Get Big Pivots

CEO lays out the big picture for Brighton-based electrical cooperative at annual meeting. It’s the third largest electric utility in Colorado. 

 

by Allen Best

United Power will be on its own as of Wednesday, May 1, two years after serving notice to Tri-State Generation and Transmission that it was leaving. If you haven’t been following this saga, no love is lost between United Power and Tri-State.

Mark Gabriel, the chief executive of the Brighton-based electrical cooperative, by one measure the third-largest electrical utility in Colorado, made that clear during the annual meeting at the Adams County Fairgrounds on April 17. In his time on stage, Gabriel described frustrations in working with Tri-State and made the case why this independence – coming at an upfront cost of $627 million, he reported – will actually provide financial savings.

That figure needs clarification. Of that $627 million, United will pay Tri-State $448 million for terminating its all-requirements contract well short of the 2050 termination. This is what Tri-State says United should pay. United argues for a much lower figure. The Federal Energy Regulatory Commission has not issued a final ruling about the precise formula.

In the absence of that final ruling, United Power went to financiers in March. Trista Fugate, the chief marketing officer for United, reports that United Power received 2.2 times as many subscription offers as was required. United has not divulged its investors.

United earlier this year was assigned A ratings by Wall Street.

The balance of the financing, $179 million, will be given Tri-State for transmission services over coming decades. In the telling of Gabriel and United, United Power will earn interest over the next 40 years in this pre-purchase of transmission services.

As for that $448 million, United Power conceivably will get some of that back after FERC has made its final decision.

“We executed the withdrawal agreement in order to fulfill the wholesale power contract with Tri-State and leave on May 1,” Fugate explained. FERC did not provide final guidance until March, preventing United from getting financing earlier.

“We have spent several years working to leave our contract with our power supplier in an effort to control our power costs and invest in more local generation,” said Beth Martin, the president of the board of directors, in a video shown at the meeting and posted on the United website.

The goal, Martin added, has been to secure new, and more diverse, power supply. She said United had signed a settlement term sheet that ended lengthy legal disputes. “Soon, we will have control over our power sources.”

United Power sold almost 3 million megawatt-hour of electricity in 2022, according to the U.S. Energy Information Administration, behind only Xcel Energy and Black Hills Energy in Colorado.

By a different measure, membership or customers, it ranks behind CORE Electrical Cooperative, which has 172,000 members from the Conifer and Woodland Park areas in the foothills stretching eastward through Castle Rock and onto the plains. United that same year had 106,000 members from the foothills west of Arvada to the Hudson and Keenesburg areas along I-76 northeast of Denver. It is now up to 111,000 members.

United already has a large number of commercial and industrial users, especially along the rapidly developing I-76 corridor. Gabriel, in his speech to 500 of United’s members at the Adams County Fairgrounds, reported BNSF, the railroad company, will locate a $100 million all-electric multimodal center in United’s service territory. (More on this in a future issue of Big Pivots).

United already has a large number of major commercial and industrial users. Among them are Golden Aluminum, Agilent Technologies, Amazon, and what United describes as I-25 data centers.

Also at the occasion, Gabriel and United Power recognized the 85th anniversary of the founding of the cooperative, a time when Brighton was a farming town (it still is, but not much).

In his speech, Gabriel started off by acknowledging the founding of the cooperative now known as United in 1938. His remarks have been slightly abridged:

 

Mark Gabirle

Mark Gabriel delivering his address at the annual meeting of United Power in 2023.

It took them two years from 1938 to 1940 to bring that vision of rural electrification to life. Their goal in electrifying communities required a lot of bold thinking and a little bit of moxie. This resulted, as you heard earlier, in about 110 homes and businesses getting electricity. Their actions 85 years ago were focused on freeing people from the drudgery of oil and gas lamps, allowing independence from manually washing clothes and dishes, and brought a vision of the future that is still alive with us today.

Think for a moment about the era in which they did this. The U.S. was just emerging from the Great Depression. We were on the cusp of World War II. New technologies like refrigeration were expanding at a rapid pace. Given the freedom of these new technologies, more women were entering the workforce. It really took a bold vision from a small set of people with the conviction that there was a better way of doing things to make hard decisions that made a lasting difference.

Fast forward 85 years. United Power today is a hundred times larger than the founders could have ever imagined. New technologies like artificial intelligence machine learning are changing the face of everything that we’re doing as a society. Our growth at United Power is driven across all the sectors. And by the way, the majority of the senior leadership at United Power happens to be women.

Twenty-four months ago, 11 intrepid individuals, your board of directors, stepped up seeking to take our cooperative back, knowing it was in the best interest of our communities and those areas served by United Power.

We tried unsuccessfully for more than five years to seek a different relationship with our power supplier. For two years, we were forced to advocate in front of a federal regulator, the Federal Energy Regulatory Commission, known as FERC, to support our efforts to seek a different power supply untethered to an organization that was not operating at all times in the best interest of our members. The belief of the board, like the founders of United Power, is bringing a different vision for the future that we’re expanding upon every day. The move to become an independent entity once again has several critical touchstones and drivers, and these decisions don’t come easily.

First and foremost is the need for United Power to manage its own destiny. That is clearly focused on local control of our generation and our assets.

Second, we need to protect our members from costs beyond our service area that bring no value to you as our members.

Third, our current power supplier is increasing investments in additional resources and assets that are not going to be dedicated to serving United Power. We do not want to continue to pay a disproportionately huge burden of those costs.

Fourth, we want to be able to directly manage costs without subsidizing others.

Fifth, we want to incentivize generation and storage within our own communities in order to increase reliability, but also to increase additional tax revenues that support things like our schools.

And lastly, we won’t have an immediate reduction in our carbon intensity without the risk of being hung up with stranded coal assets that aren’t going to disappear at least till after the end of the decade.

What is the cost of this freedom? Through more than two years of legal wrangling due to our power supplier deciding to move to federal regulation and away from state regulation, that cost us $627 million. This is broken down into an exit fee of roughly $448 million and a 40-year prepayment of approximately $200 million for the use of Tri-State’s transmission that we’ve been ordered to make by the federal regulator.

Transmission near Firestone, 2020

A transmission line near Firestone during the smoky summer of 2020. Photo/Allen Best

The good news about this transmission prepayment, it’s really a loan from United Power to our former supplier. Our members will earn interest on that prepayment to the tune of more than $250 million, and it’s for transmission service we have to buy anyway.

This is clearly a lot of money, but I also want to put this all in perspective. As part of a settlement we have reached in court between United Power and our power supplier, we’ve obtained 20 years of low-cost federal hydropower, which is valued at nearly $240 million.

United Power has also decided to repurchase our distribution and transmission assets that serve us. And these are important because we will now own and control these assets.

These are really important pieces of our story going forward to become an independent distribution system operator focusing on your needs as members. Most importantly, we will be freed from the hook of paying for things that do not benefit you directly. We don’t want to be hung up on debts and obligations where we have no management control, and so we can really focus on our goal of stabilizing and lowering rates.

The key question, of course, is what is this going to do for bills? And I will tell you upfront, there’s going to be a small increase to pay for our freedom. We understand how this is challenging for some, and (we’re) going to work on programs to minimize the impact. I will tell you, I’ve been in this business 30 years and raising rates is never pleasant, but we are committed to a clear focus on stabilization and potential answers for lowering rates over time.

The resolution of the issue with our power supplier is really the end of the beginning for United Power because we’ve got an exciting and bold vision for the future. This was outlined three years ago in our cooperative roadmap, and that’s our guiding strategy document that we look at every single day.

The roadmap envisioned a new power supplier, the move into power markets, increasing levels of energy storage, and continuing United Power’s industry-leading technological innovation.

 

I  came here three years ago and there were three main considerations when I made the move. As a veteran of the utility business, I truly believe that the cooperative business model is the best model for the electric enterprise, especially in a time of change. We are concerned solely with benefiting you as our members. That’s really what we’re after. There’s no outside share owners. You are our member-owners here.

We are here for your good and the communities that we serve. Of course, part of my decision was that United Power is uniquely positioned for growth across all of our sectors. And I’ll tell you personally, being part of a growing enterprise is really exciting.

Finally, the chance to lead the transition that was started many decades ago in a changing energy environment in an innovative organization that has led the way for many, many years was really too good for me to pass up.

I will say innovation at United Power is nothing new. We were one of the first more than a dozen years ago to have community solar. We take waste gas from the Erie Landfill to generate power. We’ve pioneered battery storage in 2018. Our rate structure has supported members who want to add their own storage and solar without negatively impacting others.

And the electric vehicle revolution is alive right here in our service territory. With more than 5,000 members enjoying the ride, the advances continue.

With the city of Fort Lupton, we just received the grant that’s going to combine floating solar panels with battery storage in a way that not only produces low-cost energy, but also reduces the loss of water through evaporation.

Our friends at Golden Aluminum just received a $22.3 million grant to further electrify their processes, and we have moved to the next round of funding under what is known as a new era program that can help us buy down the cost of power for lower carbon resources. There is a potential for us to receive a quarter billion dollars that are going to directly help us stabilize or lower rates to all of you, our members. We’re going to be reaching out to our members and our community organizations to make sure we establish a framework that ensures our communities would benefit from this new era of funding.

We’re also now partnering with oil and gas companies across our footprint to help electrify fields that will not only lower costs and reduce carbon, but also help on methane emissions.

United Power service territory

The service territory for United Power extends from the foothils west of Arvada to the oil and gas country of the Wattenberg field, covering 900 square miles.

Our strategy of hyper-localization will have nearly 115 megawatts of batteries within United Power’s footprint and the list goes on.

We’re really excited that BNSF railway has decided to relocate its newest $100 million all-electric multimodal center in our service territory. And Prius batteries has chosen to be in our service territory. VTK Solar and dozens of others are here in our footprint.

What does it mean for all of us? What does it mean for the future? Being an independent entity, we get to pick the right generating resources for our members. We get to electrify the membership not being constrained by a choke collar, which prevented us from getting more than 5% power from other places.

We’re no longer going to be expected to pay for things that do not benefit you as our members. Something as simple as moving from an eight-hour peak window to the more rational and logical four-hour is now going to be under our control in 13 days.

And most importantly, we can focus on only doing what is right for our members. There is a cost of freedom for United Power, but operating as an independent entity is priceless. Bold thinking and a bit of moxie are making this happen.

Allen Best
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