FERC sets exit fee formula ending four-year battle between Tri-State G&T and its largest co-op
Energize Weekly, January 3, 2024
After a four-year battle over how much it will cost the Colorado electric cooperative United Power to leave its wholesale power provider, Tri-State Generation and Transmission Association, federal regulators settled the score.
The Federal Energy Regulatory Commission (FERC) on Dec. 19 ruled on the formula, if not the dollar figure, for United, Tri-State’s largest member cooperative, to leave on May 1, 2024.
The FERC ruling may open the way for other co-ops to quit the association, which provides electricity to 42 rural cooperatives in Nebraska, Wyoming, Colorado and New Mexico.
Relations between Tri-State and some of its cooperatives have been fractious, and the co-ops have chafed under the long-term contracts, which require them to buy 95 percent of their electricity from the association.
Some cooperatives want more local control and locally developed renewable generation. Some complained about what they say are higher than open market prices for wholesale electricity.
Tri-State and United, which serves an area north of Denver with 100,000 customers, had butted heads on all these issues. United accounts for 20 percent of association revenues.
Tri-State disputes the complaints over rates, explaining that its rates include a host of services not reflected in market rates.
Still, two other co-ops – Mountain Parks Electric, in Granby, Colorado, and the Northwest Rural Public Power District in Hay Springs, Nebraska – have also given notice that they will leave Tri-State.
Two cooperatives — Kit Carson Electric Cooperative in Taos, New Mexico, and Delta-Montrose Electric Association, in Montrose, Colorado — have already left Tri-State.
Another cooperative, the Durango, Colorado-based La Plata Electric Association (LPEA), is suing Tri-State for breach of contract.
“We are very pleased with this latest step forward, towards more clarity from FERC that enables us to evaluate our options,” Jessica Matlock, the LPEA CEO, said in a statement. LPEA is already calculating its exit fee.
The FERC ordered Tri-State to provide exit fees to United and any other cooperative that asked for one within 30 days.
United and Tri-State had wrangled over how to calculate that fee in voluminous filings before the commission.
Tri-State put the price at $1.6 billion, United initially at $150 million.
The spread reflected the methodology each party employed. Tri-State argued that it should be compensated for all the revenue it would have received United in the remainder of its 50-year contract.
Alternatively, the association said that the exit fee could be based upon a member’s share to total debt and other financial obligations, it’s so-called DCO method.
The commission rejected both methods saying the association had not shown them to be “just and reasonable.”
United had proposed a “balance sheet approach,” or BSA, again calculating the co-op’s share based on revenue.
The key, however, is in the details. When an administrative law judge issued a decision in the case last fall, she adopted a BSA, which United calculated could be between $250 million and $553 million.
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 upfront and then credited back to the cooperative over time.
The ruling specifies which financial form and which entries on the form to use in calculating the fee.
“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,” Mark Gabriel, United’s CEO, said in a statement.
Gabriel said the cooperative is reviewing the decision.
Tri-State said in a statement that it is also reviewing the order, but noted that the commission said the exit charge would likely be larger than the DCO, which the association puts at $736 million.
In filings, Tri-State had 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.
But the commission said the adopted balance sheet approach, requiring members to pay their 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 credit worthiness.
