A battle between a Western Slope rural electric cooperative and one of the country’s largest co-op power providers has intensified, setting the stage for what may be a significant change in how and where some rural communities get their electricity.
On one side is the Delta-Montrose Electric Association (DMEA), the Montrose-based co-op serving about 33,000 members, and on the other is the Tri-State Generation and Transmission Association, which provides power to 43 cooperatives in four states, including 18 in Colorado.
The Colorado Public Utilities Commission is set to weigh in on the issue Thursday, and its decision on whether it has jurisdiction could lead to an unprecedented level of oversight on Tri-State and open the way for more renewable energy in the state’s rural co-ops.
DMEA wants to quit Tri-State, seeking to develop more renewable and local energy generation, spurred by lower market prices for wind and solar. Tri-State says that to protect the association’s other members, DMEA must fulfill the 21 years left on its contract for debt and revenue.
DMEA officials call Tri-State’s undisclosed exit fee “discriminatory” and are asking the PUC to set the fee.
“The world is changing,” said John Parker, CEO of Brighton-based United Power, a Tri-State member supporting DMEA at the PUC. “Tri-State is not going to be able to hold back the change. Tri-State is not going to be the little boy with his finger in the dike holding back change.”
For its part, Tri-State has added 475 megawatts (MW) of wind, solar and small hydro in the past 10 years and in the past 30 days has announced plans for another 100 MW of solar in 2023 and 104 MW of wind to come online in 2020. It is closing three coal-fired plants, and at the association’s April meeting, the board will consider a new, more flexible membership plan.
“Tri-State is considering by-law changes allowing for members to take more local generation,” said Jeff Wadsworth, CEO of the Fort Collins-based Poudre Valley Rural Electric Association, which is supporting Tri-State. “Tri-State is looking to add renewables. I think it is a question of the pace of change.”
State clean-energy goals at odds with Tri-State contracts
Supporters are lining up on both sides of the PUC case. More than 35 Tri-State member co-ops, most of them out-of-state, have filed in support of Tri-State.
United Power and the Durango-based La Plata Electric Association are supporting DMEA, as are the ski industry’s trade association, the libertarian Independence Institute, environmental groups and the Colorado Energy Office (CEO), which works with communities in Delta, Montrose and Gunnison counties and DMEA to promote ‘clean and renewable energy,’ ‘energy efficiency technologies and practices,’ and ‘energy storage systems,’” the office said in its PUC filing. “These changes may only be possible if the commission sets a just and reasonable charge for DMEA to withdraw from Tri-State.”
Sixty-two state lawmakers also signed a letter to the PUC in support of DMEA and the commission’s intervention.
“As members of the Colorado General Assembly who care about rural economic development and allowing all Coloradans access to less expensive power from local and diverse generation sources, we urge the commission to strongly consider exercising its jurisdiction under Colorado law and setting an exit charge fair to both DMEA and Tri-State’s remaining members,” the letter said.
“I don’t think Tri-State has been a good neighbor,” said state Sen. Don Coram, R-Montrose, who signed the letter. “We’ve tried to talk to Tri-State about renewable energy. We’ve got great resources in our region. DMEA could do 30 to 40 percent renewables. It is a question of jobs for my community, so it is time for an equitable divorce.”
Tri-State says it has the support of 35 of its members, including 11 in Colorado.
The core reason for the clash is the 40-year contracts Tri-State signs with its members. The contracts require the cooperatives to buy 95 percent of their electricity from Tri-State.
Tri-State maintains this is a contract dispute with DMEA and the PUC doesn’t have jurisdiction, a position backed by its supporters. “DMEA is complaining about a contractual term, contained in the Tri-State Bylaws, which would only take effect if DMEA is no longer receiving electric service from Tri-State,” Limon-based Mountain View Electric Association said in a PUC filings.
Trying to short-circuit the PUC
In January, Tri-State filed a complaint in Adams County District Court seeking a ruling on whether it is in fact a contract dispute ruled by Tri-State’s bylaws. Tri-State’s headquarters is in Adams County.
“Tri-State is trying to short-circuit the PUC,” said Virginia Harman, DMEA’s chief operating officer. DMEA has cast the dispute as a rate case in that the exit fee will have to be paid through consumer rate increases.
“We are not wanting to get out for free,” Harman said. “We are not asking for something that’s not fair. We want to pay our fair share. The number that Tri-State has proposed is not fair.”
Tri-State, as an interstate cooperative entity, has only been lightly reviewed by the PUC. The association serves cooperatives in Nebraska, Wyoming, Colorado and New Mexico, but increasingly Colorado co-ops, environmental groups and legislators have raised questions about its governance.
Two-thirds of the people Tri-State serves live in Colorado and the five largest co-ops are based here, led by United Power with nearly 80,000 members.
“PUC is charged with protecting the public interest, including rural Coloradans, like our members,” Harman said.
The calculation for Tri-State is complex. Based on those long-term contracts Tri-State developed 5,562 miles of high-voltage lines, has interests in six coal-fired and five natural-gas electric plants and $3.2 billion in debt. Tri-State reported revenues of nearly $1.4 billion in 2017.
Tri-State depends upon coal (through its plants and power purchases) for nearly half its electricity. It gets 30 percent of its power from renewables when all the local co-op projects and hydro power purchased from the federal Western Area Power Administration are included.
For some co-ops and environmental critics, the continued heavy reliance on fossil fuels presents financial risk, as the price of wind and solar generation continue to decline.
An analysis by the Rocky Mountain Institute, a Boulder-based energy consultant, calculated that Tri-State could save $600 million between now and 2030 if it shuttered its coal plants and moved to cheaper renewable generation. Tri-State disputed the calculation.
“While other utilities are moving away from coal, Tri-State’s continued reliance on coal poses a risk,” said Jeremy Nichols, director of the climate and energy program for the environmental group Wild Earth Guardians, which filed in the PUC case in support of DMEA.
Tri-State’s debt-to-asset ratio is about 60 percent, and the company terms the debt load “substantial,” in federal filings. A high debt-to-asset ratio is not uncommon in the utility industry, where predictable income streams make lenders more comfortable with a larger debt load.
“Our debt-to-capitalization ratio is in line with other G&Ts (generation and transmission associations),” Tri-State spokesman Lee Boughey said.
But anything that roils that predictable revenue stream is a risk.
“If we underestimate the monetary value of a member’s obligation or a significant number of our members withdraw, our ability to satisfy our financial obligations could be adversely affected,” the company said in its annual report to the U.S. Securities and Exchange Commission.
Tri-State’s position is that only its board, made up of representatives of the 43 co-ops, can approve a member quitting the co-op. “If such permission is granted, the board must ensure that the withdrawing member satisfies its contractual obligations so as not to harm the remaining members,” Boughey said.
That could include all the debt service and revenue obligations left on the contract.
“DMEA appears to propose a buyout of its contract at an amount that will not come close to making the remaining members financially whole,” Boughey said.
Looking for contract flexibility and more renewable power sources
In 2016, the Kit Carson Electric Cooperative, in Taos, New Mexico, paid a $37 million exit fee to leave Tri-State. The fee was financed through Guzman Energy, an energy management and contracting firm, that is also working with DMEA.
“The G&T model has two problems,” said Chris Riley, Guzman’s president. “There is the assets mix. They built these large, centralized coal plants. Now distributed renewable generation is an option. … They have both of those problems and they have them simultaneously.”
DMEA, La Plata and United have all tried to add more renewable generation or energy storage and butted heads with Tri-State. Proposals by La Plata proposals to increase the 5 percent cap on local generation to 10 percent was rejected by the board, as was a proposal to pool the 5 percent limit so co-ops could trade it amongst themselves.
Still, not all cooperatives are seeking to leave Tri-State. Many are very small, including the 3,100-customer Northern Rio Arriba Electric Co-op, in Chama, New Mexico, and the Southeast Colorado Power Association, which has 5,000 members scattered over 13,000 square miles.
“This issue with DMEA should be settled by the board,” said Jack Johnston, CEO La Junta-based Southeast Colorado Power Association.
Even the larger co-ops say they are just looking for a little more flexibility in their contracts with Tri-State.
“I don’t know how we got so far apart,” said Parker, the United CEO. “We are not looking to leave Tri-State. … We are looking to work together to address change.”