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Western Slope utility serving Delta, Montrose settles on $136.5 million fee to break up with Tri-State

The fight between Delta-Montrose Electric Association and its power generating partner has dragged on since 2016 and led Tri-State to be more flexible in its remaining contracts.

Tri-State Generation and Transmission Association closed the coal-fired Nucla Station in September, more than two years earlier than expected. (William Woody, Special to The Colorado Sun)
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The electric cooperative serving the cities of Delta and Montrose has agreed to a $136.5 million fee to exit the Tri-State Generation and Transmission Association – showing that breaking up is not only hard to do, but expensive.

The Delta-Montrose Electric Association (DMEA) has since 2016 been sparring over renewable energy with Tri-State, a wholesale power production company serving 43 member electric cooperatives in Nebraska, Colorado, New Mexico and Wyoming.

Tri-State and DMEA reached an agreement in principle in July 2019, just days before the Colorado Public Utilities Commission was set to begin proceedings to set an exit fee for the cooperative.

Under the exit agreement, which would have DMEA leave Tri-State on June 30, the cooperative would pay a $62.5 million exit fee, $26 million for local Tri-State infrastructure and forgo the $48 million in equity the cooperative held as a member of Tri-State.

The DMEA-Tri-State agreement still must be submitted for final approval by the Federal Energy Regulatory Commission, which is now the regulator for Tri-State.

A number of Tri-State cooperatives have chafed under the association’s long-term contracts that limit local generation to 5% of demand, as they hoped to add more local renewable generation.  DMEA’s contract ran to 2040. Tri-State was also criticized for still being heavily dependent on coal-fired generation.

The $88.5 million will be paid by DMEA or a third party, according to Tri-State. When the Kit Carson Electric Cooperative, in Taos, New Mexico, left Tri-State in 2016, its new electric wholesaler, Guzman Energy paid the $37 million exit fee, which it is recouping in the first few years of its contract with the co-op.

DMEA has about 28,000 members and Kit Carson has 29,000, but DMEA has more commercial and industrial members and about twice the electricity demand as Kit Carson, with an annual peak of 95 to 100 megawatts, according to Virginia Harman, a DMEA spokeswoman.

DMEA is in the final steps of completing a 12-year wholesale power purchase agreement with Guzman Energy, Harman said, adding that there would be no further comment until the agreement is completed.

Read more energy coverage from The Colorado Sun.

“With support from Guzman Energy, DMEA intends to drive more local economic growth through expanded development of diverse, low-cost local energy,” Guzman CEO Chris Riley said in a statement. “We are excited to partner with DMEA and look forward to moving into a new era together.”

On April 10, Tri-State announced it was offering more flexible contracts that will allow cooperatives to add more renewable energy and a formal system for setting exit fees.

Under the partial contracts, which extend to 2050, a co-op will be able to seek a portion of 300 megawatts of capacity, about 10% of the association’s peak system demand, for local projects, but not to exceed 50% of local demand.

Cooperatives will now also be allowed to develop community solar projects, in which homes and businesses purchase a share in a large solar array, up to 2MW, or up to 2% of local electricity demand above the 5% local generation cap.

“A number of our members asked for more flexible contracts and this was done as part of Tri-State’s Responsible Energy Plan,” said Lee Boughey, a Tri-State spokesman.

In July 2019, Tri-State unveiled the plan to reposition the association. It includes adding 1 gigawatt of wind and solar generation and closing coal-fired power plants.

Tri-State has also established a procedure for setting exit prices as several other members have asked for estimates, the association said. FERC must approve the methodology for future exit fees

“This will be the methodology going forward,” Boughey said. “Kit Carson and DMEA were one-offs.”

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