Get Big Pivots

Why should someone in Buena Vista or Morgan County care about this dispute? Because it’s is very fundamentally about innovations in rural and semi-rural Colorado. 


by Allen Best

In an earlier life, when I was a newspaper reporter in Vail, I routinely reviewed the Eagle County District Court filings, sometimes using their contents to produce small stories. I recall a local woman’s lawsuit claiming great pain and distress suffered as a result of what I cannot precisely remember.

The lawsuit had been filed by her husband, a local attorney. After my story was published in The Vail Trail (the newspaper is defunct, like every other newspaper where I worked full time), he left me a very angry message. It wasn’t that I got anything wrong. Rather, it was because I got it right. My guess was that his real anger was that he had overstated the case and had not expected the claim of great grief and suffering to be common knowledge. Or perhaps, he thought it was a “family” matter, and it should have stayed that way.

What to make of the lawsuit filed by La Plata Electric Association on Nov. 10? It accuses Tri-State Generation and Transmission, its wholesale supplier, of being “sneaky and underhanded?” Is this like that lawsuit in Vail almost 30 years ago?

You might wonder why you should care about this dispute between one electrical cooperative in southwestern Colorado and its wholesale power provider?

Because it’s part of a far broader story that involves electrical customers across much of rural and semi-rural Colorado. In question is the business viability of Tri-State, the second largest electrical utility in Colorado. Taking it one step further, what are the consequences if Tri-State should go belly up?

It has happened before. Durango-based La Plata Electric became a member of Tri-State in the early 1990s after its prior wholesale supplier, Ute Electric, went bankrupt. It had built coal plants at Craig in the late ‘70s and early ‘80s in expectation of a huge demand for oil-shale extraction in northwest Colorado – that never happened.

Today, La Plata Electric serves about 48,000 meters in primarily La Plata and Archuleta counties. In size, it’s on par with Holy Cross Energy. The electrical demand it has represents about 5% of all of Tri-State, which has 42 members spread across Colorado and three adjoining states.

La Plata says Tri-State’s conduct has resulted in higher electricity rates than it would have paid had it been allowed a timely withdrawal in compliance with its contract. It first asked for an exit fee in July 2019. It still has no answer.

Three times in the 29-page filing, La Plata accuses Tri-State of dragging its feet in ways that were, well, “sneaky and underhanded.”

Despite the hurrahs and bouquets showered upon it after filing a recent resource plan, Tri-State remains in deep financial distress. Clouds of debt hang over it, as I have previously reported. Its plans to retire a coal plant in Arizona and possibly accelerate retirement of one in Colorado depend upon getting federal aid through the Inflation Reduction Act. It hopes to secure $970 million.

The overriding question is why Tri-State has been so determined to keep members of the “family” in the family? La Plata, in its lawsuit, argues that this goes against the cooperative principles upon which Tri-State was founded. The exit door seems to have a malfunction. (My analogy, not theirs).

Those already out the door

Most elements of the drama cited in the lawsuit have been previously reported.

  • In 2016 New Mexico’s Kit Carson Electric got its freedom from Tri-State to innovate by its own rules after agreeing to pay Tri-State $37 million. I suspect a great many cooperatives had expected Kit Carson to stumble and fall. Instead, it has soared. It made its final payment last June.
  • Delta-Montrose Electric Association was next, departing in 2020. It had wrangled with Tri-State for several years before getting out of its contract that extended to 2040. That contract required Delta-Montrose to secure 95% of its power from Tri-State. It paid $62 million to leave the 42 remaining members whole. As Kit Carson had done previously, Delta-Montrose hooked up with Guzman Energy, who promised to help the cooperative develop more of its own sources of electricity. The first significant project, a solar farm on Garnett Mesa, near Delta, is underway.
  • Three more members have now given notice they intend to leave. The most imminent is United Power, which intends to be gone May 1, 2024.

La Plata and others have wanted to enter into partial-requirements contracts, in the case of La Plata, allowing it to generate 50% of its own electricity. That option is now off the shelf.

Why hasn’t La Plata gotten an exit number from Tri-State for either a full or partial exit? In 2020, Colorado members of Tri-State were close to getting an answer. An administrative law judge for the Colorado Utilities Commission that summer had heard testimony for about a week before issuing a recommended formula to the PUC commissioners. The formula was not much more complicated than drawing a straight line between what Kit Carson and Delta-Montrose had paid, then adjusting it for the size of the co-op.

Before the PUC commissioners could take up the matter, though, Tri-State had managed to shift the decision-making nexus from the PUC in downtown Denver, just 13 miles from its headquarters, to the Federal Energy Regulatory Commission, or FERC, in Washington D.C., 1,656 miles away.

How did Tri-State engineer this pivot? The story is generally known, but the lawsuit by La Plata discloses that the research for how to achieve this began in 2017 in an operation called Blue Sky II. It was before the chief executives now at Tri-State and the two dissident co-ops had arrived.

Let’s let La Plata’s lawsuit tell the story:


Introducing Blue Sky II

“For much of its existence, Tri-State successfully avoided both federal and state regulations. Tri-State historically was exempt from FERC jurisdiction because it was wholly owned by exempt rural electric cooperatives. Faced with regulation by the Colorado PUC in the last decade, Tri-State embarked on a secret plan to obtain federal regulation by FERC in order to preempt Colorado regulations.”

Beginning in August 2017, says the lawsuit, Tri-State “paid lawyers to evaluate ways to obtain FERC jurisdiction and displace Colorado or other states’ regulations of potential member withdrawals from Tri-State. Tri-State initiated a secret project, code-named ‘Blue Sky II,’ which was designed to explore ways for Tri-State to become FERC jurisdictional.”

Tri-State, this lawsuit says, kept this strategy secret from members until June 2019. But to make it work, Tri-State needed to create a new membership class. It needed to add at least one member that was not an electric cooperative or utility. Instead, it added three:

  • a greenhouse near Fort Lupton that uses gas from a Tri-State power plant;
  • a company that sold natural gas to Tri-State, and
  • a company near Craig that rents land from Colowyo Coal Co., a subsidiary of Tri-State.

With this, Tri-State secured overview by FERC, preempting the PUC’s jurisdiction.

Next, La Plata and other cooperatives worked with Tri-State to achieve a partial-requirements contract. After all, if Tri-State is hamstrung by its increasingly archaic 20th century technology for a majority of its power generation, it has a very important 21st century asset, namely transmission. Instead of being required to get 95% of their power from Tri-State, what if they could get less, 50% in the case of La Plata, or a third, as in the case of San Miguel Power.

La Plata even went out and secured some deals from partners who were going to build solar and other technology in southwestern Colorado.


Out of options

La Plata assumed that Tri-State would provide an exit fee proportionate to the partial requirements contracts. It has not. Those deals with independent power producers have lapsed.

La Plata accuses Tri-State of employing delaying tactics — and, echoing the complaints of United Power, accuses Tri-State of being not inclined to have conversations. The way these two cooperatives have described Tri-State, it’s Tri-State’s way. The highway is not an option.

And hence the lawsuits – first by United Power and now by La Plata.

“Out of options and without any active dialogue to modify its power supply,” says La Plata, it “was left with the single option of filing this lawsuit to vindicate its rights.”

I suppose I should reach out to Tri-State, to see what sort of statement they want to make. A he-said, she-said piece. That is the formula purported to achieve fairness. Sometimes it actually works.

But honestly, I’ve paid my dues on this drama. Watched the La Plata directors one night in 2021 approve the partial-requirements agreement. Been to Tri-State board meetings. Been to the annual “we’re-doing-great” meetings of a few coops. Had many, many conversations on the sidelines.

The question I have not asked Tri-State is why has it dragged its feet? The easy answer, one I’ve published before without kickback, is that it has wanted to stall the exit of members while it gets its house in order. Kit Carson is one thing, and then Delta-Montrose. But if all the bigger ones leave, what is left – well, the smaller, more rural cooperatives. It leaves Tri-State a much smaller operation, one likely at greater risk of failure.

Under the previous manager of Tri-State, Tri-State was tepid in embracing changes. Duane Highley was hired in 2019 as chief executive with the explicit mission of steering Tri-State into the energy transition. By January 2020, he had announced the closure of the coal plants in Craig.

That transition from coal was hard — and it’s still far from done.

But it’s the easiest of the work that needs to be done. Tri-State more fundamentally needs to reform its business model. It needs to figure out how it and its members can become better partners in innovation.

One analogy I have heard is that it’s like Blockbuster Video, when Netflix came along, addressing the new challenge by waiving late fees.

Tri-STate annual meeting April 2023

Resilience was the theme of the annual meeting of Tri-State Generation and Transmission in April 2023. Resiliency was the theme of the meeting. Photo/Allen Best

Tri-State was organized in 1952 with the mission of of delivering power to the local electrical cooperatives as demand for electricity surged. Blame it on us baby boomers. This led to larger and larger coal plants, supplemented in the 1990s by natural gas plants.

Amory Lovins in 1976 had written his landmark essay, “The Road Not Taken,” about the value of energy efficiency. Roughly 31 years later I visited the chair of the board of Tri-State in his corner office at Tri-State headquarters in Westminster. He represented an electrical cooperative in Wyoming and ostensibily had a liquor store in Jeffrey City, a boom uranium town gone bust. This was when Tri-State was still trying to build a new coal plant in Kansas.

I asked this guy about Tri-State’s efforts to do energy efficiency in lieu of trying to build a new coal plant in Kansas. Tri-State had no relationship with end-of-line consumers, he answered.

In other words, Tri-State delivered power and member coops and their individual metered customers consumed it.

This was the solar system. Tri-State was the sun and its members were like Venus or Neptune, planets revolving around it.

To be clear, all utilities are very different from what they were 15 to 20 years ago. Tri-State is no exception. Today, it has exhibits about energy efficiency at its annual meetings. It is a sponsor of the Beneficial Electrification League.

But the gravity must shift even more.



Highley and the board of directors at Tri-State have their work cut out for them. Running Xcel looks to me to be a far, far easier task than Tri-State. Xcel has been shedding contracts to Fountain, Yampa Valley Electric, and others, but it remains secure in providing electricity to its customers in a process mediated by the PUC. It has challenges, to be sure, but the basic business model looks secure.

To remain viable, Tri-State must concede its status as the star of this particular solar system of electrical cooperatives. To use a different metaphor, it needs to be the father in a family of children now in their early 20s.

It needs to be more bidirectional. The local cooperatives need more flexibility to innovate, perhaps in ways that Holy Cross Energy is trying to do. They can’t innovate very well now given the limitations of the all-requirements contracts that actually charge them if they generate more than 5% of their own power.

I’m reminded of something that Bryan Hannegan, the chief executive of Holy Cross Energy, said during a superb forum in October organized by the Vail Symposium.

“There’s this fiction in our electric power utility industry that well, we’re a monopoly and nobody can challenge us and we’re fat and happy and we’ll make our rate of returns and all that’s great.” he said. “Guess what? If you don’t like our service, if you don’t like our rates, you can go to the Lowes or the Home Depot or you can call Sunrun or Tesla and tomorrow you can become your own virtual power plant.”

In 2017, Hannegan’s predecessor, Del Worley, said much the same thing to me. He was considered to be basically old school, but he made the exact same point, citing the example of somebody living up Castle Creek outside of Aspen (where Amory Lovins lives).

I am also reminded of what the Colorado Solar Energy Industry Association said in its recent memo to its members about the Tri-State energy resource plan:

“If Tri-State secures New Era (Inflation Reduction Act program) funding, it could pay down ($970) million of debt associated with the stranded assets on its system, which is good for Tri-State ratepayers. We continue to believe it is better for the Colorado energy market to have a solvent and functioning Tri-State making an energy transition.”

That begs the question. What if Tri-State is not solvent? Who picks up the pieces?

That’s why this issue matters to somebody in Buena Vista or in Saguache or in Morgan County. Just go find out about the electrical rates in Pueblo and Canon City charged by Black Hills. What if somebody else picks up the pieces from a Tri-State bankruptcy? Will they be better – or will it be much worse? I think that’s what the COSSA memo means about the value of Tri-State.

I’ve only touched on the proceeding at FERC underway about exit fees. An administrative judge there issued a recommendation in September 2022r that is little different from what the PUC administrative judge recommended in 2020. A decision from the FERC commissioners is expected any day now – as it was three months ago.(Editor’s note: As this analysis was being posted on Dec. 15, word was received that the FERC commissiones were scheduled to take up the matter on Dec. 19)

But the formula for partial requirements is only beginning. It’s still a couple of years away.

Maybe a final metaphor would be clarifying. In a marriage, in a family, there needs to be communication. For whatever reason, the conversation between Tri-State management and its larger members was obviously lacking..

The question this lawsuit begs is whether this marriage can be salvaged, whether this family can stay together? I don’t know the answer.


You can download the court filing here:

La Plata Electric Association v. Tri-State Generation and Transmission, November 2023

Allen Best
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