Member co-op blasts contracts with power provider
An electric cooperative wrangling with Tri-state Generation and Transmission Association over local control and getting off coal has issued a public pronouncement that it and fellow cooperatives still need the power supplier. Just not in the current form.
Brighton-based United Power, which serves about 300,000 people along Colorado’s bustling Front Range, is Tri-state’s largest member in its four-state territory. United Power is also one of Tri-state’s most vocal critics. It has filed a lawsuit as well as complaints with state and federal regulators. It is challenging proposed fees for canceling contracts with Tri-state.
Despite the conflicts, United Power CEO and President Mark Gabriel said members need a strong TriState as regional power markets become more open and the move to more renewable energy continues. Gabriel, an industry veteran who took the helm at United Power in February, said it’s important to be open about what’s going on between the cooperative and Tri-state.
“These are both societal and industry changes that impact everyone,” Gabriel said.
The clashes between TriState, a wholesale power provider headquartered in Westminster, and its members are being watched around the country because they encapsulate struggles playing out across the shifting energy landscape.
“Everybody everywhere is trying to manage the energy transition,” said Seth Feaster, an analyst at the Institute for Energy Economics and Financial Analysis.
United Power and other members who want to know how much it would cost to break their contracts with Tri-state object to the utility’s proposed exit fees. If the cooperatives get favorable rulings from federal regulators, Feaster said other rural electric associations will likely have more leverage in restructuring their contracts.
“What is happening to this model is incredibly important to huge swaths of the country,” Feaster said. “We’re really talking about a transformative moment in how these structures are going to be going forward.”
Nonprofit electric cooperatives and their wholesale power suppliers are a big part of the U.S. electric system. The cooperatives were started in the 1930s by the federal government to reach areas too remote or expensive for other utilities. They serve 42 million Americans and cover 56% of the nation’s landmass, according to the National Rural Electric Cooperative Association.
Ellen Howard Kutzer, senior staff attorney with the conservation group Western Resource Advocates, said issues with TriState “can be seen as a bit of a microcosm” of utilities and customers striving to meet renewable energy and carbon-reduction goals while maintaining reliable and economical power.
Members of nonprofit generation and transmission providers like Tri-state are challenging traditional restrictions such as capping the amount of electricity they can produce on their own.
“Members want to have more choice,” Kutzer said, “especially when you’re looking at these (generation and transmission associations) that have invested heavily in coal over the years. Those resources are now more expensive than the alternative renewable resources available on the marketplace.”
Breaking up is expensive to do
Rates, local generation, renewable energy: all major issues raised by Tri-state members who have cut ties with the utility or are exploring their options. In a statement at the recent Tri-state annual board meeting and then made public, Gabriel said United Power doesn’t necessarily want to end its contract. The cooperative just wants more flexibility to meet the needs of people and businesses in its territory along the growing Front Range.
Gabriel is calling for a “radical re-envisioning” of the business model, allowing cooperatives to buy as much or as little of the power they need from wholesale providers. He said that would mean no more “Hotel California” rules, “where you can get in but never leave.”
Members can check out and leave, but for a price. And it’s steep. On Sept. 2, Tri-state submitted revisions to its proposed exit fees previously filed with the Federal Energy Regulatory Commission. The fees went up. The numbers are listed for all 42 cooperatives in Colorado, Wyoming, Nebraska and New Mexico.
United Power would have to pay $1.6 billion, up from $1.5 billion. The La Plata Electric Association would have to pay $489 million, up from $449 million.
La Plata and United Power previously filed complaints with the Colorado Public Utilities Commission, saying earlier exit-fee quotes were unreasonable. The PUC bowed out after TriState sought and got oversight by the Federal Energy Regulatory Commission, which will decide the final payments.
A lawsuit by United Power is challenging the process Tri-state used to switch from state to federal jurisdiction.
“We cannot even fathom how they can increase an already inflated number,” Gabriel said in an email after the latest exit fee was released. “It is yet another example of Tri-state creating a methodology that opaquely inflates fees, obscures the real costs of their operation, and that effectively holds member cooperatives hostage.”
The increase resulted from a mathematical error in the previous calculations, Tri-state spokesman Lee Boughey said. Tri-state will honor the earlier calculations until April 1, 2022.
The objective is to respond to members that want to exercise other options without burdening the remaining cooperatives, said Tri-state CEO Duane Highley.
“Other members don’t want their rates to go higher because a member chooses not to fulfill a contract that they voluntarily signed,” Highley said.
If United Power maintains its contract, which runs through 2050, Tri-state estimates the cooperative would pay $11 billion between now and then for its power.
“While $1.5 billion sounds like a lot, it’s just a small fraction of $11 billion,” Highley said.
The rural cooperative way
Paul Erickson isn’t so sure Tri-state’s calculations take everything into account. Erickson, the CEO of the Sangre de Cristo Electric Cooperative for 15 years, said the assets don’t disappear if a member leaves and could be redeployed or sold.
“I think that’s the missing piece of the puzzle, how to value those in a market,” Erickson said.
However, Erickson is sure the best plan for Sangre de Cristo, based in Buena Vista, is to stay with Tri-state. He said the cooperative has the highest electric rates of any energy provider in the state, some of the lowest sales per customer and among the highest operating costs.
Most of its power is delivered to homes, Erickson said, and about half of those are part-time residences, so they’re not buying electricity a good part of the year.
“It’s exactly what the rural electric program was designed to do, to serve areas that investor-owned utilities simply refused to serve because there was no financial benefit,” Erickson said.
Mike Mcbride, CEO of the Gunnison County Electric Association, said he considered applying to go beyond Tri-state’s standard 5% cap on the power cooperatives can produce or buy on their own, but it didn’t make economic sense.
“We decided Tri-state could more cost effectively develop renewable resources than we could,” Mcbride said.
The new contract provision allowing cooperatives to pursue generating more of their power locally is one of the ways Tri-state has responded to members’ concerns and changes in the industry, Mcbride said.
A plan Tri-state unveiled in January 2020 includes boosting the utility’s renewable energy sources to 50% by 2024 and cutting greenhouse-gas emissions by 90% by 2030 from Colorado facilities it owns or operates. TriState, which has closed some of its coal plants and has committed to closing more, cut electricity rates by 2% this year and plans another 2% cut next year.
Tri-state recently increased its interest in the Laramie River Station coal plant in Wyoming by 1.37%, boosting the total share to 28.5%. The utility said it wanted to acquire more transmission rights.
In light of what Tri-state is doing, Mcbride said he sees Gabriel’s statement with its list of cooperatives’ needs as posturing.
“Tri-state is working toward those things,” Mcbride said. “By laying it out the way (Gabriel) did, it makes it seem like Tri-state isn’t working on these things or doesn’t understand the issues.”
Powering the future
Jessica Matlock, CEO of the La Plata Electric Association said Gabriel’s statement to the board is telling, given his experience. Before joining United Power, Gabriel was the administrator and CEO of the Western Area Power Administration, part of the U.S. Department of Energy.
“I would hope the TriState board would listen to him,” said Matlock, adding that the sentiments are nothing new. “This all comes down to one primary point and that is our communities are demanding more local control.”
In the past, most cooperatives didn’t have the expertise or opportunity to produce much of their own power, Matlock said. But people are more knowledgeable now, she added. The cost of renewable energy, including batteries to store the power when needed, has decreased significantly.
Local energy projects create jobs, generate local tax revenue and provide opportunities to work with area schools and colleges, Matlock said. “Cooperatives were built with farmers and ranchers because they wanted to create local benefits for their communities.”