A power switch in Colorado

Delta-Montrose Electric splits the sheets with Tri-State G&T. Will others follow?

by Allen Best

At the stroke of midnight, Colorado’s Delta-Montrose Electric Association officially became independent of Tri-State Generation and Transmission.

The electrical cooperative in west-central Colorado is at least $26 million poorer. That was the cost of getting out of its all-requirements for wholesale supplies from Tri-State 20 years early. But Delta-Montrose expects to be richer in coming years as local resources, particularly photovoltaic solar, get developed with the assistance of the new wholesale provider Guzman Energy.

The separation was amicable, the parting announced in a joint press release. But the relationship had grown acrimonious after Delta-Montrose asked Tri-State for an exit fee in early 2017.

Tri-State had asked for $322 million, according to Virginia Harmon, chief operating officer for Delta-Montrose. This figure had not been divulged previously.

The two sides reached a settlement in July 2019 and in April 2020 revealed the terms: Guzman will pay Tri-State $72 million for the right to take over the contract, and Delta-Montrose itself will pay $26 million to Tri-State for transmission assets. In addition, Delta-Montrose forewent $48 million in capital credits.

Under its contract with Guzman, Delta-Montrose has the ability to generate or buy 20% of its own electricity separate from Guzman. In addition, the contract specifies that Guzman will help Delta-Montrose develop 10 megawatts of generation. While much of that can be expected to be photovoltaic, Harmon says all forms of local generation remain on the table: additional small hydro, geothermal, and coal-mine methane. One active coal mine in the co-operative’s service territory near Paonia continues operation.

The North Fork Valley, part of the service territory of Delta-Montrose Electric, has been known for its organic fruits and vegetables — including corn. Photo/Allen Best

The dispute began in 2005 when Tri-State asked member cooperatives to extend their contracts from 2040 to 2050 in order for Tri-State to build a coal plant in Kansas. Delta-Montrose refused.

Friction continued as Delta-Montrose set out to develop hydropower on the South Canal, an idea that had been on the table since 1909, when President William Howard Taft arrived to help dedicate the project. Delta-Montrose succeeded but then bumped up against the 5% cap on self-generation that was part of the contract.

This is the second cooperative to leave Tri-State in recent years, but two more are banging on the door to get out. First out was Kit Carson Electrical Cooperative of Taos, N.M. It left in 2016 after Guzman paid the $37 million exit fee. There is general agreement that the Kit Carson exit and that of Delta-Montrose cannot be compared directly, Gala to Gala, or even Honeycrisp to Granny Smith.

Yet direct comparisons were part of the nearly week-long session before a Colorado Public Utilities Commission administrative law judge in May. Two Colorado cooperatives have asked Tri-State what it will cost to break their contracts, which continue until 2050. Brighton-based United Power, with 93,000 customers, is the largest single member of Tri-State and Durango-based La Plata the third largest. Together, the two dissident cooperatives are responsible for 20% of Tri-States total sales.

The co-operatives say they expect a recommendation from the administrative law judge who heard the case at the PUC. The PUC commissioners will then take up the recommendation.

In April, Tri-State members approved a new methodology for determining member exit fees. But United Power said the methodology would make it financially impossible to leave and, if applied to all remaining members, would produce a windfall of several billion dollars for Tri-State. In a lawsuit filed in Adams County District Court, United claims Tri-State crossed the legal line to “imprison” it in a contract to 2050.

Also see: Why Tri-State’s new policies don’t work for these two dissident members

Tri-State also applied to the Federal Energy Regulatory Commission in a bid to have that body in Washington D.C. determine exit fees. FERC recently accepted the contract termination payment filing—rejecting arguments that it did not have jurisdiction. Jessica Matlock, general manager of La Plata Electric, said the way FERC accepted the filing does not preclude the case in Colorado from going forward.

Fitch, a credit-rating company, cited the ongoing dispute with two of Tri-State’s largest members among many other factors in downgrading the debate to A-. It previously was A. Fitch also downgraded Tri-State’s $500 million commercial paper program, of which $140 million is currently outstanding, to F1 from F1+.

“The rating downgrades reflect challenging transitions in Tri-State’s operating profile and the related impact on its financial profile,” Fitch said in its report on Friday. It described Tri-State as “stable.”

For broader background see: The Delta-Montrose story is a microcosm of the upside down 21st century energy world

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