Co-ops trying to leave Tri-State say the electric utility is “stonewalling” by refusing to calculate the price to exit

Tri-State Generation and Transmission Association is “stonewalling” efforts by seven rural electric cooperatives – in Colorado, New Mexico and Nebraska – to get estimates on how much it will cost them to leave the association, according to a complaint filed with federal regulators.

“Tri-State’s refusal to perform the calculation required… is patently unjust and unreasonable,” according to the complaint to the Federal Energy Regulatory Commission.

“Eight of us asked for numbers in November and December through letters,” said Dean Hubbuck, chief energy resource officer at United Power in Brighton, Tri-State’s largest co-op. “We didn’t get a response from Tri-State, and when then they finally did respond they said they weren’t going to give any numbers.”

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Lee Boughey, a Tri-State spokesman, said in an email, “We disagree with the allegations in the complaint. The complaint is premature, given the current status of the case in FERC settlement negotiations.”

Tri-State sells wholesale electricity to 42 rural electric cooperatives in four states under contracts that run to 2050 and require the co-ops to purchase at least 95% of their electricity from the association.

There has been growing desire among some member co-ops to leave the association, or at least explore the cost of leaving, spurred by the prospects of more homegrown, cleaner and cheaper electricity.

Tri-State said that it has made investments and taken on debt based on those long-term contracts and that any co-op that leaves must meet its share of those obligations and leave the remaining members whole.

The association has about $4.6 billion in debt and obligations, according to a filing with FERC, and servicing that debt and maintaining its investment grade credit rating are dependent on the revenues flowing from member co-ops. 

Tri-State serves 17 cooperatives in Colorado, which represent about two-thirds of Tri-State’s electricity sales. United Power alone accounted for 17% of the association’s revenue in 2019, or about $200 million.

“Co-ops leaving is an existential threat to Tri-State, but Tri-State is there to serve the co-ops,” said Eric Frankowski, executive director of the Western Clean Energy Campaign. “It is hard to argue that they can’t leave because it threatens Tri-State.”

In 2019, the Kit Carson Electric Cooperative, in Taos, New Mexico, paid $37 million to leave Tri-State and in 2020 the Delta-Montrose Electric Association agreed to a $136.5 million exit fee.

Along with United there are three other Colorado co-ops in the complaint, the San Isabel Electric Association, serving rural southeast Colorado, and the San Miguel Power Association in Ridgway, and La Plata Electric Association based in Durango.

The other Tri-State members seeking exit fees are New Mexico’s Spring Electric Cooperative and the Wheat Belt Public Power District and the Northwest Rural Public Power District, both in Nebraska.

In 2019, Tri-State filed to be regulated by FERC rather than state public utilities commissions. Critics said that it was a move to thwart state oversight, but Tri-State said that it made more sense to have uniform regulation since it serves four states – Wyoming, Nebraska, Colorado and New Mexico.

Tri-State said it was going to develop a method for calculating exit fees and in the interim the association’s board placed a moratorium on issuing any exit estimates.

In April, Tri-State filed its methodology for computing exit fees with the FERC. United Power and La Plata Electric Association said in a filing that the methodology was designed to yield estimates that are “prohibitively expensive and punitive to a departing utility member.”

Still, Tri-State has declined to provide exit estimates using its methodology, saying it is premature to do so. The co-ops want them as a starting point to possibly challenge the methodology.

“The complaining parties want to leapfrog FERC’s review process and compel a calculation under a methodology they currently dispute at FERC,” Boughey said. “Forcing calculations now puts the cart before the horse, when none of these complaining parties has formally requested early termination of their wholesale power contracts or withdrawal from Tri-State.”

In the complaint, the co-ops counter, saying “Tri-State knows that no reasonable member could provide notice of its intention to withdraw without knowing the costs to withdraw.”

In response to the requests of some members, Tri-State is preparing estimates for all members to give them an “indication” of what the price would be if the full cost methodology was used, Boughey said. He didn’t say when those estimates would be available. 

Chance Briscoe, general manager of the Northwest Rural Public Power District, which serves about 3,300 accounts in rural northwest Nebraska, said, “to meet our fiduciary responsibility and figure out our options we need to know the number.”

The discontent among some co-op members stems from the fact that Tri-State’s wholesale rate is higher than wholesale market rates. The association’s dependence on coal-fired power, which once supplied about half the group’s electricity, was another sticking point.

The cap limiting a member co-op to producing no more than 5% of its own electricity and a desire for more renewable energy were also issues.

Tri-State in December unveiled a $21 billion plan that calls for adding 1 gigawatt of wind and solar, closing all Colorado and New Mexico coal-fired plants by 2030, and giving co-ops the opportunity to go beyond the 5% generation cap.

“There is no denying that the things Tri-State has done in its generation mix is a huge step forward,” Frankowski said. “But there are deeper problems that require rethinking of its business model.”