United Power would pay $1.51 billion. A judge last year thought $235 million sounded sensible. What explains this vast gulf?
by Allen Best
The question is how much is Tri-State Generation & Transmission worth. The answer is—well, that’s where it gets interesting.
In a filing with a federal agency, on July 19, Tri-State detailed a proposed methodology for determining the charges that each of its 42 members would have to pay if they wanted to exit their full-requirements contracts prematurely. The cooperatives are located in Colorado as well as three adjoining states.
Those electrical cooperatives together comprise Tri-State and, proportionate to their sizes, own the transmission lines and generating assets of Tri-State. And if each and every one were to pay the exit fees—called contract termination payments—to Tri-State under the formula proposed to the Federal Energy Regulatory Commission, the total would be $8.4 billion.
Tri-State delivered a different figure to the Securities and Exchange Commission in a March 31 filing. In that report Tri-State said its long-term debt was $3.1 billion.
The wholesaler has assets, too, including the 5,771 miles of transmission lines from the Chihuahuan Desert of southern New Mexico to Wyoming’s border with Montana. It also has a handful of coal and gas-fired power plants in Colorado and elsewhere plus contracts for wind and solar power and the know-how to dispatch all this electricity. Tri-State told the SEC in the March filing that those assets are worth $5 billion.
Again, the cost for all the co-ops to cash in their chips would be $8.4 billion. Tri-State has $3.1 billion in debt.
What logic did Tri-State use to get to these figures? It has to do with the nature of the contracts these co-ops have with Tri-State. The contracts obligate them to buy the bulk of the power from Tri-State until 2050. New contract provisions allow more flexibility, although there’s debate how real that flexibility is.
The methodology proposed by Tri-State would allow it to calculate exit fees based on which is greater: A) the departing member’s share of debt and other obligations; or b) the net-present value of lost revenue to Tri-State before 2050 minus what it would be able to get if it were to sell the power elsewhere. (Tri-State’s explanation in the FERC filing is somewhat more involved. You can find the filing on the FERC website eLibrary under docket EL21-75-000)
In a statement posted to the Tri-State website, Highley said this method would establish a clear formula to determine each member’s cost to terminate its contract” and create “a clear, predictable path for any member that ultimately decides to withdraw.”
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He pointed out that the proposed methodology was approved by the representatives of the member cooperatives. The intent is to allow members to exit without causing financial harm to remaining members, to “keep them unharmed if a member elects early termination” of its contract.
Eric Frankowski, executive director of the Western Clean Energy Campaign, calls the figures proposed by Tri-State “bloated.” “They don’t even pass the laugh test,” said Frankowski, a gadfly of Tri-State. He predicts that FERC won’t have any part of this methodology.
All this is just the latest in a long-running drama that began about 2006. It was a pivotal time. Many looked to the past to guide the future. For about 50 years, the formula was to build big and even bigger coal-fired power plants. That’s what Tri-State wanted to do.
Two members refused to buy into that vision. New Mexico’s Kit Carson Electric Cooperative and Colorado’s Delta-Montrose Electric refused contract extensions from 2040 to 2050, as Tri-State wanted. Both have now left, Kit Carson in 2016 and Delta-Montrose in 2020.
In the last few years, Tri-State was starting to tack a very different course. It did so after the world of electricity had started turning upside down. Renewables had become cheaper than fossil fuels and utilities learned they could use far more of them without risking reliability than had been believed.
Now, the task for Duane Highley, the chief executive of Tri-State since April 2019, is to keep the boats in this fleet of cooperatives fastened together. They vary substantially in size. By far the largest is United Power,
United Power has a service territory in the fast-growing northern flanks of the Denver metropolitan area, stretching from the foothills to the oil-and-gas wells of the Wattenberg Field. It has doubled its number of members since 2004, just recently cresting 100,000. This contrasts starkly with many of the smaller members of Tri-State who have maybe 3,000 or 4,000 members in sparsely settled ranch country.
In 2019, United Power asked Tri-State how much it would cost to get out. Tri-State said it would cost United $1.25 billion. United said that was way too much. After listening to three days of testimony, an administrative law judge at the Colorado Public Utilities Commission in July 2020 delivered a lower figure: $234.8 million. But the PUC deferred to the federal agency as having authority in this matter, as Tri-State had wanted. Now, under Tri-State’s new formula that was submitted to FERC, the federal agency, United Power would have to pay nearly $1.51 billion.
Durango-based La Plata Electric also wanted a buy-out number. Tri-State didn’t want to deliver an answer. The Colorado administrative law judge came up with $97 million. Under the latest methodology submitted by Tri-State, La Plata would have to pay $449 million.
Jessica Matlock, the chief executive of La Plata Electric, responded to the FERC filing with this statement:
“We are still reviewing the filing but the numbers produced in the filing for exit charges are extraordinarily high. It is disappointing that it took us multiple years to get an exit charge from Tri-State and that they did so only under pressure from FERC. We’ve been asking for a buy-out number for years, but when FERC wanted it in 30-days, Tri-State produced a number, albeit, an outrageous number.
“That shows me that our cooperative principle of ‘Cooperation of Cooperatives’ is not being followed. Why did it take the federal government to demand an exit number instead of a cooperative helping another cooperative to gain information to help make informed decisions?”
Matlock added that it was also difficult to reconcile the charges that Tri-State proposes with what Kit Carson paid, $37 million, or Delta-Montrose, $62 million. Both cooperatives are marginally smaller than La Plata.
La Plata plans to formally respond to the Tri-State filing with FERC on Aug. 3.
United Power did not respond to a request for a statement.
In the last year, other Tri-State cooperatives in New Mexico, Colorado and Nebraska have also asked for exit numbers. Most, unlike United and La Plata, are in distinctly more rural areas. Some, such as San Isabel Electric, a cooperative based in Pueblo County, explicitly said it doesn’t want to leave Tri-State. “This request is for planning purposes,” said Reginal Rudolph, the general manager, in a Dec. 11 letter to FERC.
Planning for what? Clearly, many cooperatives want to study their options. And while United is mostly urban at this point, with a Vestas wind turbine factory in its service territory, others are like Wheat Belt, a cooperative based near Sydney, Neb., deep in farm country (but with wind mills all around).
What is happening in electricity is perhaps analogous to what happened with the digital revolution, breaking up traditional business models in print media. The New York Times and Washington Post suffered but have hung on, but most others struggle.
Something comparable is happening in electricity. Xcel Energy seems to be hanging on to its turf. Tri-State? Well, it was a little bit slower to change. It might remain intact, but that’s not a certainty.
Below are the contract termination fees to the cooperatives under Tri-State’s proposed formula contained in the FERC filing, rounded up and down to the nearest million dollars.
Cooperatives and contract terminations amounts (in millions)
Gunnison County, Gunnison, $70
Empire, Cortez, $375
Highline, Holyoke, $292
KC Electric, Hugo, $126
La Plata, Durango, $449
Morgan County, Fort Morgan, $205
Mountain Parks, Granby, $164,
Mountain View, Limon, $540
Poudre Valley, Windsor, $729
San Isabel, Pueblo County, $249
San Luis Valley, $130
San Miguel, $112
Sangre de Cristo, Buena Vista, $70
Southeast Colorado, La Junta, $128
United, Brighton, $1,509
White River, Meeker, $349
Y-W, Akron, $210
Bighorn, Basin, $71
Carbon, Saratoga, $62
Garland, Powell, $17
High Plains, Riverton, $374
High West, Pine Bluff, $218
Niobrara, Lusk, $59
Wheatland, Wheatland, $74
Wyrulec, Torrington, $104
Central New Mexico, Mountainair, $135
Continental Divide, Grants, $307
Columbus, Demming, $61
Jemez Mountains, Chama Highway, $224
Mora-San Miguel, Mora, $47
Northern Rio Arriba, Chama, $14
Otero County, $117
Sierra, Elephant Butte, $40
Socorro, Socorro, $106
Southwestern, Clayton, $186
Springer, Springer, $122
Chimney Rock, Bayard, $35
Midwest, Grant, $133
Northwest, Hay Springs, $41
Panhandle, Alliance, $56
Roosevelt, Scottsbluff, $39
Wheat Belt, Sydney, $94
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