Tri-State Member Cooperatives Look at Alternatives

 

 

Tri-State Generation and Transmission provides wholesale electricity to 30% of Coloradans across 70% of Colorado, from the suburbs of Denver and Boulder to rural parts of the Western slope. Tri-State’s mismanagement and coal-heavy energy portfolio has hurt its customers, who pay higher prices than neighboring utilities. 

 

Tri-State history and current situation

 

• Tri-State Generation and Transmission (Tri-State) is an electricity Generation and Transmission Cooperative based in Westminster, CO. It is one of 64 G&Ts in the US and was formed in 1952 to sell electricity to rural cooperatives of Colorado and neighboring states. Today Tri-State has 43 member owned local Distribution Cooperatives, or Rural Electric Associations (REAs) that serve more than 1.5 million customers in Colorado, New Mexico, Wyoming, and parts of Nebraska. 

 

• Tri-State is governed by its board of directors, made up of one board member from each of the 43 member co-ops, regardless of the size of the member co-op. Today 18 of the 43 members (41%) are from Colorado, while Colorado accounts for 66% of the Tri-State power load. 42 of the 43 distributions co-ops have very long contracts with Tri-State, reaching out until the end of 2050. One co-op, DMEA, has a contract ending in 2040.  The breakdown of Tri-State's co-ops can be found here.

 

• Each of those 43 electric cooperatives are contractually obligated to purchase at least 95% of their electricity from Tri-State, but may, if they choose, obtain up to 5% of their electricity from other sources. Tri-State requires its meter on any projects that make up the 5%, and Tri-State controls 100% of the power purchased by all its member co-ops. This limit on local energy development has been controversial in many communities that want to pursue more local and/or renewable energy projects. This policy appears to be in conflict with The Public Utility Regulatory Policies Act of 1978  (PURPA), which requires that local utilities accept locally generated power that is competitive. However, a final determination from the Federal Energy Regulatory Commission on this issue has not been issued yet.

 

• Tri-State finances its business with $1.1 billion in equity capital (supplied by the 43 member cooperatives) and $3.3 billion in debt (see 10Q filing), most of which is publicly traded bonds.  Annual interest expense is approximately $150 million.

 

• Tri-State’s model has changed over the years. When it started in 1952, Tri-State only purchased power from Western Area Power Administration for distribution to the co-ops. Tri-State did not own any generation until the 1970s and only got into coal in the 1980s.  When large centrally generated coal-fired plants were some of the cheapest forms of delivering electrical power to remote landscapes of the west, Tri-State’s model made sense. The times have changed and fossil fuel generation is no longer the least-cost alternative in many cases, and the markets are shifting at a rapid pace. Co-ops want to be able to pursue cheaper, cleaner, reliable, and locally sourced power for their customers. Will Tri-State evolve with times? 

 

• Tri-State’s wholesale rates to its members have increased 56% since 2005, and are now 28% higher than Colorado’s other major power provider Xcel Energy's wholesale rates.

 

Tri-State still relies heavily on coal for its energy production, while prices for solar, wind, natural gas, and energy storage are declining rapidly. Due to recent record-setting low prices for renewable energy, many of Colorado’s largest utilities have announced major plans to take advantage. For example, Xcel Energy has committed to a nearly 60% renewable portfolio by 2030 and 100% carbon-free by 2050 - see Xcel Energy Colorado Energy Plan

 

• Tri-State states that 30% of the electricity consumed by Tri-State co-op members comes from renewable resources. Yet, less than 5% of the power consumed by Tri-State members comes from solar even with the recently announced addition of a new 100MW project. Most of the rest of Tri-State’s “renewables” comes from old, large federal dam projects that do not qualify as renewable under the Colorado Renewable Energy Standard and from wind. (See Tri-State “renewables page)

 

Other important factors to consider

 

• Of 600 North American utility executives surveyed in 2017, 52% expect coal generation to decrease significantly and another 27% expect it to decrease moderately, replaced largely with solar and wind resources.

• Over 200 coal plants have been shuttered since 2010. Coal consumed for electricity nationwide fell over 35 percent between 2010 and 2016. See annual coal report

 

• Because of Tri-State’s reliance on coal, and because of its heavy debt load, citizens of rural Colorado are paying higher electricity bills. Price forecasts from a wide variety of sources indicate continued cost declines for solar, wind, and storage in coming years, while costs for coal-fired power are expected to rise. This is true even without an existing price on carbon emissions, which we may see in the near future, and the potential cleanup costs associated with coal ash and other pollutants associated with the mining and burning of coal.

 

• Taking advantage of Colorado’s abundant renewable energy resources would attract new businesses and economic development to rural areas of the state. Reducing electricity costs to farmers and ranchers would help the viability of Colorado’s ranching culture. Local governments are losing business, and tax revenue, as industries decide to locate elsewhere, seeking cheaper electricity rates with fewer restrictions on renewable energy development, that allow them to brand themselves as green energy procurers.  

 

• Excessive fees proposed by Tri-State for cooperatives that want to change their contractual relationship with Tri-State ultimately hurt local governments, businesses, and citizens by locking them into more expensive, dirtier power while restricting local clean-energy economic development.

• By 2007, coal was on the decline, but Tri-State proposed an 895 MW expansion of its Holcomb coal plant in Kansas. Tri-State is still paying for Holcomb, a more than $93 million loss, according to its August 2017 SEC filing

• In 2010 Tri-State proposed that all its members extend their 40-year contracts with Tri-State to 50 years so that it could pursue the best rates on coal. All but two co-ops, (Kit Carson in NM and DMEA in Montrose) agreed to extend their contracts because of the limitation on local renewables and doubts on the Holcomb investment. Both have since negotiated exit agreements with Tri-State. 

• In 2013, Tri-State opposed Senate Bill 252 which doubled the Colorado's renewables goal to 20%, saying the bill could cost up to $3 billion, The Denver Post reported.

• Replacing coal plants with nearby new wind and solar resources could provide immediate savings to customers, study after study shows.

• Coops are turning to renewables because they are cost effective and clean. For example:

Past and recent actions by Tri-State members

 

• In February 2015, Delta-Montrose Electric Association (DMEA) filed a petition with the Federal Energy Regulatory Commission (FERC) requesting that the Commission find that DMEA’s obligation to purchase power from a PURPA Qualifying Facility (QF) supersedes the Tri-State contract’s 5% limitation. Tri-State appealed this decision, and in Docket No EL16-39-000 issued June 16, 2016, FERC ruled that Delta-Montrose in fact has an obligation under PURPA to purchase energy from Qualifying Facilities (QF).  FERC also found that DMEA can negotiate a purchase price from a QF based on its own avoided cost, and that Tri-State’s proposed recovery of any resulting losses that flow from QF purchases above the 5% limitation should be rejected. Tri-State appealed that decision in July 2016 and we all still await a decision by FERC.

 

In 2016, Kit Carson Electric Cooperative in New Mexico secured a $37 million exit fee from Tri-State, and they now procure power and service their customers directly. See High Country News story. 

 

• In November 2016, Delta Montrose Electric Association formally started negotiations with Tri-State to determine an exit charge. DMEA’s members voted to allow DMEA new financing options in October 2018 that could be used to pay for the exit charge. DMEA seeks a fair exit price so that it will have the freedom to produce at least some its own electricity locally, while not harming remaining REAs in Tri-State.

 

Subsequently, after following all possible steps in negotiating with Tri-State for over two years… 

 

  • DMEA filed a request with the Public Utilities Commission asking the PUC to set a just, reasonable, and nondiscriminatory charge for DMEA’s exit from Tri-State.
  • Tri-State filed a lawsuit against DMEA’s request of the PUC.
  • More than 50 Colorado state legislators signed a letter in January, 2019 in support of DMEA. The Colorado Energy Office and several organization filed motions to the PUC requesting to intervene on DMEA’s behalf, as did LaPlata Electric Association. The cities of Montrose and Durango each filed a letter with the PUC asking for PUC oversight in the price-setting dispute. Colorado Communities for Climate Action, a coalition of 23 municipalities and counties in Colorado also filed a comment supporting PUC oversight in the matter.
  • Colorado Ski Country USA filed comments with the PUC supporting DMEA’s efforts noting the benefits that a cleaner energy mix can bring to ski areas served by rural electric cooperatives.
  • 21 of the 43 rural co-ops within Tri-State signed a petition to intervene, asserting that DMEA should resolve its contractual dispute with Tri-State in a court of law.
  • PUC accepted CEO as an intervener; all others who requested intervener status so far have been assigned Amicus Curiae status.
  • On February 14, PUC voted to hear the DMEA-Tri-State case and set the hearing for June 17-21. 
  • Poudre Valley Rural Electric Association passed a resolution in September 2018 urging TRI-STATE to develop policies that provide alternative electric supply resources.
  • United Power sent letters to other Tri-State member coops in December 2018 outlining United’s grave concerns with Tri-State’s products, services and costs, and asking to begin a dialogue with other coops to change Tri-State’s bylaws to be able to amend contracts so that United could meet its expected electricity load growth by pursuing its own local renewable energy projects, or by buying wholesale power from other sources in order to provide its major customers with lower rates and renewable energy options.
  • La Plata Electric Association formed a Power Supply Committee and in subsequent Board actions committed $125,000 to engage independent consultants to analyze costs and options for alternative power supply.
  • Rocky Mountain Institute (RMI) issued a report in August 2018 showing that Tri-State members would save $600 million by 2030 by replacing nearly all of its coal generation with wind and solar.
  • Tri-State issued a mostly dismissive response to the RMI report in August 2018.
  • The four most prominent REAs raising concerns with Tri –State’s business model and practices —United, DMEA, La Plata, and Poudre—represent more than one third of all Tri-State customers and about 31% of Tri-State’s total electricity sales. (See pie chart)
  • In December 2018, a letter from Tri-State coop member United Power noted that Xcel Energy’s rates are 28.5% cheaper than Tri-State’s rates.
  • On February 12, 2019 Tri-State announced that Duane Highley would take over as CEO on April 5th. Highley is leaving his position as CEO of Arkansas Electric Cooperative Corp. He replaces Mike McInnes. Read news story
  • On February 19, Moody’s Investment Service issued an opinion that Tri-State’s latest experience with DMEA exemplifies a situation where the member’s interest does not align with the creditors’ interest, with the financial ramifications of any member not fulfilling its obligations under the WPC being swift and severe on the G&T’s credit profile.
  • On March 13, 2019 more than 20,000 family farmers who make up The Rocky Mountain Farmers Union passed a resolution calling on Tri-State to provide more flexibility for its member co-ops and to "re-tool its existing resource plan so it calls for investment in clean, affordable, reliable alternatives."
  • On March 25, 2019 The Center for a New Energy Economy released its report on powering local cooperatives in Colorado, and Tri-State.
  • March 27, 2019, initial IRP/ERP public meeting in Westminster. Tri-State answered questions from the public about their Integrated/Energy Resource Plan (IRP/ERP) and gave a presentation about its resource modeling, load forecast, evaluation of existing resources, energy efficiency, load management, transmission, “environmental,” and resource and economic scenario modeling.
  • ERP/IRP process subsequently postponed to give the Public Utilities Commission a chance to adapt the process to SB 19-236 requiring that Tri-State submit and follow energy resource plans (ERPs) that reflect the needs of the rural areas where Tri-State supplies power.
  • April 3 & 4, Tri-State annual meeting, Bloomfield. Public not invited.
  • Member coops adopted by-law changes to allow new types of contracts between the distribution coops and Tri-State. Tri-State, in its filed its 10-K report makes it clear the changes to the bylaws won't lead directly to new types of contracts, but instead would "permit our Board to establish such additional classes of membership and the rights and privileges of the members of those additional classes."  The Tri-State Board voted to enact a new “Contract Committee” to study all of these issues, and to make recommendations to the full board.
  • Keynote speaker at annual meeting touts virtues of coal and folly of renewables.
  • Member coops delivered a welcome basket to incoming Tri-State CEO Duane Highley including a welcome card signed by over 3000 Tri-State ratepayers and other citizens of the west. See press release
  • April 17, 2019, La Plata Electric Association’s Power Supply Committee presented results of its assessment of the reliability and costs of potential alternative supply portfolios, finding that it could save money with no loss of reliability if it changed electric supply sources away from Tri-State. See slide show and Durango Herald story
  •  April 29, 2019, CO Public Utilities Commission began a hearing to revise its rules for electric resource planning including Tri-State IRP process. For more information see Tri-State Members for Reform action alert. https://www.members4reform.org/
  • April 29, 2019, Tri-State began the process of updating its state-required Integrated Resource Plan or IRP (also called Electric Resource Plan—ERP.) The public is invited to participate.
  • In order for utilities to plan for meeting future energy demand in the most cost-effective way, 33 states, including Colorado require utilities to file integrated resource plans (IRPs) with their state public utility commissions (PUCs).
  • An IRP is a roadmap to meet forecasted energy demand using both supply and demand side resources to ensure reliable service to customers in the most cost-effective way.
  • In Colorado the IRP planning horizon is 20 years, with a detailed implementation plan for the first few years and a required update every two to three years.
  • The PUC has authority to review plans and reject them if they feel requirements have not been met.
  • Week of April 29, Public Utilities Commission began process of rewriting rules that govern electric cooperatives and utilities. Many comments by the public asked the PUC to oversee Tri-State’s resource planning to take price, renewables, and fairness into their planning. Comments by the PUC Commissioners made it clear that the PUC would begin to oversee Tri-State's resource planning "whether or not the legislature gives us that task," as Chairman Ackermann put it.
  • May 3, 2019 Colorado Legislative session ends with 14 new climate/energy bills, including SB 236 that, among other things, requires the PUC to evaluate whether Tri-State "has a resource plan that meets the energy policy goals of the state;" and HB 1261, adopting energy goals for Colorado reduce 2025 greenhouse gas emissions by at least 26% by 2025, 50% by 2030, and by at least 90% by 2050 below 2005 levels. 
  • One of the new state laws passed by Colorado’s Legislature requires the State’s Public Utilities Commission (PUC) to adopt an Energy Resource Planning (ERP) Rule that applies to Tri-State Generation and Transmission. PUC halted its Rulemaking to give them time to adapt the new rules to the new state laws. Deadline for comments and scheduled hearing on proposed Rulemaking postponed until fall of 2019.
  • Early summer 2019 Tri-State’s new CEO Duane Highley attends many member coop annual meetings, expresses Tri-State’s intentions to comply with new Colorado laws and move toward cleaner energy.
  • May 27 2019 Guzman Energy out of Boulder CO proposed to buy three of the coal-fired generating units owned primarily by Tri-State, shut them down, and replace the 800 megawatts of generation with a balance of wind and solar backed likely by natural gas generation. Tri-State rejected the offer.
  • June 5th Tri-State releases Issue Brief about adding new member that would kick Tri-State to FERC oversight; announces July 9-10 vote to add new member. This vote took place before the Contract Committee had its first meeting. Mr. Highley had not mentioned this new member that would move Tri-State from state to federal regulation at the various annual meetings.
  • On June 14, 2019, United and DMEA sent a letter to other coops asking that the other coops join in a request to Tri-State to slow down the FERC vote.
  • Western Resource Advocates’ blog post outlines the high economic, social, and environmental costs of Tri-State’s energy portfolio.
  • On July 2nd, DMEA asks district court for temporary restraining order keeping Tri-State from seeking FERC oversight.
  • On July 3rd, CO State Legislature sends letter to Tri-State asking that Tri-State delay FERC vote.
  • On July 3rd Tri-State responds to letter from Legislature, stating that move to FERC won’t impact state laws aimed at Tri-State resource planning or emissions.
  • Summer 2019, Colorado PUC, Kit Carson Electric, New Mexico PRC, SMPA, Wheat Belt Public Power District, Sierra Club, La Plata Electric, Poudre Valley Electric, and others sent requests to FERC to slow down the process of taking Tri-State under FERC.
  • July 5, 2019 LPEA formally requests a buy-out estimated price from Tri-State
  • On July 17, 2019 Tri-State announced "a collaborative stakeholder process" led by former Democratic Colorado Gov. Bill Ritter's Center for a New Energy Economy (CNEE) to expand a Responsible Energy Plan. The transition process aims to set goals for "aggressive carbon reduction, renewable energy and resource planning requirements" and protect reliability while lowering rates, according to a Tri-State statement.
  • An HCN analysis describes the drop in coal value: “The diminishing value of coal draws ominous parallels to the subprime mortgage bubble that precipitated the Great Recession of 2008. But the coal free fall is likely to be even worse than the housing market crash, because houses always retained some value, while coal mines could end up worthless if investors see costs that outstrip potential income…”
  • On July 22, 2019, Tri-State reached a settlement with DMEA, allowing the co-op to exit its contract and independently pursue generation. Details of this contract dissolution (such as cost) will be public summer of 2020.
  • July 31, 2019 Colorado PUC issues Notice of Proposed Rulemaking to implement Senate Bill 19-236 regarding integrated or electric resource plans for wholesale electric coops (such as Tri-State).
  • On August 23, 2019, San Miguel Power Association joins many other coops, the PUC, and individuals in filing a protest to FERC against Tri-State’s application to leave PUC jurisdiction. San Miguel Power also voted on August 23, 2019 to initiate a power supply study to determine how to achieve cheaper rates for its members.
  • September 4, 2019 Utility Dive reports the announcement of Tri-State’s new member: California-based MIECO, a subsidiary of Marubeni Corp., which supplies gas to Tri-State power plants. Whether or not this addition effectively removes Tri-State from state jurisdiction to federal FERC jurisdiction is still pending FERC reply.
  • At its September board meeting, Tri-State passed a resolution that enacts a suspension on providing members with a “shopping letter” or “make whole number, until the Contract Committee completes its work.
  • October 15, 2019 Colorado Public Utilities Commission holds a hearing on a Rulemaking setting rules for Tri-State’s Electric Resource Planning to ensure compliance with Colorado Senate Bill 19-236 and House Bill 19-1261. The PUC received over 600 comments from citizens, elected officials, and business owners across Colorado in support of requiring Tri-State to calculate the risks and costs of its expensive coal fleet; require that Tri-State utilize the Social Cost of Carbon, and require that Tri-State consult with impacted workers to submit a workforce transition plan when proposing the retirement of an electric generating facility.
  • November 14, 2019 Tri-State announces that it will allow co-ops to build community solar projects up to 2 megawatts or 2% of their needs, whichever is smaller outside of the 5% cap on locally generated power.
  • November 14, 2019 Standard and Poor’s downgraded Tri-State’s credit rating from A to A- “The imminent departure of one Colorado member and the push by two others for a proposed exit fee from Tri-State open the utility to the potential loss of 25% of its energy sales, possibly eroding its revenue stream,” said David Bodek, Standard and Poor’s global ratings credit analyst. the rating agency said the outlook for Tri-State is negative. It pointed to members’ retail rates, which the agency said are more than 20% above average and appear to be spurring efforts to leave Tri-State or find alternative energy sources.
  • November 2019 In dual filings with the Colorado Public Utilities Commission (“CPUC”), United Power and La Plata Electric Association cooperatives asked the state’s regulating body to exercise its authority to provide a just exit charge from their existing contracts with Tri-State.
  • December, 2019 In response to United Power’s and La Plata Energy’s filings with the CPUC, Tri-State filed a motion to dismiss the co-ops complaints because Tri-State does not believe that the CPUC has jurisdiction over these matters. Instead, Tri-State claims that the Federal Energy Regulatory Commission has jurisdiction over their rates, even though their initial application was rejected in October for being deficient and incomplete. A decision is expected in April 2020.
  • January 6, 2020  92 rate-payers who are business leaders from 10 co-ops within Tri-State territory sent a letter to Tri-State’s board of directors asking Tri-State to commit to powering their communities with 80% carbon-free electric by 2030.
  • January 9, 2020 Tri-State announced the retirement of its remaining New Mexico coal-fired power plant by the end of 2020 and its remaining Colorado coal plants and coal mine by 2030. It will continue participation in two coal-burning plants in which it has minority ownership, Laramie River Station in Wyoming and Springerville in Arizona.
  • January 15, 2020 Tri-State released its Responsible Energy Plan committing to increase its renewables portfolio to 50% of energy consumed by members by 2024, adding 1 gigawatt of renewables from eight new solar and wind projects. They also commit to reducing emissions with the closure of all coal plants operated by Tri-State, cancelling the Holcomb project in Kansas and committing not to develop additional coal facilities; Increasing member flexibility to develop more local, self-supplied renewable energy and extending benefits of a clean grid across the economy through expanded electric vehicle infrastructure and beneficial electrification.
  • Members applaud Tri-State’s efforts to power CO and NM with 100% emissions-free electricity, and continue to push for 80% renewable energy across Tri-State territory (including WY and NE) by 2030

 

 

What to keep an eye out for in 2020

 

Tri-State’s Electric Resource Planning process

Delta Montrose Electric Association’s exit from Tri-State 

Will Tri-State be under FERC or CPUC regulation?