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Directors say they see less risk going solo than staying tethered to their long-time wholesale provider

 

by Allen Best

In putting together their annual meetings for members, Tri-State Generation and Transmission tries to put on a happy face of good health, team spirit, and forward movement. That’s what associations do, of course.

A happy face will be harder to muster when Tri-State holds its annual meeting next week at the Westminster Westin hotel. On May 1 it will lose its single largest member, United Power, which alone is responsible for more than 20% of the electricity supplied by Tri-State.

And on Monday morning, directors of another cooperative, Durango-based La Plata Electric Association, voted to serve notice of the coop’s plans to exit in two years. La Plata is the fifth largest of Tri-State’s 42 members, responsible for 5.7% of the total demand over a three-year period.

“We have kicked the tires,” said one of the directors, Rachel Landis, moments before the 9-to-3 vote. “We have been staying up late at night.”

“It’s a big day, a monumental day,” said Ted Compton, the chair of the board of directors, in a later interview with Big Pivots. “Nobody thinks that this decision will make our lives in this coop easy at all, but we have self-determination to make the choice that we want and our members want.”

La Plata has been studying its options for the last five years. At one point, in 2021, it chose a partial-requirements contract with Tri-State. The co-op even had an alternative supplier for 50% of the generation. But that approach went nowhere as the formula got balled up in the review by the Federal Energy Regulatory Commission, or FERC. Still, it left a sour taste still evident on the tongues of some directors.

 

Smaller tent needed

In 2026, when La Plata leaves, Tri-State will be left with 38 members. Also leaving in the interim will be Granby-based Mountain Parks Electric in Colorado and Nebraska’s Northwest Rural Public Power District.

For many years Tri-State had 44 members. The exodus began in 2016 when Kit Carson Electric of Taos, N.M., left Tri-State to pursue a different vision. Some wondered about the disaster ahead. Kit Carson had to pay $37 million to break its all-requirements contract to 2040. It hooked up with a new company, Denver-based Guzman Energy, which had no power generation of its own — although it now does.

Instead of a disaster, Kit Carson has triumphed. In June 2023 it made the final payment to Tri-State while also completing enough new solar to meet 100% of daytime needs in its service territory in northern New Mexico. It has also been building microgrids and pursuing hydrogen as a storage solution.

A retired Tri-State employee who lives in the Durango area urged the directors to stick with Tri-State. The utility can do renewables at scale, he said.

“Please do not try to get out of this contract with Tri-State,” said one woman, who said she was from rural La Plata County.

Another speculated that La Plata will have to pay $200 million or more to break its contract with Tri-State. Even if La Plata saves money, he added, “My kids will have grown up by the time we recoup $200 million.”

Compton, in his interview with Big Pivots, declined to give a figure. Tri-State, in a statement posted after the La Plata decision,  said that the estimated value of La Plata’s contract termination payment to Tri-State is estimated at $209.7 million, with a final amount to be calculated prior to withdrawal.

Mark Pearson, a Durango resident, pointed to Kit Carson’s success. “It’s not  like we’re the first one out of the gate,” he said. He cited a number of solar projects west and south of Durango. “There are an abundance of local energy sources that would be cheaper than our current contract with Tri-State.”

Directors supporting the exit emphasized their views that Tri-State has failed to be a viable partner. The contract to 2050 – agreed to in 2006 — does not meet La Plata’s needs now, they said.

“We need the ability to make decisions, be nimble, have flexibility, to have local generation,” said Tim Wheeler. “And the contract with Tri-State to 2050 does not present that at all. It represents something from 20 years ago.”

Decision to seek FERC regulation

Wheeler also cited the decision by Tri-State to seek regulation under FERC, which is far more complex,  expensive and time consuming than regulation under the state PUC. To do so, Tri-State had to create a new class of members in 2019 who are not electrical cooperatives. For example, it added a greenhouse near Fort Lupton and a hunting guide from near Craig.

Joe Lewandowski, a director from Durango, urged La Plata members to take the long view of 5, 10 to 20 years when viewing costs. He also suggested that there was more risk to staying with Tri-State.

Asked about risk, Compton offered a couple of analogies.

“A lot of  people simplistically see this as a decision to stay on a stable ship and get what need or jump off and swim on your own. That is not the way that La Plata has evaluated this. We currently do not see Tri-State as a stable ship. There are a lot of chinks in their armor, and it makes us nervous to be attached to that.”

La Plata, he added, feels more comfortable charting its own course. Tri-State, he said, got off course by seeking federal regulaton.

Tri-State went into the energy transition carrying heavy debt. It has pinned much hope on federal aid through the inflation Reduction Act to cover the cost of retiring stranded assets even as it builds lower cost renewables and natural gas.

But Wall Street analysts in the last couple of years have taken an increasingly dim view of Tri-State’s financials. For several years they have downgraded Tri-State’s credit-worthiness in a series of financial appraisals.

And Compton observed that Tri-State has encountered many problems at FERC.

In its statement, Tri-State made its case for why it should be seen as a viable wholesale provider going forward. In 2030, when 70% of its energy comes from renewables, Tri-State is forecast to achieve an 89% reduction in greenhouse gas emissions in Colorado from a 2005 baseline.

Tri-State  has not raised its wholesale rates since 2017 – with an average 6.36% wholesale rate increase proposed to go into effect in 2024. That is being held up at FERC.

“Tri-State’s members have created tremendous momentum toward an energy transition that will provide long-term reliability and rate competitiveness, while reducing emissions and increasing flexibility to provide industry-leading optionality for members,” said Duane Highley, Tri-State’s CEO. La Plata’s “board has chosen not to be part of this future and go it alone on a different path, even as the region faces increasing reliability challenges.”

Why now for this decision?

Why a special meeting for the decision? And why just 10 days after Jessica Matlock, the general manager for the five previous years, left for a job at a larger organization in the Pacific Northwest?

Compton said the timing of the decision had nothing to do with Matlock’s departure.

But why not wait until April and the regularly scheduled board meeting? Because, he said, the board had decided the time was right to make the decision. It had all the information it needed.

He dismissed an observation made by the chief executive of another Colorado co-op that the timing allows La Plata to use its 2023 financials in its application to FERC. That will make La Plata exempt from any capital investments going forward such as new generation and transmission planned by Tri-State — and hence might lower the amount that La Plata will have to pay Tri-State to exit.

Compton repeatedly characterized that observation as speculative. “It was just one of one of many factors that we saw coming in the April 1 timeline,” he said.

La Plata has been a member of Tri-State since 1992 when it and other electrical cooperatives from Western Colorado joined in the wake of the bankruptcy by their former wholesale supplier, Colorado Ute.

Colorado Ute had over-extended itself to build three coal-burning units at Craig for an oil-shale industry that never arrived. Tri-State took over Colorado Ute’s members and its coal plants at Craig. Now, Tri-State is struggling in part because of the cost burden of those coal plants that will be closed between 2025 and 2030.

 

This story originally said the vote was 7-to-3. It was corrected. Also, Ted Compton’s interview was misstated. It was with Big Pivots, not Tri-State.

Allen Best
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