Western rural electric cooperatives that have repeatedly asked how much it will cost for them to leave the Tri-State Generation and Transmission Association are facing “unjust and unreasonable or unduly discriminatory” hurdles in getting those numbers, according to federal energy regulators.
“The lack of clear and transparent exit provisions has allowed Tri-State to impose substantial barriers for its utility members in evaluating whether to remain in Tri-State,” a preliminary ruling from the Federal Energy Regulatory Commission, or FERC, said.
The commission took action on its own based on Tri-State’s “conduct toward those utility members” seeking exit fees.The commission said that the association’s tariff and bylaws may be “unjust and unreasonable.”
“This is an unusual action by FERC and shows that FERC is concerned about the lack of transparency and delay of Tri-State in providing full exit charge,” Jessica Matlock, CEO of the Durango-based La Plata Electric Association (LPEA), one of the co-ops seeking an exit fee, said in a statement.
“The issue has now risen to the level of the FERC commissioners themselves, with FERC unanimously deciding to open this investigation,” Matlock said.
Nine rural electric cooperatives, including six in Colorado, have sought estimates for what it would cost to exit their long-term contracts with Westminster-based Tri-State, as some co-ops seek the chance to develop local, cleaner and cheaper electricity generation.
The commission gave Tri-State 30 days to come up with a clearer plan for issuing exit fees or file an appeal showing why the association’s approach is “just and reasonable.”
The co-ops filed requests for exit fee estimates more than a year ago, but Tri-State argued that issuing the figures was premature since FERC was reviewing its overall tariff plan that the association only has to give an estimate if a co-op announces it is going to leave.
FERC rejected both arguments. If the commission rules that Tri-State’s exit-fee tariff is discriminatory, FERC could establish its own rates – and indicated it would do that with dispatch.
“Given the long period of time that Tri-State’s members have had to wait for calculations they should have been entitled to have already received, the Commission intends to act promptly after the receipt of Tri-State’s filing,” the order said.
“Tri-State is reviewing the FERC order, and intends to continue to work through the commission’s processes to resolve its concerns,” Tri-State CEO Duane Highley said in a statement. “We recognize the concerns expressed by FERC and look forward to working with our board of directors and FERC to resolve these issues.”
Efforts by cooperatives to leave Tri-State have roiled the association for the past four years as some members have chafed under the requirement that they purchase 95% of their electricity from Tri-State.
The contracts held by Tri-State, an electricity wholesaler serving 42 member cooperatives in four states, run through 2050.
In 2019, the Kit Carson Electric Cooperative, in Taos, New Mexico, was the first to leave Tri-State, paying a $37 million exit fee. In 2020, the Delta-Montrose Electric Association agreed to a $136.5 million break-up fee.
Two other cooperatives – Brighton-based United Power and the LPEA – filed a complaint with the Colorado Public Utilities Commission seeking exit fees and challenging Tri-State’s method for calculating those fees.
United Power is Tri-State’s largest cooperative serving 92,000 homes and businesses on the Front Range, accounting for 17% of 2019 sales, worth about $200 million. LPEA is the third largest co-op with 37,000 members and about 3% of sales.
Tri-State’s position was that it had made investments in generation and transmission to serve all those co-ops and that a cooperative leaving should not damage the financial interest of the remaining members or the viability of the association.
In its calculation, Tri-State included not only the portion of debt for which a departing member would be responsible, but also the cost of all the electricity the exiting co-op would have purchased over the next 30 years.
For United Power, Tri-State initially put the exit fee at $1.2 billion. In 2020, United Power had total assets of not quite $550 million, according to the co-op’s annual report. The association never gave LPEA an exit estimate.
A PUC administrative law judge issued a “recommended decision” to the full commission, in July 2020, rejecting Tri-State’s exit formula and finding Tri-State’s refusal to give exit fee estimates as “unjust” and “discriminatory.”
By that time, however, Tri-State had gained approval to be regulated exclusively by FERC, contending that since its service area covered four different states – New Mexico, Colorado, Wyoming and Nebraska – it made more sense to have one regulatory body oversee the association.
“They thought going to FERC would be the heavy hand to beat down the co-ops from leaving, but it backfired,” said Eric Frankowski, executive director of the non-profit Western Clean Energy Campaign.
In March 2021, seven co-ops, from Colorado, New Mexico and Nebraska, filed a complaint with FERC saying Tri-State was stonewalling their efforts to get exit fee estimates. United Power and LPEA were also in this group. That complaint is still pending.
“LPEA has been trying to obtain a full exit charge from Tri-State for over two years through multiple cases at both the PUC and FERC,” Matlock said..
Mark Gabriel, United Power’s CEO, said “We are just trying to find a fair and equitable way to make a decision,” adding it wasn’t a foregone conclusion that the co-op would leave.
“We would all like to get a resolution,” Gabriel said. “We are all spending a considerable amount on legal fees.”
The other Colorado cooperatives requesting exit fees, according to FERC filings, are the San Miguel Power Association, Mountain Parks Electric, Poudre Valley Rural Electric Association, and San Isabel Electric Association.
The Springer Electric Cooperative in New Mexico and the Northwest Public Power District and Wheat Belt Public Power District, both in Nebraska, are the other Tri-State members seeking exit fees.
“I would anticipate that Tri-State is going to file a new tariff,” Ellen Kutzer, an attorney with the environmental group Western Resources Advocate, said. “It is harder to fight the uphill battle of an appeal than to go back to the drawing board and draw-up something that passes muster at FERC.”