The financial pressures on Tri-State Generation and Transmission Association, a wholesale power provider to rural electric cooperatives, continue to pile up as bond rating agencies have downgraded their bonds and four members prepare to depart.
Created in 1952 to provide electricity to rural cooperatives in Nebraska, Wyoming, Colorado and New Mexico, Tri-State built a network of power plants — including several coal-fired units — and 5,800 miles of transmission lines to serve far-flung rural communities.
To do all that Tri-State, a nonprofit company, had to rely on bond and credit markets for cash and at the end of 2023 it had $3.32 billion in debt, rising to $3.8 billion by 2028, according to a federal filing.
In a rapidly changing electricity market with new competitors and demands for cleaner energy, a number of Tri-State’s member cooperatives have grown restless.
Some cooperatives have chafed under Tri-State’s 50-year contracts that require them to buy 95% of their electricity from the association, thwarting development of local projects. Others were concerned Tri-State relied too much on fossil fuels and that its rates were too high.
Moody’s Investor Services and Fitch Ratings — two of the three national bond rating agencies — have lowered the ratings on $1.6 billion to $2 billion of Tri-State’s bonds.
Fitch also lowered its outlook to negative, while Moody’s upgraded it to stable from negative.The third rating agency, S&P Global Ratings, had lowered its ratings last April.
The agencies cited two reasons for the downgrade: the association’s inability for almost a year to get a rate increase approved by federal regulators, which impairs cash flow, and the departure of four member cooperatives.
Until the rate increase is approved, Moody’s said, “Tri-State’s revenue and cash flow will continue to under collect ongoing costs, weakening its credit profile and creating a degree of uncertainty.”
The four cooperatives are buying out their contracts, including Brighton-based United Power, the association’s biggest co-op. This follows the earlier exits of the Kit Carson Electric Cooperative, in Taos, New Mexico, and the Montrose-based Delta-Montrose Electric Association.
United Power and the Hay Springs, Nebraska-based Northwest Rural Power District, or NRPD, leave May 1. Mountain Parks Electric, in Granby, and Durango-based La Plata Electric Association will leave by 2026.
The four departing cooperatives accounted for about 28% of revenues. Kit Carson and Delta-Montrose were about 5% of revenue, according to Moody’s.
With the departures Tri-State will have 38 member cooperatives including 14 in Colorado.
“This ongoing member discontent and threat of further withdrawals represents an asymmetric management and governance risk that is factored into the overall rating determination,” Fitch said.
The rating agencies, however, noted that the association has low operating risk and a good liquidity — cash positions — and its bonds remain investment grade, adding that a resolution of the rate case and stability in membership could lead to an upgrade.
“The news of our death has been greatly exaggerated.”
“I would say in the words of Samuel Clemens, the news of our death has been greatly exaggerated and maybe we should base our fears and our optimism on reality,” Duane Highley, Tri-State CEO, said at the company’s annual meeting April 3.
Highley said that a rate increase proposal that has been stuck at the Federal Energy Regulatory Commission, with the commission rejecting several formulas proposed by Tri-State, would be resolved later this year.
FERC’s most recent rejection of a Tri-State rate proposal was in March, but in its order the commission agreed — in some cases over the objections of member cooperatives — with some of the association’s formulas, leaving the allocation of some costs to be resolved.
Departing cooperatives also have to pay a contract termination fee to cover their portion of the association’s debt and other costs. Tri-State calculated the exit fees, based on a formula prescribed by FERC, at $709 million for United Power and $41 million for the NRPD.
United Power has challenged Tri-State’s application of the FERC formula and the issue is before the commission.
Tri-State has also applied for hundreds of millions from the federal New ERA fund, which aims to help cooperatives transition to cleaner energy.
“That’s going to help us manage the cost of that transition,” Highley said. “Between New ERA and the contract termination payments, we’re talking about well over a billion dollars in cash that’s coming into Tri-State.”
Tri-State has filed a clean energy plan with the Colorado Public Utilities Commission that calls for shuttering two coal-fired plants — including the 2028 closing of the Craig Station in Moffat County — and the addition of 1.25 gigawatts of renewable energy and storage.
The plan will lead to 70% of the association’s electricity coming from renewable sources and a 89% reduction in its greenhouse gas emissions by 2030, Highley said.
At the end of 2023, coal-fired plants made up 36% of the association’s 4.2 gigawatts of generation, with natural gas making up another 19%, according to Fitch. Renewables were 32% of the mix. Contracts to buy power made up the rest.
The clean energy plan relies on New ERA funding, but since it is a competitive process the association is not disclosing exactly how much it plans to ask for, said Lee Boughey, a Tri-State spokesman.
“There are indeed a lot of really good things that Tri-State is doing, and they should be applauded for them, especially their embrace of clean energy,” said Eric Frankowski, executive director of the nonprofit Western Clean Energy Campaign.
“But reality also means taking an honest look in the mirror,” Frankowski said. “You can’t ignore the ongoing issues with member dissatisfaction. … Until Tri-State recognizes that and loosens the reins, reality might not be the purely rosy picture Mr. Highley wants to paint.”
In an effort to address some of those issues, Highley told the annual meeting that this summer the association will unveil a plan to enable co-ops to generate as much as 40% of their load.
“It’s called Bring Your Own Resource,” Highley said. “We will be filing that this summer at the Federal Energy Regulatory Commission.”