Dakota Energy vs. East River: Local members blindsided

DAKOTA ENERGY MEMBERS worry that leaving the cooperative will affect them when weather conditions knock out power lines. They can currently count on East River crews to assist in making repairs. In April 2019, crews huddled together for a safety briefing before continuing work to repair damaged power lines in near whiteout conditions during an ice and snowstorm.

Members of Dakota Energy aren't asking for the world. They are just asking for a little information.

Until the cooperative issued a press release in November stating, "Dakota Energy Cooperative today announced they filed a legal complaint to establish an equitable or fair exit fee to withdraw from East River," the cooperative's membership didn't even know that possibility was on the table. This has raised concerns.

"One thing that troubles me most is that the board of directors has taken such significant action without consulting the members," said Pat Doak of Huron.

By contrast, while Dakota Energy works to keep its members in the dark -- pun intended -- East River Electric is working to educate members about issues related to the lawsuit. This week, the cooperative launched a website called "Keep Our Coop," which provides a variety of information on five key topics: together, local, not-for-profit, reliable and balanced.

This site can be found at www.keepourcoop.org.

Doak and his Huron neighbor Jim Propst aren't just disgruntled members who are talking out of their hats. Both are retired Western Area Power Administration employees with a long history of working in the power industry. Their concerns are based on years of experience.

"Right away, we said, `This doesn't smell good'," Propst said.

Neither man knew that Dakota Energy was seeking to withdraw from East River Electric until the lawsuit made the news. However, legal documents indicate the board adopted a resolution in September 2018 -- more than two years earlier -- directing staff "to obtain a dollar figure for Dakota Energy to buy out of its WPC (Wholesale Power Contract) with East River, which would end its membership."

"Shouldn't members have a say?" Doak asked.

Citing a video produced by Iowa State University, he listed principles which define how a cooperative should be run that include: fairness and democratic control, member sharing of profits, pooling risk, providing a place of employment and concern for the community. He believes that with the action undertaken, the board is changing the cooperative's business model without consulting the membership.

"The cooperative model is that members support members. It's not for profit," he pointed out.

Doak is willing to take responsibility for not being more involved as a member, for not attending meetings. However, now that he is aware of the board's action, he is trying to get information to better understand why they have chosen this course of action.

"I've been talking to friends and neighbors and trying to get information, but trying to get information out of them is like pulling teeth," he said.

Letters remain unanswered and board members refer questions to attorneys who have been hired to handle the matter for Dakota Energy. Members are unable to get a copy of the letter of intent signed with Guzman Energy, a for-profit wholesale power provider, or learn the cost of pursing this course of action.

"Shouldn't the members have a right to know what they've spent?" Doak asked. "I don't want to be accusatory, but I do want to be able to ask questions."

He noted that one argument Dakota Energy is using to explain the decision to leave East River is open to a different interpretation. Dakota Energy states the percentage of expenses related to power costs have increased from 50% to 72% over 15 years. During that same timeframe, the cooperative's power load has also increased.

"That might mean Dakota Energy has done a great job of keeping operating costs down," Doak observed.

A folksy analogy might be found in cattle production. If a farmer or rancher increases his herd from 100 head to 150 head, his fixed costs are not going to change. However, his feed costs will increase. Dakota Energy is, in effect, blaming the feed supplier for the increased cost.

Doak has also looked at his electric bills and learned they have increased 40.4% since 2005 and are currently 12.5c/kWh. He cited information obtained from the Energy Information Agency which indicated that nationwide, residential power costs have increased 40.8% since 2005 and average 13.31c/kWh.

"Seems like member power costs are reasonable and we are not overcharged," he said.

Propst, as an engineer with a degree from South Dakota State University and 33 years of experience in the power industry, approaches it from a slightly different angle but has similar concerns. He has talked not only with his neighbors but also with others in the power industry, including cooperative managers he knows.

"We're trying to figure out how this could make sense on the money side," he said. "I don't see NorthWestern Energy or Xcel Energy or any other company lining up for this."

He believes other companies would be signing up with Guzman Energy if purchasing power from the for-profit power wholesaler were a lucrative option. Like Doak, he is concerned because he can't get answers from board members.

"You ask them point blank, `How is this a good option?' They won't answer," Propst said. Similarly, Chad Felderman, Dakota Energy's CEO and manager, refers questions to the cooperative's attorneys.

That's just one layer of insulation between members and answers that Propst finds troubling.

"It seems kind of bizarre the co-op has to hire a PR firm to tell members it's a good deal. There's a lot of secrecy going on," he observed. "It seems to be out of step with where a cooperative should be."

In December, when the Madison Daily Leader did a three-part series on the lawsuit, questions were referred to Ryan Budmayr, vice president of public relations and business development with Lawrence & Schiller. Many remained unanswered with Budmayr stating via email, "there was a real concern that much of the direction of your queries had nothing to do with the lawsuit."

"On so many different levels, it makes no sense," Propst said about the direction the board is taking Dakota Energy.

He specifically notes that paying for the use of transmission lines and losing all of the support provided by East River -- from engineering assistance with infrastructure improvements to repair work during a winter storm -- makes no sense. He doesn't even know if Dakota Energy would be able to finance major infrastructure improvements should they be needed for economic development.

Propst is also concerned because Dakota Energy hasn't actually done the kind of study necessary to determine whether the option they are pursuing is in the best interests of the members.

"The first question I asked Chad [Felderman] was: `Did you do an engineering study to see if this is feasible?' and he said they did not," Propst indicated.

The more he talks to people, the more concerned he gets.

"Dakota Energy is a $25 million business. Nobody runs a $25 million business this way," Propst said. "Why the secrecy unless there's something they don't want you to know?"