Can Tri-State stay upright?

Colorado’s second largest electrical utility is on the move—but fast enough to quell the dissatisfaction of its largest members?

It’s an open question whether Colorado’s second largest electrical supplier will survive. Tri-State Generation and Transmission has been rapidly pivoting away from coal and modifying its business structure. Fast enough?

Too slow by far, said United Power, the single largest member of Tri-State, which has 250,000 ratepaying consumers and members. It alone is responsible for more than 20% of all wholesale sales. According to a filing with the Federal Energy Regulatory Commission, United alone has revenues as great as the combined revenues of the 21 smallest electrical cooperative members of Tri-State. Tri-State has 42 member electrical cooperatives.

In August, its chief executive, Mark Gabriel, said that United wanted to work within Tri-State to reform it. By December, though, it was a different story.

“When I came to United Power nine months ago, I was extremely optimistic that we would be able to come to an agreement that lives up to our commitment for past investments and allows us to provide lower cost, cleaner options to our rapidly growing communities in the future,” Gabriel said in a press release on Dec. 14.

Tri-State, charged Gabriel, wasn’t serious.

“In the last nine months alone, United Power has tendered three formal term sheets and held numerous high-level meetings,” he said. “But leadership at the G&T has been unresponsive to the contract modification requests.”

United wants out by 2024.

Duane Highley, chief executive of Tri-State, addresses members at the annual meeting of the organization in August 2021. Photo/Allen Best

It was a tough week for Duane Highley, who in April 2019 had arrived in Colorado to lead the task of pivoting Tri-State, long a foot-dragging outfit, into the 21st century.

Two days after United’s announcement, Poudre Valley REA told Tri-State that it was planning to leave. Poudre Valley, the second largest member of Tri-State, was less definitive in its resolve than United. A letter from Jeff Wadsworth, chief executive of the Windsor-based cooperative, said the notice did not preclude Poudre Valley from pursuing the partial requirements option that Tri-State has proposed. That proposal is pending before the Federal Energy Regulatory Commission.

Durango-based La Plata Electric, the third-largest cooperative in Tri-State’s stable, has been eyeing both a full exit and the new partial requirements contract with Tri-State. The idea that was explained in an October 2021 town hall meeting would let La Plata partner with Crossover Energy Partners, one of the new companies that has sprung up in the clean energy sector, for 50% of La Plata’s power. The deal would include help to La Plata in developing local generation. Crossover in 2021 gained the backing of KKR, the giant investment firm. Tri-State would supply the other 50% of power.

Dan Harms, the vice president for grid solutions for La Plata, said last week that nothing has been decided. Talks with Tri-State that seek to provide better understanding of each other’s perspectives continue, he said. (La Plata plans a Feb. 10 town hall meeting to provide an update).

United’s language in December was different, accusatory.

“Instead of working with us in the pursuit of lower-cost, cleaner options, Tri-State has resisted these developments,” said Gabriel in the press release. “Tri-State recently purchased additional coal generation, is limiting our members’ ability to add more carbon-free generation, and is penalizing additional storage on our system. They also offer non-members preferable transmission rates over those of us who have invested in the system for decades.”

Gabriel had published a book in 2007 called “Visions for a Sustainable Energy Future.” At the time, Tri-State was continuing to invest in the dream of a huge new coal plant in Kansas. Tri-State spent at least $91 million before formally pulling the plug in early 2020.

The coal that Gabriel alluded to in his December statement, though, was a reference to the decision by Tri-State last year for a bigger stake in a Wyoming coal plant called Laramie River Station. Tri-State explained that deal as being primarily spurred by improved transmission. Tri-State is a minority owner of the Wyoming coal plant.

Tri-State Generation and Transmission upped it stake in Laramie River Station, a coal plant in Wyoming. The majority owner of the plant is suing Tri-State in a seemingly unrelated matter. Photo/Allen Best

That Wyoming plant has produced more trouble for Tri-State. At the end of the same difficult December week, Basin Electric, the majority owner of Laramie River Station, filed a lawsuit against Tri-State alleging violation of a contract.

The lawsuit alleges Tri-State breached its contract with Basin Electric by allowing its six member cooperatives in Nebraska to seek to get out of Tri-State. That, says Basin, is in violation of Tri-State’s contract with Basin.

North Dakota-based Basin is a G&T, or generation and transmission cooperative, similar to Tri-State, except that it’s even bigger than Tri-State and more glued to coal.

This is one of seven big-picture stories from 2021 identified by Big Pivots that involve Colorado.  

Confused? Understandably. A bit of history is useful. Tri-State let the first dissident cooperative, Kit Carson Electric, out relatively easy. It resisted more the exit of Delta-Montrose. When United and La Plata asked how much it would cost them to break their all-supplies contracts before 2050, Tri-State delivered ridiculously high figures. While that was being sorted out Tri-State sought—and obtained— jurisdiction under the Federal Energy Regulatory Commission, or FERC seemingly bypassing the Colorado PUC.

Then Poudre Valley and six other member cooperatives—including those in New Mexico and Nebraska—wanted to know what it would cost to get out. In 2021, Tri-State submitted a new methodology to FERC for determining exit fees. That methodology is still under review. But Tri-State went ahead and told all the member co-ops what it would cost them to leave under this methodology. This is the basis for the suit filed by Basin. Two Nebraska members had already asked for their exit numbers.

In all this, the example of Kit Carson surely must be noted in board rooms. Luis Reyes Jr., the chief executive of Kit Carson, says he believes other coops in Tri-State expected Kit Carson to flounder or worse after it left Tri-State and took up with Guzman Energy, then a new start-up wholesale provider.

Kit Carson has done anything but flounder. In 2022, it expects to complete the final solar installation necessary to produce 100% of daytime power and also pay off the final debt of its $37 million exit fee from 2016.

Tri-State, meanwhile, presumably still has considerable debt on its coal infrastructure at Craig. A filing in September 2021 with the Securities and Exchange Commission reported $3.1 billion in long-term debt.

Looking into 2022

I’m keeping my eye on La Plata. Can this new partial requirements contract serve as a model? And what kind of room will there be for local energy storage? A town hall on Feb. 10 likely will be revealing.

The dispute between United and Tri-State is playing out in the filings at the Federal Energy Regulatory Commission in the case about the proper methodology for determining how much United must pay Tri-State to exit.

Testimony filed with FERC in January by Dean Hubbuck, the chief energy resources officer for United, accuses Tri-State of “hostility” and having a “severely antiquated business model.” In his testimony, Hubbuck also points to Tri-State’s continued investments in coal generation in Arizona and Wyoming, Tri-State, he said, “does not appear to be in any hurry to transition out of those,”  Hubbuck testified.

Also worth watching are the proceedings at the Colorado PUC where Tri-State must now submit its resource plans. A settlement agreement among all parties—including environmental groups and the state—after this essay was written but before it was published bears noting. Tri-State is pivoting—and fast. But fast enough?