Tri-State Generation and Transmission Association on July 19 asked federal regulators for more time to file a modified contract-termination payment methodology that would simplify the exit process for its utility members interested in exploring the option of terminating their contracts early.

Contract-termination procedures under the modified methodology would eliminate barriers that might have prevented members in the past from fully evaluating whether to remain in Tri-State, the company said. The wholesale cooperative's board of directors under the modified methodology would have no authority to prevent a utility member from leaving, provided it makes the contract-termination payment and provides two years' notice.

Tri-State, Colorado's largest wholesale power provider, serves 42 rural electric cooperatives and public power districts in four states. Its utility members are bound by wholesale electric services contracts that were extended in 2009 and run through 2050. Limits on member self-generation and the declining costs of renewable energy resources in recent years have made the contracts less appealing for members and resulted in two high-profile departures since 2016 and interest from current members in obtaining exit-fee calculations.

Tri-State's board, under pressure from members and to comply with emissions-reduction goals in some states, revised some of the more controversial elements of the contracts, added renewable resources to its portfolio, and retired or made plans for early retirement of its coal-fired power plants in Colorado and New Mexico.

Former Tri-State members Kit Carson Electric Cooperative of Taos, New Mexico, and Delta-Montrose Electric Association of Montrose, Colorado, left the wholesale power cooperative in 2016 and 2020, respectively, following lengthy battles before state regulators to obtain exit fees deemed just, reasonable and nondiscriminatory. Other Tri-State members, including two of its largest distribution cooperatives, United Power and La Plata Electric Association of Colorado, have sought reasonable CTP calculations since 2019 as a basis for making future decisions about their businesses.

The contracts, Tri-State said in the filing, are critical to assuring cash flow and revenue necessary to obtain debt financing at a reasonable cost. Without them, Tri-State would be assigned lower credit ratings that would lead to higher interest on debt and result in higher prices for its utility members, it said in the filing. The goal of the CTP is to protect the financial interests of Tri-State's remaining members that continue to be bound by the contracts.

Tri-State in 2019 came under the rate-setting jurisdiction of the Federal Energy Regulatory Commission after adding nonutility members. FERC has ruled that exit fees fall under its purview, and on June 17 issued a show-cause order to Tri-State regarding the CTP methodology used to calculate exit charges. FERC in the order called Tri-State's existing CTP methodology "unjust, unreasonable and unduly discriminatory," and gave the power provider 30 days to respond [EL21-75-000] (see CEM No. 1647).

Tri-State in the July 19 filing asked the commission to pause the show-cause proceeding so that it could work with utility members to finalize and file a new tariff that would include the modified CTP methodology. Tri-State said it would submit the tariff and all necessary contract-termination procedures to FERC no later than Sept. 1.

The new methodology is simpler and more transparent, Tri-State said in the filing. It also removes the requirement that the board approve member exits and provides a "direct path" for members to obtain a timely CTP calculation without charges or fees, while also protecting the financial interests of remaining members.

Mark Gabriel 0723

United Power CEO Mark Gabriel.

"We are pleased to see Tri-State is making an effort to be transparent," United Power CEO Mark Gabriel said in an emailed statement. "We disagree with the inputs that create unreasonable costs for our members and the fundamental philosophy underlying the exit fees," he added. United is Tri-State's largest member, serving more than 90,000 meters in the suburban Denver area.

The new methodology would allow each member to receive a CTP calculation annually, taking into account the remaining term of its contract. Members would also be able to independently calculate their CTP amounts using data available to them, rather than the proprietary financial modeling software Tri-State previously relied upon to calculate CTP amounts.

"We are still reviewing the filing but the numbers produced in the filing for exit charges are extraordinarily high," Jessica Matlock, CEO of LPEA, said in an email. "It is disappointing that it took us multiple years to get an exit charge from Tri-State and that they did so only under pressure from FERC," she said.

Matlock added that it is difficult to reconcile the exit fees paid by DMEA and Kit Carson with the numbers resulting from the new proposal. "We will be analyzing the process changes and the exit charge discussions and will respond formally," she said.

Tri-State CEO Duane Highley in a news release said the new methodology responds to the requests of both FERC and Tri-State members "by establishing a clear formula to determine each member's cost to terminate its contract and creating a clear, predictable path for any member that ultimately decides to withdraw."

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Associate Editor - California Energy Markets

Abigail Sawyer grew up in northwestern New Mexico near two massive coal-fired power plants. She spent many hours gazing out the car window at transmission lines on family road trips across the Southwest and now reports on the region from San Francisco.