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Energy

Fight over prices, renewable energy spurs second rural cooperative to leave Tri-State Generation

Delta-Montrose Electric Association votes to sell stock to raise cash to exit contract, following Taos, N.M., co-op that says it will save $70 million after paying breakup fee

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The rural electric cooperative serving Delta, Montrose and the Western Slope communities around them has moved a step closer to leaving its power provider, the Tri-State Generation and Transmission Association.

Co-op members voted Tuesday to adopt new incorporation articles enabling the Delta-Montrose Electric Association (DMEA) to use a limited stock issue to raise the cash needed to pay Tri-State an exit fee.

“We are the first rural cooperative in the country to use this mechanism,” DEMA board member John Gavan said. “It is a major opportunity to effect change both economic and environmental.”

Tri-State and some of its member co-ops across four states have have been sparring over rates and renewable electricity generation for years.

Delta-Montrose Electric Association is trying to end its relationship with Tri-State Generation because of prices and heavy reliance on fossil-fuel generated power. About 30 percent of Tri-State’s power portfolio is from renewable sources, such as wind. (Dana Coffield, The Colorado Sun)

The Kit Carson Electric Cooperative, in Taos, N.M., paid $37 million in 2016 to get out of its Tri-State contract, citing its desire to provide its customers more power from renewable souces.

DMEA began talks to leave Tri-State nearly two years ago saying that Tri-State’s wholesale rates were too high. “Right now we are going to continue negotiating an exit with Tri-State,” Chief Operating Officer Virginia Harman said. “We won’t be issuing stock until we have the right circumstance.”

Westminster-based Tri-State said in a statement while it did not take a position on the special election, it “refutes DMEA’s assertion regarding the generation and transmission cooperative’s wholesale rates.”

“It’s the association’s expectation that each member will fulfill their obligations through the end of the term of our contract,” Tri-State CEO Mike McInnes said in a statement.

The standard contract Tri-State has with 43 cooperatives it serves requires them to buy 95 percent of their electricity from Tri-State.

This has limited the ability of co-ops to add local renewable energy. DMEA already is hitting the 5 percent limit. The three other Colorado co-ops—La Plata Electric Association, San Miguel Power Association and United Power—have also hit the cap and several others are close to it.

La Plata placed a resolution before the Tri-State board last spring calling for the cap to be raised to 10 percent locally generated power, but it was voted down.

In 2014, DMEA used a federal law requiring utilities to buy power from a qualified, local renewable energy facility to purchase electricity from a small hydropower plant, above the 5-percent cap.

 Tri-State challenged the co-op’s purchase at the Federal Energy Regulatory Commission. The commission, in 2015, ruled in DMEA’s favor. Tri-State has appealed the ruling.

In its campaign to change the co-op’s articles of incorporation, DMEA laid the problem of rising electricity bills on Tri-State’s 30 percent increase in charges in the last 10 years.

“Our members have made it a priority to stabilize rates, which we have done,” McInnes said. “Our wholesale rates have remained stable four of the last five years, will not increase next year and are forecasted to remain stable in the years to come.”

DMEA also criticized Tri-State for its heavy dependence on coal- and natural-gas fired electricity generation. More than half of Tri-State’s generation is powered by fossil fuels. Tri-State has closed one of its coal-fired plants and plans to close two more. It now gets about 30 percent of its electricity from renewable sources.

The changes approved by DMEA members — all 27,800 bill payers are members of the co-op — update the articles of incorporation, some parts of which date back to 1938, and they offer the association more financial flexibility by being able to issue capital, nonvoting stock.

A total of 3,925 members voted with 68 percent approving the changes to the articles of incorporation. Harman said that is a normal turnout for an association vote. She said board elections may draw up to 4,500 people.

“If we were to pursue a buy-out, one way to do it is through a debt mechanism,” Gavan, the board member, said. “But there are limits to that mechanism. Equity financing offers another way.”

He said DMEA might be able to find a partner, possibly an energy provider, who would purchase the equity.

Kit Carson signed a deal with Miami-based Guzman Energy, under which Guzman put up the $37 million for the exit fee and got a contract to provide the town with electricity for 10 years. For the first six years Kit Carson would repay the exit fee through rates. Still, over the life of the contract the co-op calculates it will save up to $70 million compared to Tri-State rates.

Under the Tri-State bylaws membership is voluntary and an exit fee should be “fair and equitable,” Gavan said. “So far the numbers being quoted by Tri-State are neither fair nor equitable.”