By - Jim Vess

Colorado PUC ruling sets stage for rural electric cooperative to leave Tri-State G&T

Energize Weekly, February 20, 2019

The Colorado Public Utilities Commission waded into a dispute between a Western Slope rural electric cooperative and the Tri-State Generation and Transmission Association over the co-op’s efforts to leave the association.

The commission’s decision will provide a new level of oversight for Tri-State, which provides wholesale electricity to 43 rural cooperatives in Colorado, Nebraska, New Mexico and Wyoming.

Tri-State argued that the commission did not have jurisdiction because the issue is a contract dispute, not a rate case, between the co-op, the Delta-Montrose Electric Association (DMEA), and an interstate energy provider.

After DMEA filed its complaint with the utilities commission contending that Tri-State was not negotiating in good faith over an exit fee, the association went to district court in Adams County, Colo., seeking a ruling that the issue belongs in the courts, not at the utilities commission.

The move was aimed to “short-circuit” the utilities commission, said Virginia Harman, DEMA’s chief operating officer. DMEA has cast the dispute as a rate case in that the exit fee will have to be paid through rates.

On Feb. 14, the commission rejected the Tri-State arguments. Two-thirds of the people Tri-State serves live in Colorado, and the five largest co-ops are based there.

“The commission’s assertion of jurisdiction is unnecessary and unwarranted, but is not unexpected,” Tri-State board president Rick Gordon said in a statement. “A private contract dispute, even between utilities, does not belong at the commission. This matter appropriately belongs in the courts.”

Tri-State and DMEA has been negotiating an exit fee for more than a year. Tri-State’s position is that an exit fee has to include the debt service from the remainder of the co-op’s 21-year contract and the lost revenue from electricity sales. The exact figure remains undisclosed. 

“The [Tri-State] board must ensure that the withdrawing member satisfies its contractual obligations so as not to harm the remaining members,” said Lee Boughey, a spokesman for Tri-State.

“DMEA appears to propose a buyout of its contract at an amount that will not come close to making the remaining members financially whole,” Boughey said. 

In turn, DMEA officials called Tri-State’s proposed fee “discriminatory” and want the utilities commission to establish the exit fee. The commission’s Feb. 14 ruling sets the stage for that case.

“This is a significant ruling and confirms that no wholesale electricity supplier—not even Tri-State—is above the law,” Jason Bronec, DMEA’s CEO, said in statement. “Tri-State talks about its ‘core principle’ of ‘voluntary and open membership’ in public. But its legal filings say that the Tri-State board can stop members from exiting by setting abusive charges with zero oversight.”

DMEA wants to leave Tri-State to develop more renewable and local energy generation, spurred by lower market prices for wind and solar and the prospect of using energy projects as an economic development tool.

The co-op also said it sees the addition of cheaper wind and solar generation as a hedge against increasing electricity rates.

The problem is that under the standard 40-year contract all co-ops sign with Tri-State, they are required to buy 95 percent of their electricity from the association, which operates an interstate network of power plants—still heavily dependent on fossil fuels—and transmission lines. A network, Tri-State says, which has been built with the expectation of serving these long-term contracts.

Other co-ops, such as the Brighton, Colo.-based United Power and the Durango-based La Plata Electric Association, have also bumped up against the cap in seeking to add local resources. The two filed an amici curiae brief with the utilities commission in support of DMEA.

“Tri-State, a public utility, now claims that it can unilaterally impose massive exit charges that are impervious to the Commission’s review,” the brief said. “Were this true, the Commission’s power would be an illusion. And hundreds of thousands of rural Coloradans, including Amici’s customers, would face a cruel dilemma: either to spend decades trapped in Tri-State’s regime (even if this meant absorbing utility rates far above market), or somehow find a way to pay hundreds of millions of dollars—or billions in the case of United Power—in unjust and discriminatory exit charges.”

The Colorado Energy Office (CEO), a state agency, also filed in support of DMEA, saying, “The CEO works with communities in Delta, Montrose, and Gunnison Counties and DMEA to promote ‘clean and renewable energy,’ ‘energy efficiency technologies and practices,’ and ‘energy storage systems’ These changes may only be possible if the Commission sets a just and reasonable charge for DMEA to withdraw from Tri-State.”

In 2016, the Kit Carson Electric Cooperative, in Taos, N.M., became the first co-op to buy its way out of Tri-State as it sought to add more renewable energy. Its exit fee was $37 million.

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