Wall Street smiles on Tri-State after financial frowns

S&P Global Rating raises outlook for generation and transmission association to ‘stable’

by Allen Best

Finally, some good news for Tri-State Generation and Transmission Association from financial analysts after several years of arching eyebrows.

S&P Global Ratings has raised Tri-State’s outlook to stable and affirmed the cooperative’s long-term rating at BBB and commercial paper rating at A-2. Global had previously assigned Tri-State a negative outlook.

Other analysts had also downgraded Tri-State’s credit worthiness, although Tri-State has continued to maintain investment-grade ratings with all three rating agencies.

“The raising of our outlook acknowledges the progress we are making to meet our membership’s needs for decades to come,”

said Duane Highley, Tri-State’s chief executive officer, in a Tri-State G&T news release.

In raising Tri-State’s outlook, S&P noted several factors, but topping the list was some stability in its membership. United Power, its largest member, left on May 1, paying $629 million to break its all-requirements contract with Tri-State. The contract was to expire in 2050.

David Bodek, the S&P credit analyist, said the contract formula agreed to by the Federal Energy Regulatory Commission will act as a “potential disincentive for additional member distribution cooperatives to sever their ties with Tri-State.”

Six or more will have by left by March 2026 as compared to the 44 of a decade ago. Mountain Parks and La Plata Electric in Colorado and one public power district in Nebraska have already served notice of their intentions to leave.

S&P’s analysis also noted the $627 million from United Power will help stabilize Tri-State’s finances. Tri-State managers indicated they plan to use the money to offset portions of the $2.6 billion, five-year capital improvements plan and to reduce the $3.4 billion in existing debt by about 13%.

Also producing a stable outlook are Tri-State’s reduced carbon exposure as it exits coal in Colorado in 2028 and in Arizona several years later. It hopes to get federal aid through the Inflation Reduction Act for its stranded assets. Tri-State has never said publicly how much it is seeking, but the maximum would be $970 million.

A final factor is the 6.3% wholesale rate increase in the cost of electricity to Tri-State member cooperatives and public power districts, which will produce increased revenue.

Footnotes to this:

United Power paid $627 million. But United believes some of that will be returned. Mark Gabriel, the chief executive, says that $448 million is allocated to contract termination, but $179 million is the prepayment/loan that United made on transmission.

“That gets paid back over 40 years to us with interest,” he explained by e-mail. “There is still a question on the proportion of the prepayment to termination. We believe the prepayment will be higher (and thus more returned to us with interest).

* On Dec. 1, Tri-State filed a transformative electric resource plan with the Colorado Public Utilities Commission. The preferred plan calls for:

500 MW of wind resources;
200 MW of wind resources with storage hybrids;
310 MW of storage, including standalone 100-hour iron-air batteries, standalone 4-hour batteries, and 4-hour batteries with wind and storage hybrids; and
240 MW of solar resources.

Postscript

After this story was first published, Tri-State’s Lee Boughey, the vice president for communications, had this response:

In today’s Big Pivots article (Wall Street smiles on Tri-State after financial frowns – Big Pivots), your footnote in the article includes comments attributed to United Power CEO Mark Gabriel, which misrepresent both the amount of United Power’s contract termination payment (CTP) to Tri-State, and the nature of a transmission crediting mechanism ordered by the Federal Energy Regulatory Commission (Commission).

Mr. Gabriel improperly claims that the Commission-ordered CTP breaks down into a roughly $448 million exit fee and a 40-year prepayment of approximately $179 million for the use of Tri-State transmission facilities, and that the prepayment is a loan to Tri-State from United Power.

There is no transmission “prepayment” in the Commission-ordered CTP.

FERC ordered United Power to pay a CTP calculated at $709 million to break its contract with Tri-State 26 years early. United Power received a credit for relinquishing its patronage capital in Tri-State in the discounted amount of $82 million, resulting in a $627 million cash payment from United Power to Tri-State.

As part of the CTP, a withdrawing member is required by the Commission to pay its proportionate share of all of Tri-State’s debt, costs and obligations, including transmission debt, that was incurred on its behalf during their membership in Tri-State.

The Commission ordered a crediting mechanism to avoid the potential for a withdrawn member to double pay for its share of Tri-State’s transmission debt if it becomes an OATT (open access transmission tariff) customer for transmission service. The Commission requires Tri-State to determine the amount of debt in the withdrawing member’s CTP calculation that is related to OATT transmission service, and if the withdrawn member becomes a Tri-State OATT customer, it receives a monthly credit against the transmission debt portion of Tri-State’s OATT.

Contrary to what is attributed to Mr. Gabriel, there is no provision in the Commission-ordered CTP tariff for “prepayment” of transmission, and the transmission crediting mechanism ordered by the Commission cannot be reasonably construed as “prepayment” or a “loan” to Tri-State from United Power.

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