Tri-State Generation and Transmission Association, one of the nation’s largest electric cooperatives, is mapping a cleaner future while facing a loss of key members.
Seven of Colorado-based Tri-State’s 42 member utilities are considering an exit in pursuit of more affordable power sources, greater flexibility and less reliance on coal. Currently, members are required to buy 95% of their electricity from Tri-State.
In November, the Federal Energy Regulatory Commission, commonly known as FERC, accepted Tri-State’s revision of the terms under which members may leave the association, which is headquartered in Westminster, Colorado.
Tri-State
Co-ops seeking an exit learned that the fees would be steep. In Colorado, Brighton-based United Power would be required to pay $1.5 billion while Durango-based La Plata Electric Association would have to pay $449 million.
By comparison, the Kit Carson Electric Cooperative, in Taos, New Mexico, was allowed to leave for $37 million in 2019. Delta-Montrose Electric Association parted ways with Tri-State after paying $136.5 million in 2020.
The revision of the contract termination payment represents the cost an exiting member of Tri-State would pay to assure that remaining members would be financially unharmed.
“This is an important milestone for Tri-State and our membership in our work together as part of our Responsible Energy Plan, which supports greater member contract flexibility, including the ability for additional member self-supply and for a member to terminate its contract early,” said Tri-State spokesman Lee Boughey.
Tri-State has 45 members, including 42 electric distribution cooperatives and public power districts, in four states serving more than a million electricity consumers.
In the CTP order, FERC rejected protests of the fees, including those from United Power and Basin Electric. United Power, a Tri-State member in Colorado, proposed its own formula. Basin Electric, a non-member party that provides wholesale power to cooperatives in nine states, argued that approval of the Modified CTP would trigger a breach of certain agreements between Tri-State and Basin.
In 2019, United Power, Tri-State’s largest member, and La Plata Electric Association Inc. in Colorado, the third-largest, began proceedings before Colorado’s Public Utilities Commission that asked the regulator to establish contract termination payments and provide flexibility to source electricity from providers other than Tri-State. The proceedings were shifted to FERC, which claims exclusive jurisdiction over the utility’s rates and exit fees.
“United Power has been working toward a mutually beneficial relationship with Tri-State Generation & Transmission that allows us to be responsive to our members and take advantage of a competitive energy marketplace,” United chief executive Mark Gabriel said in a prepared statement. “What we need is a new generation and transmission structure to address the energy needs of the future and help cooperatives better serve their members.”
Gabriel called Tri-State’s exit terms “Hotel California rules,” likening the policy to the song by The Eagles that says you can never leave.
“It is important to be clear that the drive to remove coal from the fuel mix is only tangentially connected to regulation and political whim,” Gabriel said in a prepared statement. “It is tied 100% to the low cost of natural gas, coupled with the decreasing costs of renewable energy. This is economics, not politics. This disagreement has resulted in significant legal expenditures, tensions and burdens on staff and has not helped move the needle toward a low-cost, flexible, carbon-reduced environment.”
Parties in the case will litigate the issues before FERC’s administrative law judge with a final decision likely in 2023, Boughey said.
In December 2020, Tri-State unveiled its $23 billion plan to shift from coal power toward more renewable energy. As of 2019, Tri-State generated 56% of its power from coal. The plan aims to cut Tri-State carbon emissions 80% by 2030.
To calculate its exit fees, Tri-State assessed the departing members’ share of the association’s debt, or the value of all the electricity Tri-State would have sold the co-op until 2050. Sales of the departing member’s share of the association’s electricity in wholesale markets was subtracted from that. Tri-State’s total debt at the end of 2020 was $3.3 billion, per federal filings.
Tri-State’s conflict with its members brought downgrades from the ratings agencies.
S&P Global Ratings lowered Tri-State’s rating on revenue bonds to BBB-plus from A-minus in April after the FERC filing.
“Although the members’ joint application to the Federal Energy Regulatory Commission (FERC) does not constitute a notice to terminate the wholesale power contracts expiring in 2050 and early contract terminations are not imminent even if the members prevail, we nevertheless associate heightened credit exposures with the filings because we view them as an expression of dissatisfaction with Tri-State’s rates, fuel mix, and/or strategies,” S&P wrote. “We believe the filing is a step toward exploring alternative energy supply options that could supplant or diminish Tri-State’s role as these members’ power supplier.”
Fitch Ratings downgraded Tri-State to A-minus from A in June 2020.
In November, Moody’s Investors Service completed a review of Tri-State’s A3 rating but took no rating action.
“Through reductions in capital spending Tri-State is limiting the need for incremental debt, and it has a deferred revenue balance to help support its credit metrics during 2021-25, while addressing its elevated carbon transition risk and related social risks,” Moody’s noted.
In January 2020, Tri-State announced the retirement of its remaining New Mexico coal-fired power plant by the end of the year and its Colorado coal plants and coal mine in Craig by 2030.
Closure of the power plants and mine would cost 600 power plant and mine employees their jobs.
Tri-State would continue participation in two coal-burning plants in which it has minority ownership, Laramie River Station in Wyoming and Springerville in Arizona.
In place of the lost coal generation, Tri-State added two new wind projects by 2020 and planned six solar projects by 2024. One of the solar farms will be on the site of a mine that currently supplies coal for the generating units at Craig.
Tri-State’s current contract allows members a maximum of 5% self-generation. Since leaving Tri-State, Kit Carson Electrical Cooperative has developed solar farms in partnership with wholesale supplier Guzman Energy. Colorado’s Delta-Montrose Electric will also join with Guzman with the intent of developing local generation.
One of the new 100-megawatt solar farms is to be in southwestern Colorado, near Durango, the headquarters for La Plata Electric.
Earlier this month, Tri-State hired Reg Rudolph, formerly chief executive at Tri-State member San Isabel Electric Association, as chief energy innovations officer, a newly created position.
“Harnessing the entrepreneurial spirit of cooperatives to drive innovation that benefits rural consumers and industries is the next significant step in Tri-State’s member-focused clean energy transition,” said Tri-State chief executive Duane Highley.