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.
• 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…
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?