Colorado Sun, July 19, 2019. In a sign of how quickly electricity industry is changing, Tri-State Generation and Transmission Association is taking a quick paced series of steps to deal with market pressure and complaints from some of its member cooperatives.
Westminster-based Tri-State — power provider to 43 rural electric cooperatives in four states, including 18 in Colorado — has been criticized for its heavy reliance on coal-fired generation, its high rates and its long-term contracts that limit co-ops on local renewable energy projects.
Faced with renewable energy generation that undercuts the cost of power from coal-fired plants and new laws in Colorado and New Mexico setting high clean energy goals, Tri-State is being pushed by political and market forces to change or fall behind.
“Our industry is facing significant challenges and we are positioning ourselves not only meet those challenges, but to leverage those opportunities for our membership,” Tri-State spokesman Lee Boughey said.
Since July 9, Tri-State has announced it will move from state to federal rate regulation, settled what had been a fractious dispute with one of its members seeking to leave the association and announced a new energy plan to reduce carbon emissions, increase renewable generation and lower rates.
Tri-State and the co-op looking to exit, the Delta-Montrose Electric Association, or DMEA, are slated to file settlement papers with the Colorado Public Utilities Commission on July 19.
“Tri-State is working it,” said Jeremy Nichols, climate and energy program director for the environmental group Wild Earth Guardians. “They are feeling the heat. The question is how do you harness change and not get left behind?”
The association, which serves co-ops in Nebraska, Wyoming and New Mexico as well as Colorado, has recently faced a variety of challenges.
In 2016, the Kit Carson Electric Cooperative, in Taos, N.M., bought out its Tri-State contract for $37 million. DMEA started the same process and the La Plata Electric Association, in Durango, also has asked for an exit-fee estimate.
The Tri-State contracts limit co-ops from generating more than 5% of their own electricity and that has put a damper on local renewable energy projects, leading some cooperatives, such as United Power, in Brighton, to push for ways to accommodate more local initiatives.
Meanwhile, studies by environmental groups contended there are big savings in Tri-State shutting its coal plants. A study by the Rocky Mountain Institute, an energy consulting group, calculated Tri-State could save consumers $600 million or more by 2030 if it shut down its coal-fired units and replaced them with low cost wind and solar generation.
Tri-State disputed the study saying it is based on incomplete numbers. The association gets nearly 50% of its electricity from coal-fired power plants.
In the spring, Colorado and New Mexico passed laws giving their utility commissions more oversight of Tri-State and set targets for curbing carbon emissions. New Mexico passed a 100% clean energy law and Colorado adopted a clean energy plan aimed reaching net zero-carbon emissions by 2050.
In May Guzman Energy, a Miami-based energy contractor and consultant who is working with Kit Carson and DMEA, offered to buy Tri-State’s coal assets for about $500 million, retire them and replace them with cheaper energy. Tri-State declined the offer.
The Tri-State board voted July 9 to seek rate regulation by the Federal Energy Regulatory Commission, or FERC, which would remove state oversight on rates and contract issues. There were only three no votes: DMEA, La Plata and United Power.
“We think they are kind of rushing it,” United CEO John Parker said. “The staff has been talking about it for years, maybe we could talk about it for more than three weeks.”
Parker said that Tri-State is headed for FERC regulation anyway. When the association sells more than 4 million megawatt-hours in a year — something that is likely to happen in the next three to six years — it will automatically come under the commission’s jurisdiction.
The fight over FERC regulation
Britt Bassett, a member of the La Plata board, said he thought the rush was an attempt by Tri-State to get out from under PUC oversight. “It appears to us that Tri-State’s goal is to have all contract negotiations to go to FERC,” Basset said. “The goal is to make it more difficult for co-ops to leave.”
After more than a year of negotiations, DMEA filed a complaint with the PUC last December contending that Tri-State’s demands for an exit fee were “discriminatory.” Tri-State argued that the PUC did not have jurisdiction, an argument the commission rejected.
Tri-State went to court to block the PUC case and failed. When the association announced it was going to vote to move to FERC regulation DMEA filed a court suit attempting to block the vote, which was held before a hearing could be set.
At a July 12 PUC hearing, DMEA sought to move up the hearing on its complaint before Tri-State moved to FERC. Tri-State attorneys said they needed more time to prepare. The commission wasn’t sympathetic.
“When you have a plan to do forum shopping it is really upsetting to me,” PUC Commissioner Frances Koncilja said. “The concern is bait and switch.”
The commission was set to vote July 15 on moving up the hearing, but hours before the session Tri-State and DMEA filed notice that they had reached a settlement. The question now is whether the terms will be kept confidential.
“A confidential settlement doesn’t help the rest of the co-ops,” said Bassett. At the July 15 hearing Koncilja said “I don’t think private settlements are in the best interest of the citizens of Colorado.”
Two days after filing the settlement, Tri-State unveiled its proposal for a “Responsible Energy Plan.” The aims of the plan are to decrease carbon emissions, increase renewable energy, lower wholesale rates and pursue more flexible contracts that could allow for more local renewable projects.
Rates influenced by vast service area
Rates have been a sore point for come cooperatives as Tri-State’s $75 a megawatt-hour rate in 2018 was three times higher than Xcel Energy’s wholesale rate in Colorado, according to a study by The Western Way, non-profit promoting a free-market conservation policies.
The Tri-State rates reflect the costs of serving widely dispersed members, which is more expensive than serving urban customers, and additional services the association provides its co-ops, according to Boughey.
The plan lacks specifics, but a stakeholder process is being put in place with the help of Colorado State University’s Center for the New Energy Economy, which is headed by former Gov. Bill Ritter.
Tri-State had already slated three coal-fired units for closure, including the 100-megawatt Nucla plant that it said this week will close early in 2020, two years earlier than planned. Earlier this year, the utility announced the addition of 100 megawatts of solar and 104 megawatts of wind. In June it issued another call for wind and solar projects.
“As the cost of renewable energy continues to come down Tri-State has accelerated its renewable energy purchases,” Boughey said.
The board’s contract committee, Boughey added, is already reviewing proposals for changes in the wholesale contract to provide members with more flexibility.
Mark Dyson, a principal at Rocky Mountain Institute and author of the study on Tri-State’s coal-fired plants, said in an email that the association’s announcement “suggests Tri-State is beginning to acknowledge the broad utility industry consensus that taking major steps toward a low-carbon energy future can be, in fact, more affordable than continuing with business-as-usual.”
“The implementation details, when they are available, will tell how much of this opportunity they intend to pursue,” Dyson said.