Electric provides the use of operational assets to Dakota Gas’ Synfuels Plant.

2014 Annual Report l 27

Notes To Consolidated Financial Statements (dollars in thousands) Related party amounts that were not eliminated in consolidation in accordance with ASC 980, Regulated Operations, were billed as follows for the years ended December 31:

Power supply from Basin Electric to Dakota Gas Power sales from PrairieWinds ND to Basin Electric Power sales from PrairieWinds SD to Basin Electric Screened coal sales from Dakota Gas to Basin Electric Coal supply sales from Dakota Coal to Basin Electric Administrative services by Basin Electric to Dakota Gas Administrative services by Basin Electric to Dakota Coal Administrative services by Basin Electric to PrairieWinds ND Administrative services by Basin Electric to PrairieWinds SD Administrative services by Basin Electric to BTI Lime sales from Dakota Coal to Basin Electric Water supply from Basin Electric to Dakota Gas Natural gas sales from Dakota Gas to Basin Electric Project services from Basin Electric to Dakota Gas

2014

$ $ $ $ $ $ $ $ $ $ $ $ $ $

Various other intercompany management, administrative and financial services were performed, which were not significant.

28â&#x20AC;&#x201A; lâ&#x20AC;&#x201A; Basin Electric Power Cooperative

85,724 16,269 22,643 61,251 60,155 17,633 2,295 846 1,176 627 9,956 3,266 627 367

2013

$ $ $ $ $ $ $ $ $ $ $ $ $ $

63,045 14,279 19,784 62,278 67,755 12,806 2,186 806 1,108 1,052 10,324 2,977 8,393 381

Photo credit: Prairie Energy Cooperative, Iowa

Photo credit: Morgan County Rural Electric Association, Colorado Cover photo credit: Mor-Gran-Sou Electric Cooperative, North Dakota

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