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Rural electric co-ops get shocking estimates of the cost to break up with Tri-State Generation

Nine members of Tri-State asked what they’d have to pay to leave the association. Now they want to know the formula used to calculate the bills.

Overhead power lines stretch across the landscape alongside wind turbines on March 9, 2021 in Limon, Colorado. (Kathryn Scott, Special to The Colorado Sun)
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Rural electric cooperatives seeking to leave the Tri-State Generation and Transmission Association have received exit fee estimates in a federal filing and it adds up to billions of dollars

The respective price tags for two Colorado co-ops in the forefront of the exit movement — Brighton-based United Power and Durango-based La Plata Electric Association — were $1.5 billion and $449 million.

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“These exit fees are still barriers to leaving,” said Eric Frankowski, executive director of the Western Clean Energy Campaign, an environmental advocacy group.

Some of Tri-State’s 43 member co-ops have voiced a desire to develop more homegrown and cleaner electric generation – they are required to buy 95% of their electricity from the association, which still has substantial coal-fired generation.

“This does not move the ball,” United Power CEO Mark Gabriel said. “I think they are off by three zeros,” he said of his co-op’s exit fee.

The association’s filing was in response to a ruling in June by the Federal Energy Regulatory Commission that Tri-State’s exit policies were “unjust and unreasonable or unduly discriminatory.” 

“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,” the preliminary FERC ruling said.

“It is disappointing that it took us multiple years to get an exit charge from Tri-State and that they did so only under pressure from FERC,” LPEA CEO Jessica Matlock said in an email. She called the exit fee for her co-op “outrageous.”

Nine member co-ops have asked for exit fees from their contracts which run to 2050, although they all say that it is just for planning purposes. Tri-State had refused to provide those exit estimates.

Tri-State supplies wholesale electricity to cooperatives in four states – Colorado, New Mexico, Wyoming, and Nebraska. Cooperatives in all four states have asked for exit fees. There are 17 Colorado members.

Tri-State had 30 days to defend or revise its exit policies. In its response, the electricity company outlined a raft of changes it was making to make the process more transparent and predictable.

The association did away with a requirement that a co-op had to pay to get an exit estimate and a provision giving Tri-State’s board discretion over whether to permit a co-op to leave.

The method for calculating exit fees is complicated

Tri-State also agreed to share the data it used to compute fees and its methodology, and to update and provide exit fees annually.

The heart of the dispute, however, is that method Tri-State uses to compute the exit fees and the need to revise the association’s business model.

“We certainly support the efforts of transparency,” Gabriel said. “The fundamental problem is they haven’t attacked the methodology and there is a serious disconnect between what they are proposing and what those of us who have been in the business a long time think what needs to be done.”

In December, Tri-State unveiled a $23 billion plan to move from reliance on coal to more renewable energy. The plan aims to cut Tri-State carbon emissions 80% by 2030.

Tri-State said that its exit fees are based on the higher number of two calculations: the exiting cooperative’s share of the utility’s debt, or the present value of all the electricity Tri-State would have sold the co-op to 2050, minus any sales of the departing member’s share of the association’s electricity in wholesale markets. Tri-State’s total debt at the end of 2020 was $3.3 billion, according to a federal filing

This is how Tri-State got to $1.5 billion for United Power, which has $550 million in assets and about $300 million in annual sales, and $449 million for LPEA, with $36 million in assets and $114 million in annual revenue.

“Our remaining utility members must be in the same financial position they would have been had the withdrawing utility member fulfilled its contractual obligations,” Lee Boughey, a Tri-State spokesman, said in an email. “A utility member’s departure before the end of its contract term in 2050 must not cause rate increases to remaining utility members, revenue shortfalls or debt covenant defaults.”

Tri-State’s methodology for calculating the exit fees is being challenged by eight co-ops, including United Power and LPEA, in another case before the FERC.

Gabriel said that as Tri-State’s largest cooperative with 100,000 customers, 6,000 solar rooftop installations and thousands of electric vehicles, accounting for more than 17% of the association’s total sales, United is carrying some of the smaller coops. 

“I can’t say to people you are subsidizing others,” Gabriel said. “That is a really tough discussion.”

LPEA’s Matlock said that it was “hard to reconcile” the exit fees delivered the filing, especially in light of the $37 million exit fee given to the Kit Carson Electric Cooperative, in Taos, New Mexico, which left in 2019, and the $136.5 million break-up fee awarded the Delta-Montrose Electric Association in 2020.

“Two previous member withdrawals were the product of separate, negotiated agreements, each based on unique circumstances, with contracts that terminated in 2040,” Boughey said.

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