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United Power makes good on threat to break its contract with Tri-State Generation

With 103,000 customers, United Power accounts for 20% of Tri-State’s business and pays almost double the open-market price for electricity.

United Power's Rattlesnake Solar Farm sits on 175 acres near Platteville, Colorado. The ability to generate additional power using renewable resources is one of the motivators for the company to break up with Tri-State Generation. (Carl Payne, Special to The Colorado Sun)
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After years of legal sparring, United Power, the largest electric cooperative in the Tri-State Generation and Transmission Association, is moving to break with the wholesale power provider.

The Brighton-based co-op filed notice of its intent to withdraw from the association, effective January 2024, with the Federal Energy Regulatory Commission. The FERC oversees Tri-State.

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United follows two other co-ops that have already left Tri-State, while eight others have asked the association what it would cost them to exit their contracts.

“Cooperatives are seeking more access to the wholesale markets and more innovation,” said Robin Lunt, chief strategist for Guzman Energy, a wholesale energy provider that helped the Kit Carson Cooperative, in Taos, New Mexico, and Delta-Montrose Electric Association leave Tri-State.

United Power, with 103,000 metered customers, is looking for flexibility in generating electricity locally and for the ability to adopt new initiatives, such as large-scale battery storage, but under its contract it must purchase 95% of its power from Tri-State.

United Power had filed a complaint against Tri-State with the Colorado Public Utilities Commission and taken Tri-State to court over issues surrounding its departure. The FERC ruled that it — not the PUC — had jurisdiction in the matter.

“Since I arrived nine months ago, I really wanted to resolve this amicably and we tried,” United CEO Mark Gabriel said in an interview. “But our power supplier didn’t.”

Tri-State CEO Duane Highley said the company would work with United, “as it would with any other member, through the contract termination process to support an orderly withdrawal.

“We worked with United Power to understand its individual needs, but each of its proposals would have harmed the other utility members of Tri-State,” Highley said.

The key to United’s departure will be the exit fee to compensate Tri-State for United not completing its power purchase contract, which runs until 2050.

Gabriel said the fee should be between $200 million and $300 million. Tri-State has put the figure at $1.5 billion. The FERC will have to rule on the appropriate method for setting the exit fee.

“United is 20% of Tri-State’s business, the next largest cooperative is 8%,” Gabriel said. “Our members pay a disproportionate amount of Tri-State’s overhead.”

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Tri-State is a wholesale electricity power generator serving 43 rural electric cooperatives in Nebraska, Wyoming, New Mexico and Colorado.

Several co-ops have chafed under the severe limits to local, renewable energy generation, the fact that Tri-State still relies on coal-fired generation and the relatively high price it charges co-ops for electricity.

“I’m paying $75 a megawatt-hour from Tri-State,” Gabriel said. “In the wholesale market the rate is in the high $40s a megawatt-hour.”

Beyond the dollars and cents, Gabriel said that the entire utility industry is moving away from the model of large fossil fuel power plants and high voltage transmission lines.

United Power, for example, already has 84 megawatts of renewable generation on its system, including 46 megawatts of utility-scale solar. It is home to a 4-megawatt battery storage project, the largest in Colorado, and has more than 6,800 rooftop solar systems.

“The electric ecosystem is changing and we need to change with it, but we are handcuffed today” Gabriel said.

In December 2020, in part responding to co-op criticism, Tri-State unveiled a $21 billion plan that calls for adding 1 gigawatt of wind and solar, closing all Colorado and New Mexico coal-fired plants by 2030, and giving co-ops the opportunity to go beyond the 5% generation cap.

Kit Carson paid $37 million to leave Tri-State and DMEA posted a $136.5 million exit fee.

In both cases Guzman Energy helped finance the exit fee, which was folded into an agreement to provide electricity from renewable sources to the cooperatives.

Gabriel said that if you look at the difference between the Tri-State wholesale price and the market price there is a lot of room to pay an exit fee and still save money for co-op customers

Eight other co-ops, including the Durango-based La Plata Electric Association, have asked for exit fee estimates, although some say it is only for planning purposes.

Initially, Tri-State balked at providing the estimates, but in June, the FERC ruled that the association’s actions and bylaws might be “unjust and unreasonable.”

Tri-State then provided estimates to the co-ops including the $1.5 billion fee to United Power and a $449 million exit charge for LPEA.

“Tri-State has used those bloated buy-out figures as a means to keep co-ops in the fold,” said Eric Frankowski, executive director of the Western Clean Energy Campaign.

Tri-State’s position is that it has made investment in generation and transmission to serve those co-ops and a cooperative leaving should not impair the financial interests of the remaining members or the viability of the association.

The association in its calculation of an exit fee has included all the cost of all the electricity a departing member would have purchased under the remainder of its 50-year contract.

In November, Tri-State submitted a revised process for establishing and resolving exit fees and United Power then filed to leave the association.

“United is calling their bluff,” Guzman Energy’s Lunt said.

While Tri-State has called for a lost revenue approach, United contends that the exit fee should be calculated on the percentage of Tri-State debt United Power has committed to as part of the association, Gabriel said.

“It will be up to FERC to decide the methodology,” he said.