Tri-State reaches exit deal with Colo. co-op, seeks FERC regulation on rates and contracts

Energize Weekly, July 31, 2019

After more than two years of sometimes acrimonious negotiations, fights before a state utilities commission and lawsuits, the Tri-State Generation and Transmission Association has agreed to terms allowing one of its rural Colorado cooperatives to leave next year.

Four days after filing the agreement with Colorado Public Utilities Commission (CPUC), Tri-State moved to have its future rate cases and contract negotiations overseen by the Federal Energy Regulatory Commission (FERC).

Tri-State also announced it was embarking on the development of a “Responsible Energy Plan” aimed at decreasing carbon emissions, lowering wholesale rates and offering more flexible contracts that could permit more local renewable energy projects.

The association said it expects FERC to accept the tariff application within 60 days. Tri-State provides wholesale electricity to 43 cooperatives in four states – Nebraska, Wyoming, New Mexico and Colorado – and has been regulated on a state level.

“FERC rate regulation is the norm for wholesale power suppliers and places Tri-State on the same level playing field as other regional utilities,” Duane Highley, Tri-State CEO, said in a statement.

Tri-State, however, must add a new, non-cooperative member to be eligible for FERC regulation. The new member has not been named.

While Tri-State is set to add a member, the Delta-Montrose Electric Association (DMEA), in southwestern Colorado, has been looking to leave Tri-State for about three years.

DMEA has said that Tri-State’s rates are higher than the market and that the contract cap on locally generated electricity has thwarted efforts to add more renewables and use local projects for economic development.

Negotiations foundered on an exit fee. DMEA filed a complaint with the CPUC contending that Tri-State’s exit fee demand was discriminatory. Tri-State challenged the CPUC’s jurisdiction, which the commission rejected.

Tri-State then unsuccessfully tried to block the case in district court. When Tri-State announced it would seek FERC regulation, DMEA filed its own lawsuit to block Tri-State while its case was pending before the CPUC. The commission was set to hear the case in mid-August.

On July 19, DMEA and Tri-State filed a notice with the CPUC they had reached a settlement and that DMEA would leave Tri-State by May 2020. DMEA has indicated it could leave by next March. The terms of the agreement, including the exit, are, for now, confidential.

“A confidential settlement doesn’t help the rest of the co-ops,” said Britt Bassett, a board member of the La Plata Electric Association (LPEA), in Durango, Colo., which has also asked Tri-State for an exit fee.

In a letter to CPUC Chairman Jeff Ackermann, Highley said the confidential information “is neither relevant nor replicable in any future member withdrawal proceedings.” He said that the exit fee would be included in its filings to the U.S. Securities and Exchange Commission after DMEA leaves the association.

Still, at a July 15 CPUC hearing, Commissioner Frances Koncilja said, “I don’t think private settlements are in the best interest of the citizens of Colorado.”

Koncilja was also skeptical of Tri-State’s announcement it was seeking FERC rate regulation. “When you have a plan to do forum shopping, it is really upsetting to me,” she said. “The concern is bait and switch.” 

In his letter to Ackermann, Highley said Tri-State decision to move to FERC regulation was not in response to DMEA’s complaint “nor was it an attempt to divest this Commission of its jurisdiction in that proceeding.”

If FERC accepts the tariff application, Tri-State rates and any future efforts by cooperatives to leave their long-term contracts would be decided in Washington, D.C.

“The goal is to make it more difficult for co-ops to leave,” said Bassett.

Tri-State said that FERC would provide uniformity and certainty on rates. “Rate regulation certainty is necessary as we accelerate our pursuit of renewable energy and member flexibility, decrease emissions and strive to lower members’ wholesale rates,” Highley said.

Colorado and New Mexico passed clean energy laws giving them more oversight of Tri-State and setting targets of zero carbon emissions. Tri-State still generates almost 50 percent of its electricity from coal-fired plants.

Highley said, in his letter to Ackermann, that FERC rate regulation does not change state requirements to submit plans for new generating and transmission investments and for meeting carbon reduction targets.

The Responsible Energy Plan would meet state goals, but still lacks any specifics. A stakeholder process is being put in place with the help of Colorado State University’s Center for the New Energy Economy, which is headed by former Gov. Bill Ritter.

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