FERC order leaves Tri-State dispute with its largest members in Colorado

The dispute that threatens to break apart Colorado’s second biggest electrical supplier will likely be resolved in Colorado, not Washington D.C.

The Federal Energy Regulatory Commission said in a March 20 order that does not have exclusive jurisdiction over determining what constitutes “just, reasonable and non-discriminatory” exit charges for those cooperatives that want to leave Tri-State Generation and Transmission.

For it to accept jurisdiction, the FERC ruling said, Tri-State would have to file a methodology with FERC for determining exit charges. FERC would also have to accept that methodology before accepting jurisdiction in the two parallel cases involving Durango-based La Plata Electric and Brighton-based United Power.

All this would have to be done rapidly as the dispute is already before the Colorado Public Utilities Commission. One of the three PUC commissioners was scheduled to hear the dispute for several days during the week of March 16, but the hearing was vacated because that commissioner, Frances Koncilja, has been replaced on the bench by a new appointee of Gov. Jared Polis. The three PUC commissioners on Wednesday referred the consolidated complaints to an administrative law judge, with direction to expedite a pre-hearing conference in order to set a procedural schedule.

At least on the surface, the dispute revolves around cost of electricity and whether carbon-heavy Tri-State had pivoted too slowly to take advantage of the plummeting prices of lower-cost and carbon-free renewable energy. Despite little government oversight, it moved slowly to take advantage of rapidly changing market conditions. It supplies electricity to 18 electrical cooperatives in Colorado.

But the dispute between the Westminster, Colo.-based wholesaler and two of its three largest members as defined by electrical sales also reflects the turbulence within the shifting world of electrical utilities. Even 15 years ago, power was generated in Rocky Mountain states primarily by large coal-burning power plants. Large wind and solar farms are now rapidly replacing coal generation, but also smaller, more distributed resources.

The two dissident cooperatives were responsible for 22% of all electrical sales among Tri-State’s 43 members in 2019. Another 3% went to a third co-op that will exit in May. That means a full-quarter of Tri-State’s electrical sales go to members who are leaving or who may want to leave. Those poses a question about Tri-State’s business model going forward.

Success for all?

Responding to the FERC order last week, La Plata proclaimed success. “We are thrilled our complaint against Tri-State can proceed to a formal hearing, so we can obtain a just, fair and reasonable exit charge,” said Jessica Matlock, the chief executive of La Plata, in a press release issued on Monday. With an exit charge from Tri-State determined by a third party, she said, La Plata can make informed choices about how to go forward.

United also emphasized the need to have a figure in hand that it can trust before making decisions.

“Simply put, United Power wants to lower costs to our members and integrate more local renewable resources into our power mix,” said Bryant Robbins, the chief executive, in a statement. “One option to achieve this goal is through exiting our contract with Tri-State. We hope a ruling by the PUC will help us clarify the cost and provide an exit pricing methodology that is both clear and fair to our membership and the membership of Tri-State.”

Tri-State also proclaimed the FERC order a success. But it was referring to only one part of the order, that in which it did accept jurisdiction over setting of rate cases by Tri-State.

What will change by having FERC review wholesale rates to its members in the four states? Very little—except in Colorado.

Nebraska and Wyoming, two of the four states in which it has members, do not exercise rate regulation. New Mexico has exercised rate regulation since 2000, and it’s not clear that will change that.

Colorado also has not exercised rate review over Tri-State, but a law passed in 2019 gives the state stronger oversight over Tri-State, treating it more like—but not quite the same as—an investor-owned utility. How FERC will review rates as compared to the Colorado PUC is not clear. What is clear is that representatives of member co-ops as well as Tri-State will be traveling the 1,700 miles to Washington D.C. instead of Denver for these matters.

Just the same, Tri-State proclaimed victory. “This is a significant moment for our members, whose goals for cleaner energy and increased contract flexibility are greatly advanced by having FERC as Tri-State’s wholesale rate regulator,” said Rick Gordon, the chairman of the board of directors for Tri-State. He’s also a director for the Limon, Colo.-based Mountain View Electric Association.

Gordon went on to say that FERC regulation “ensures greater certainty in our contracts and rate-setting, as we increase members’ self-supply and local renewable energy opportunities.”

Tri-State, however, did not say how FERC jurisdiction will ensure that greater certainty or create greater contract flexibility.

Origins of the disputes

The disputes go back to early in the 21st century when Tri-State was set on building a coal plant in Kansas. It asked its members to agree to extension of all-requirements contracts by a decade to 2050. The contracts require that all but 5% of the electricity distributed to member co-ops come from Tri-State.

All but two agreed: Kit Carson Electrical Cooperative of Taos, N.M., and Delta-Montrose Electric of Montrose, Colorado. Kit Carson left Tri-State in 2016 after paying a $37 million exit fee. Delta-Montrose Electric of Montrose, Colo., will cease being a Tri-State member in May. The exit fee it is paying will not be divulged until after that. Kit Carson is already supplied by Denver-based Guzman Energy and has been rapidly building solar capacity in northern New Mexico. Delta-Montrose also has contracted with Guzman for its power.

Both La Plata and United asked for exit numbers last year. The fees recognize that there is a cost to remaining members even if the departing member gets its electricity elsewhere.

Plans for the coal plant in Kansas have been scrapped, although Tri-State spent nearly $100 million on the ambition.

Tri-State has begun decarbonizing its electrical sources. Last September it closed one small coal-burning unit at Nucla, in western Colorado, and it was previously scheduled to close one of the three coal units at Craig Station, also in western Colorado, by the end of 2025. Both closings were due to air quality emissions concerns.

In January, Tri-State announced the two remaining units at Craig will close no later than 2030. However, former Gov. Bill Ritter, who has worked with Tri-State, told a Congressional committee in late February that the second unit will close in 2026. It has no immediate plans to get out of a coal plant in Wyoming, the Laramie River Station at Wheatland, which produces electricity more cheaply than other units in the Tri-State coal fleet, or out of natural gas.

Duane Highley, the chief executive since April 1, 2019, said in January the lost coal generation will be replaced with more than a gigawatt, or 1,000 megawatts, of new wind and solar generating capacity. By 2024, half of the energy distributed by Tri-State’s member coops will come from emission-free renewable energy. This will be done while maintaining or even reducing rates, he said in January.

But friction remains. One source is the pushing by the two co-operatives to get the PUC to determine what is just and reasonable. A committee among the Tri-State directors on March 12 sent a letter to both United and La Plata that asked them to suspend their request of the PUC to determine the exit fees. The letter said the contract committee had met 10 times and made specific recommendations regarding partial requirement contracts.

The dispute has two overlapping issues. One is how much it will cost La Plata and United to get out of Tri-State. The second is how much electricity they can generate themselves, what you might call home-brew electrons.

La Plata has several over-arching goals. Meeting in Durango, directors have adopted a goal of reducing the carbon from its power supply 50% by 2030 as compared to 2018 levels while keeping members’ rates lower than 70% of its Colorado cooperative peers.

But La Plata also embraces a shop-local or farm-to-table philosophy. And that philosophy, says Matlock, the chief executive, has been reinforced by the covid-19 pandemic.

“This pandemic has highlighted that we would like to have more local generation, and it’s not only resiliency in the face of a pandemic. It’s also resiliency in the face of a cyberattack,” she said. La Plata also sees local generation as a form of economic development—again even more important during a time resort communities are absent tourists.

Tri-State had been moving to give members more flexibility to self-generate. In February, Tri-State announced that members seeking additional self-supply and local renewable energy development beyond the 5% provision will be able to notify Tri-State during an upcoming “open season” of their intent to enter into partial-requirements contracts and the amount of capacity they want to self-supply. Up to 300 megawatts of system-wide local generation will be available.

In November, Tri-State also announced a widening door for community solar gardens.

Noodles to satellites

But wait—there’s more. Directors of Tri-State last year approved a change in bylaws that was described as intending to offer more flexibility. That change resulted in Tri-State seeking a new member, Meico, a natural gas supplier to Tri-State that is a subsidiary of Delaware-based Marubeni America Corporation, which describes itself as being involved in everything from noodles to satellites. It also supplies natural gas to Tri-State. The American corporation is a subsidiary of Japan’s Marubeni Corporation.

In its filing with FERC, United Power called this a “sham transition for the express and sole purpose of escaping Colorado PUC regulation.” The Sierra Club made the same claim, if not quite so colorfully. The Colorado PUC also had arguments.

FERC rejected all the arguments, ruling that it does have jurisdiction to set Tri-State’s rates. It did acknowledge, however, that it’s an open question whether Meico’s membership in Tri-State requires state regulatory approval or otherwise violated Colorado law. Notably, the decision is subject to reconsideration by FERC, and potentially judicial appeal.

To read the 51-page FERC order, go here.

This story will be updated if new relevant information emerges.

For Tri-State’s statement, see: https://www.tristategt.org/ferc-accepts-tri-state-rate-filings-cooperatives-board-approves-greater-member-contract-flexibility

For La Plata’s statement, see: https://lpea.coop/federal-energy-regulatory-commission-sides-lpea-rules-complaint-may-proceed-against-power-provider

And for the release by United, see: https://www.unitedpower.com/united-power-complaint-against-tri-state-can-proceed

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