Federal regulators have ended a four-year battle by Brighton-based United Power to leave the Tri-State Generation and Transmission Association by setting the formula to calculate an exit fee.
United Power is the largest electric cooperative in the association, which sells wholesale electricity to 42 co-ops in four Western states, including 17 in Colorado, under 50-year contracts.
The cost of buying out that long-term contract has sparked a running battle with each side coming up with different ways of calculating an exit fee. Tri-State put the price at $1.6 billion, United initially at $150 million.
A formula, similar to United’s, used by a commission administrative law judge put the fee at up to $553 million, according to a United assessment.
The exit fee derived under the Federal Energy Regulatory Commission formula will be somewhere in between — several hundred million dollars — but there still may be some wrangling over that final number.
The FERC on Tuesday laid out the method of calculating an exit fee, but did not set the dollar value for United’s departure. The commission ordered Tri-State to provide exit fee numbers to United and any other co-op seeking one within the next 30 days.
Tri-State said in a statement that it is reviewing the order, but noted that the commission said the exit fee will likely be higher than previous calculations. The association said that using a debt formula mentioned by the commission produced an exit fee of $736 million.
United said that it is also reviewing the decision, and Mark Gabriel, the cooperative’s CEO, said there are still details to work out.
Two cooperatives — Kit Carson Electric Cooperative in Taos, New Mexico, and Delta Montrose Electric Association — have already left Tri-State. Two more, Mountain Parks Electric, in Granby, and Northwest Rural Public Power District, or NRPP, in Hay Springs, Nebraska — are slated to leave.
Departures are a big risk to Tri-State’s bottomline
Tri-State could lose as much as 25% of its revenues as a result of departing cooperatives.
The association had in filings expressed concerns that depending upon the terms of the formula it could lead to a “rush to the door” by members looking for advantageous exit fees.
“There’s gonna be clarity and a glide path for United to exit, which is May 1, 2024, and then for NRPP … and Mountain Parks,” said Robin Lunt, chief commercial officer for Guzman Energy, which will become a major supplier of power for United.
The Durango-based La Plata Electric Association, which is suing Tri-State for breach of contract, welcomed the FERC ruling.
“We are very pleased with this latest step forward, towards more clarity from FERC that enables us to evaluate our options,” Jessica Matlock, the association’s CEO, said in a statement. LPEA is already calculating its exit fee.
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The FERC order designates the financial form from which to take debt and credit numbers and identifies which numbers, or lines on the form, to use and how transmission costs should be treated.
It also said that three years of Tri-State sales should be used to determine a member co-op’s share of debt and other liabilities.
Tri-State had proposed a fee based on all the revenue it would lose from the long-term contract or alternatively, a fee calculated by multiplying the association’s total debt obligation by a cooperative’s portion of total Tri-State sales. United accounts for about 20% of Tri-State revenues.
The FERC rejected both methods saying the association had not shown them to be “just and reasonable.”
United had proposed a “balance sheet approach,” or BSA, measuring liabilities minus credits and assigning them on proportional basis.
The commission adopted a modified BSA, most notably adding the cost of transmission investments, which other formulas assumed would be paid off over time. The commission is requiring that amount be paid up front and then credited back to the cooperative over time.
“We are pleased to see that it supports a variation of the balance sheet approach methodology we proposed versus a contract damages or lost revenues approach,” United’s Gabriel said in a statement.
The commission rejected a number of arguments and claims made by Tri-State, such its members facing an immediate rate increase of up to 9.5% if the original BSA had been implemented.
“The record reflects that Tri-State members are unlikely to see a rate increase as a result of the Adopted BSA,” the regulators’ order said.
The adopted BSA, requiring members to pay its prorated share of debt and other long-term obligations should provide Tri-State time to manage its costs and should not harm Tri-State’s creditworthiness, the commission said.
“I think the commission’s main point is ‘Hey, Tri-State, you’re not going to cease to exist,’” Lunt said.
CLARIFICATION: This story was updated at 3:40 p.m. on Dec. 21, 2023, to clarify the sources of the broad range of exit fee estimates for United Power’s departure from the Tri-State Generation and Transmission Association.