Get Big Pivots

 

FERC issued documents that seem to provide Tri-State G&T members a clear idea about the cost of exiting. There are asterisks aplenty.

 

by Allen Best

Why should we not be surprised? Tri-State Generation and Transmission and United Power still can’t agree upon terms of their divorce.

According to United, the two are still $150 million apart. A significant difference of opinions about transmission explains at least part of the gap.

Also unclear is how firm the numbers are for other members of Tri-State who may be inclined to evaluate their options. Two have committed to leaving but later than the May 1 date that United Power insists will be its first day as an independent utility.

The contract termination payment, or CTP, is the crux for the deliberations. Tri-State was ordered by the Federal Energy Regulatory Commission to deliver the CTP to its members by mid-January. There was a bit of a delay, but Tri-State got the document filed by Jan. 25.

The monstrous-sized FERC document has two pages that speak most directly to the buy-out costs. One, on page 40 (see above), applies to those members who have already served notice they are leaving. For United, that is $709 million minus the $82 million in patronage capital due, which would defray that payment.

Patronage capital represents the equity of the member cooperative in Tri-State. In other words, it represents ownership. This money  can be returned to the cooperative immediately or in staggered payments.

Tri-State on Jan. 31 also filed an unexecuted withdrawal agreement for United.

“It was filed as unexecuted because we do not agree with their CTP number of $627 million,” reported Trista Fugate, the senior vice president and chief marketing officer at United Power, in an e-mail on Feb. 1 in response to an inquiry from Big Pivots. FERC has 60 days to rule on that agreement.

“We will be responding to that Tri-State filing with our CTP number and showing that Tri-State and United Power are still more than $150 million apart.”

In an earlier e-mail, Fugate had explained that the two utilities had  applied the balance sheet approach methodology of FERC differently.

Transmission is central, but brace yourself, because this gets wonky for five paragraphs. If it’s any consolation, the FERC document would put you to sleep if you were in a lightning storm atop a mountain.

“Both Tri-State and United Power’s exit fee numbers include an upfront pre-payment for decades worth of transmission service,” Fugate wrote. “However, United Power has requested limited rehearing on that issue because the (FERC) record did not contemplate the administrative or financial complexities of requiring a departing member to become Tri-State’s banker as a condition of its exit.”

Lee Boughey, Tri-State’s vice president for communications, had a slightly different spin. “It appears United Power’s disagreement is with the manner in which the Commission directed Tri-State to address transmission-related debt,” he wrote in an e-mail.

After evaluating the arguments, FERC “concluded that a withdrawing member should not get an upfront credit for transmission debt, even if it promises to take transmission service from Tri-State in the future.”

In an e-mail on Feb. 1, he wrote that United Power’s proposal would produce an upfront “credit” for the transmission debit it has not yet paid, and may never pay, “which means that the risk and obligation would be borne by the remaining members.”

“Tri-State’s position all along has been that remaining members should not have costs foisted upon them because a member choose to withdraw from membership prior “ to its contract. This, he added would create “an untenable risk” to remaining members.

Boughey also disputes the “banker” characterization. “To suggest that the Commission’s decision would force United Power to serve as Tri-State’s ‘bank,’ because United Power would pay the transmission debt incurred on its behalf upon withdrawal from the membership, is nonsensical and flips the concept of a bank on its head.” he wrote.

OK, back to somewhat easier reading.

Two other existing members of Tri-State, including Granby-based Mountain Parks and a public power district in northwest Nebraska, are similarly headed toward the door. That same chart has Mountain Parks paying a termination payment of almost $78 million but with patronage capital of $14.8 million for a net payment of $63.2 million.

Durango-based La Plata Electric had hoped for a partial buy-out from their all-requirements contracts as had Fort Collins-based Poudre Valley Electric and Ridgway-based San Miguel, among others. The partial buy-out would have allowed the cooperatives to secure a percentage — half in the case of La Plata — of their power from other sources. That plan was scrapped midstream and it will have to start out again in an entirely different proceeding.

A different chart, on page 123 of the filing, applies to the other Tri-State members if they file to leave by April 15. For La Plata, the full cost of exit would be almost $210 million minus $47 million in patronage capital. For Poudre Valley, it’s almost $326 million minus $54 million in patronage capital. And in southwestern Colorado, San Miguel would have to pay $50 million minus $10 million in patronage capital.

But hold on – these numbers could change, too. Parties to the case have asked for a rehearing on certain issues. Transmission is one critical issue. Like a court decision that can be appealed, these numbers are provisional.

Asked for reaction to the FERC ruling, La Plata Electric said in an email that it expects to receive a buy-out number from Tri-State in April, with all other Tri-State member cooperatives, in accordance with FERC’s order.

Reached by telephone, Virginia Harman, general manager for Mountain Parks, applauded both FERC and Tri-State for delivering figures, if still incomplete, that will be needed as the cooperative plans its future. “We are still working through the Tri-State compliance timeline to determine the impacts to Mountain Parks,” she said.

Eric Frankowski, director of Western Clean Energy Campaign, an organization that carefully tracks Tri-State as part of its mission to facilitate the transition from fossil fuels to clean energy in the West, called out the “massive difference between the contract termination fee that Tri-State proposed in its initial filing (with FERC) in 2021 and what FERC determined was fair and non-discriminatory.”

“United is paying a billion dollars less – yes, a billion – than what Tri-State previously said it needed to pay to end its contract, said Frankowski, in an e-mail. “I think that manipulation is indicative of how Tri-State has treated its members, and it’s one of the reasons co-ops like United are leaving.”

In some respects the story goes back to around 2005, when Tri-State managers began assembling plans to build a giant coal plant in Kansas as a way of  meeting continued growth in electrical demand of its members. To do so, it wanted its then 44 members to agree to contract extensions. The existing contracts required members to secure 95%of their electricity from Tri-State until 2040. Tri-State wanted similar contracts to 2050.

Two members refused. Kit Carson Electric in Taos, N.M., left in 2016, and Delta-Montrose Electric in Colorado left in 2020.

By then, United Power, in particular, but La Plata and other members were wanting to explore their options in the fast-changing world of electricity. This led to a proceeding before the Colorado Public Utilities Commission. After a week of  testimony in 2020, an administrative law judge essentially drew a line between the payments required of Kit Carson and Delta-Montrose in calculating what United would have to pay. This was at remarkable odds with what Tri-State first tendered.

Tri-State in 2019 had begun legal efforts to gain review by the Federal Energy Regulatory Commission in Washington D.C. FERC accorded that recognition in August 2020, soon after the United and La Plata case about exits fees  was heard by the Colorado PUC administrative law judge. A federal court later affirmed the FERC jurisdiction.

That happened in late 2020. This is the outcome of that move.

The figure for United is somewhat higher than what would have been the outcome at the Colorado PUC, although it should also be noted that United has grown briskly during those three-plus years. It is roughly a billion less than what Tri-State originally proposed.

The larger story now lies in what the individual cooperatives will do with the figures that will be in hand after the challenges and rehearings.

La Plata filed a lawsuit against Tri-State in November that angrily accuses the wholesale provider of being underhanded in its dealings with La Plata and, by extension, other member cooperatives. Other cooperatives might also decide they can deliver electricity to their individual members more affordably by listening to the offers made by Guzman Energy and potentially other new players.

Shadowing all the discussions will be questions of the continued economic viability of Tri-State. It has suffered steady downgrades of its credit worthiness by Wall Street analysts who have examined its balance sheets and has debt that to a layman appears to be staggering. Tri-State, in turn, is gambling that the federal largesse of the Inflation Reduction Act will allow it to pay off that debt from its coal plants in Arizona and perhaps elsewhere and move into the cleaner-energy world. It has applied for $970 million in federal aid.

This story was modified in two ways within a day after it was originally posted:

1) To represent Tri-State’s point of view about the allegation of “banking” regarding transmission costs; and

2) To accurately represent the timeline in which FERC gained jurisdiction over rates and exit fees.

Allen Best
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