Get Big Pivots

by Allen Best

Tri-State Generation and Transmission gained a victory in its dispute with two dissident member electrical cooperatives in Colorado last Friday, but it was a shallow win.

The Federal Energy Regulatory Commission ruled on Aug. 28 that it has exclusive jurisdiction over determining what constitutes fair and just exit charges to members who wish to leave before their contracts expire.

This is what Tri-State had asked. It seemingly moves to Washington D.C. the question of how much the two co-ops, Brighton-based United Power and Durango-based La Plata Electric, must pay to leave Tri-State before their all-requirements contracts expire in 2050.

But the premise for that exclusive jurisdiction was conditional upon what may happen in metropolitan Denver, both at the Colorado Public Utilities Commission and in a lawsuit filed in Adams County District Court. The legality of Tri-State admitting a new member, Mieco, the first non-utility member in its 67 years of existence, is being challenged in both places.  Tri-State added Mieco in order to get FERC jurisdiction.

FERC commissioners said their decision was “based on the record before us and that any future Colorado PUC and state court rulings regarding the validity of Mieco’s membership in Tri-State could be relevant to this determination.”

“This is a monumental decision for our members and Tri-State and allows us all to move forward in our clean energy transition with much more certainty,” said Duane Highley, the chief executive, in a release from Tri-State on Monday evening.

Highley said FERC jurisdiction makes Tri-State members in all four states equal with just one regulatory body. “At the FERC, each of our members, no matter in which state they are located, can participate fully, have a voice and be treated equally on wholesale contract and rate matters,” Highley said in the release.

United Power serves 96,100 meters from the oil-and-gas fields north of Denver westward into the foothills. Photo/Allen Best

But on this pivotal issue of exit fees, La Plata had a different takeaway Tuesday morning. “To FERC then, the question of the validity of Tri-State’s non-utility member addition – the foundation of Tri-State’s preemption play – remains before the Colorado PUC and awaits its ultimate decision,” said La Plata in a statement.

In an interview Tuesday morning, Bryant Robbins, interim chief executive at United Power offered the same take-away. “The PUC still has total control of whether FERC gets involved or not,” he said. “We don’t know whether the PUC will make that decision. It’s totally within their purview.”

This is a matter that may ultimately be decided in the courts.

Big bucks at stake

Big bucks are at stake – and perhaps the future viability of Tri-State. It has let two previous member co-ops go amid unhappiness about the speed and direction of Tri-State’s shift from power generation heavily based on large coal-fired power plants to emerging utility models.

These two current dissidents together represent roughly 25% of electrical sales among Tri-State’s remaining 42 members.

In a surprising admission contained in a filing with the Colorado PUC this summer, Tri-State argued that United and La Plata should have to pay a disproportionate fee relative to the previous exit fees to avoid Tri-State having to make a premature debt repayment “and potentially causing cascading defaults of all of Tri-State’s debts.”

Tri-State’s darkened clouds can be seen in the credit ratings assigned by Wall Street analysts. Fitch  Ratings in June downgraded Tri-State’s long-term debt obligations of $2 billion to A-, from the previous A. Other analysts late last year had similarly down-graded the credit rating.

Tri-State reported $3.2 billion in long-term debt in its June SEC filing against almost $5.3 billion in assets.

The wholesale supplier long resisted changes, investing lightly in renewable energy and remaining devoted to centralized power generation, including coal plants. Only in January did Tri-State, under the direction of Highley, then the CEO for only 9 months—and under the gun from regulators in Colorado and New Mexico— announce plans to close its coal plants in those two states by 2030. It also retains part ownership of coal plants in Wyoming and Arizona.

Tri-State plans to cease operating  the three coal-burning units at Craig Station beginning in 2025 and wrapping up by 2030. Photo/Allen Best

Tri-State needs to hang onto these big members, the first and third largest, or at least get well reimbursed if they leave. Or, perhaps, Highley wants to buy time while he pivots Tri-State, the nation’s third largest generation and transmission association.

United Power serves 96,100 meters in an arc of suburbs, oil fields and farms north of Denver. La Plata has 45,500 meters in southwestern Colorado.

Both co-ops asked for exit numbers from Tri-State in 2019. Then, in December, they asked the Colorado Public Utilities Commission to intervene to ensure a fair and non-discriminatory methodology.

United by then had received what it calls a “bloated” figure “north of $1.2 billion.” An administrative law judge heard nearly a week of testimony in May. The judge, Robert Garvey, in early July issued a recommendation to the PUC commissioners that United and La Plata generally supported. Under the formula he recommended, United would pay $234.8 million.

Central to the dispute between Tri-State and its dissident members was the wholesaler’s so-called all-requirements contract. The contract allowed members to generate only 5% of their own electricity.

That wasn’t nearly enough for Kit Carson Electric Cooperative of Taos, N.M., which in 2016 left Tri-State after paying a $37 million exit fee. Backed by Guzman Energy, a new wholesale power provider, it set out to develop local solar resources. It expects to meet peak daytime demands by 2022.

Delta-Montrose Electric of Montrose, Colo., had been arguing with Tri-State managers and fellow member co-ops since 2006, advocating a future with more distributed energy from local irrigation canals and other sources. It reached agreement in July 2019 after a year and a half of sometimes bitter negotiations and left in July 2020 after paying $67.5 million.

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United says it had tried to work within the existing structure of Tri-State. In 2018, it proposed to lead an effort to amend Tri-State’s all-requirements restriction by creating a new class of membership, to allow more member flexibility. Now, says United, in filings with the PUC this summer, it was duped by Tri-State.

“Tri-State never disclosed that it simultaneously was secretly planning to use the bylaw amendment to try to destroy its exemption from FERC rate regulation,” United said in the July 30 filing. It accuses Tri-State of duplicity, denying at the time of plans to seek a FERC exemption. Actions later showed that “Tri-State was constructing a Trojan horse” by admitting three new members that, unlike all others, do not distribute electricity.

Tri-State had been exempted under Section 201 of the Federal Power Act from jurisdiction by FERC. Adding three non-utility members ended that exemption. First came MIECO, a company that trades refined petroleum products and natural gas.

Then came Olson’s Greenhouses of Colorado, a Fort Lupton greenhouse that is part of a regional Utah-based chain, and finally Ellgen Ranch Co. The latter has a business address at a 2,000-square-foot house in Craig. It’s not clear the relationship with a Craig company called Ellgen Ranch Outfitters, which advertises guiding and outfitting services. A website, Buzzfile, estimates Ellgen Ranch Co. has two employees and revenue of $96,890.

Who has jurisdiction?

Tri-State participated in the PUC hearings in May but insisted that FERC had jurisdiction. It has explained it wants just one set of regulators, not regulators in each of the four states in which it operates. FERC is the “only regulatory body in a position to provide consistent regulation over a multi-jurisdictional wholesale generation and transmission utility such as Tri-State,” says Tri-State.

Jack Johnston, chief executive of La Junta-based Southeast Colorado Power Association, an ally of Tri-State managers, agreed that “regulatory duplication” would create conflicts for Tri-State as “member-owners in the four states sought advantageous rulings from their home state regulators.” With FERC jurisdiction, all member cooperatives—6 in Nebraska, 17 in Colorado, 11 in New Mexico and 8 in Wyoming—would have equal access.” In an Aug. 6 letter to the PUC, he called the criticism of Tri-State “overly harsh and misplaced.”

The language in the filings with the PUC late July and early August was lively, as both sides took exception to the administrative law judge’s recommendation—and took shots at one another as well.

“Once again, United Power has constructed a narrative from hyperbolic and misleading statements to cast Tri-State as a villain in United Power’s yarn,” said Tri-State Generation & Transmission in an Aug. 6 filing.

“Tri-State is used to pushing people around to get its way; when it does not, it resorts to intimidation through overt and implicit threats,” says a filing from the same day on behalf of United and La Plata.

If you detect something beyond business-as-usual in that language, another statement from the two-co-ops lays it out clearly: “Tri-State has a problem on its hands, with frustrated members and a competitive power supply market that offers better alternatives, without the bullying and gamesmanship that Tri-State deploys with shocking regularity.”

The Colorado PUC has until Nov. 5 to issue a decision in this matter unless all parties agree to extend the case further. But then there will be the court cases. Tune in next month for As the Grid Turns.

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