A wholesale generation and transmission cooperative, in response to concerns from federal regulators and its own membership, proposed modifications that would make it easier for members considering early exit from their contracts to determine the economic impact of that departure.
Westminster, Colorado-based Tri-State Generation and Transmission Association on Sept. 2 filed to the Federal Energy Regulatory Commission modifications to its contract-termination payment methodology that the cooperative says will provide clear procedures and a simpler and replicable calculation methodology to ensure that remaining Tri-State members are protected financially from other members' departures and early termination of their long-term, full-requirements power supply contracts.
Tri-State, which has 42 utility members spread across four states, including New Mexico and Colorado, has for years faced criticism from its members over its contract-termination payment methodology. The association in 2009 voted to require all members to extend their wholesale electric supply contracts to 2050. The uniform contracts provided that Tri-State members could supply no more than 5 percent of their own power needs.
The self-supply provision became increasingly problematic as the price of emissions-free renewable resources plummeted in comparison to Tri-State's largely coal-fired generation portfolio. Tri-State's board has since modified the contracts to allow members to self-supply a portion of their load from an aggregate of 300 MW.
Since 2016, two Tri-State utility members, Kit Carson Electric Cooperative of Taos, New Mexico, and Delta-Montrose Electric Association of Montrose, Colorado, have withdrawn from the wholesale cooperative after paying sizeable exit charges negotiated in lengthy court and state regulatory battles.
Tri-State in 2019 for the first time admitted nonutility members, putting it under the ratemaking jurisdiction of FERC. Since that time, concerns of additional Tri-State members seeking exit-charge amounts have played out before the federal commission. Tri-State has also increased the share of renewable resources in its portfolio and closed or made plans to close multiple coal-fired power plants.
FERC in August approved a settlement agreement between Tri-State and its members that will lower wholesale rates over the next two years, but rejected Tri-State's contract-termination payment methodology for being overly complex and relying on proprietary data that prevented members from estimating their own exit charges (see CEM No. 1654).
Tri-State in this week's filing said it addressed FERC's central concern that members could not easily or timely obtain a contract-termination calculation in order to evaluate whether to withdraw from Tri-State [EL21-75-000]. The current tariff is highly accurate and fairly calculates the financial impact of a member's early withdrawal, Tri-State said, acknowledging that it is also "a complex, time-consuming and member-specific approach."
"The modified CTP is responsive to FERC and to our members' concerns, resolving the transparency, replicability, and access issues by establishing a clear formula to determine each member's cost to terminate its contract," Tri-State CEO Duane Highley said in a news release.
The proposed methodology relies on public data for quick calculation of contract-termination figures. The modified tariff proposal projects revenues a withdrawing member would have paid over the remainder of its contract and subtracts transmission revenues the withdrawing member would continue to pay Tri-State, the return of the member's patronage capital balance, and revenues Tri-State would receive from power sales made possible due to the member's departure.
The proposed modifications ensure that remaining Tri-State members would be made whole financially for the continuing costs of servicing outstanding debt and operating and maintaining the generation and transmission system without the revenues expected from the withdrawing member's long-term contract, the release says.
Tri-State in its filing to FERC included exit-figure calculations for each of its utility members. These range from $15.4 million for Northern Rio Arriba Electric of Chama, New Mexico, which serves 3,100 customers, to $1.6 billion for its largest member, United Power of Brighton, Colorado, which has more than 100,000 meters. Tri-State will update the calculations annually, it said in the release.
Several current Tri-State utility members have requested CTP calculations, but none have asked to terminate their contract at this time, Tri-State said.