Exit strategy
LPEA board members weigh in on decision to pull plug on Tri-State

Exit strategy

The sun rises over power transmission lines. It literally is a new day for La Plata Electric Association as its Board of Directors voted Monday to terminate its contract with wholesale provider Tri-State in 2026. LPEA has been studying its Tri-State exit options for the last five years./Photo courtesy LPEA

Allen Best / Big Pivots - 03/28/2024

In putting together their annual meetings for members, Tri-State Generation and Transmission tries to put on a happy face of good health, team spirit and forward movement. That’s what associations do, of course. That will be harder to muster when Tri-State holds its annual meeting next week at the Westminster Westin hotel. On March 25, directors of La Plata Electric Association voted to exit the co-op’s contract with Tri-State in two years. LPEA is the fifth largest of Tri-State’s 42 members, responsible for 5.7% of the total demand over a three-year period.

In addition, on May 1, Tri-State will lose its largest member, United Power, which alone is responsible for consuming more than 20% of the electricity supplied by Tri-State. United serves 17 communities in the north and west of Denver.

“It’s a big day, a monumental day,” Ted Compton, chair of LPEA’s board of directors said later that day in an interview with Big Pivots. “Nobody thinks that this decision will make our lives in this co-­op easy at all, but we have self-determination to make the choice that we want and our members want.”

LPEA has been studying its options for the last five years. At one point, in 2021, it chose a partial-requirements contract with Tri-State. The co-op even had an alternative supplier for 50% of its generation. But that approach went nowhere as the formula got balled up in review by the Federal Energy Regulatory Commission, or FERC. Still, it left a sour taste still evident on the tongues of some directors.

“We have kicked the tires,” Director Rachel Landis said moments before the 9-to-3 vote. “We have been staying up late at night.”

Smaller tent needed

When LPEA leaves in 2026, Tri-State will be left with 38 members. Also leaving in the interim will be Granby-based Mountain Parks Electric and Nebraska’s Northwest Rural Public Power District.

For many years, Tri-State had 44 members. The exodus began in 2016 when Kit Carson Electric of Taos left Tri-State to pursue a different vision. Some wondered about the disaster ahead. Kit Carson had to pay $37 million to break its contract to 2040. It hooked up with a new company, Denver-based Guzman Energy, a wholesaler that had no power generation of its own – although it now does.

Instead of a disaster, Kit Carson has triumphed. In June 2023 it made the final payment to Tri-State while also completing enough new solar installations to meet 100% of daytime needs in its service territory. It has also been building microgrids and pursuing hydrogen as a storage solution.

Compton, in his interview with Big Pivots, declined to give a contract buy-out figure. Tri-State, in a statement after the LPEA decision,  said the estimated value of La Plata’s contract termination is $209.7 million, with a final amount to be calculated prior to withdrawal.

Mark Pearson, director of the San Juan Citizens Alliance, pointed to Kit Carson’s success. “It’s not like we’re the first one out of the gate,” he said. He cited a number of solar projects west and south of Durango. “There are an abundance of local energy sources that would be cheaper than our current contract with Tri-State.”

Directors supporting the exit emphasized their views that Tri-State has failed to be a viable partner. The contract to 2050 – agreed to in 2006 despite misgivings even then – does not meet LPEA’s needs now, they said.

“We need the ability to make decisions, be nimble, have flexibility, to have local generation,” Director Tim Wheeler said. “And the contract with Tri-State to 2050 does not present that at all. It represents something from 20 years ago.”

Decision to seek FERC regulation

Wheeler also cited the decision by Tri-State to seek regulation under FERC, which is far more complex, expensive and time consuming than regulation under the state PUC. To do so, Tri-State had to create a new class of members in 2019 who are not electrical cooperatives. For example, it added a greenhouse near Fort Lupton and a hunting guide near Craig.

Another LPEA director from Durango, Joe Lewandowski, urged LPEA members to take the long view of five, 10, even 20 years when viewing costs. He also suggested there was more risk to staying with Tri-State.

Asked about risk, Compton offered a couple of analogies.

“A lot of people simplistically see this as a decision to stay on a stable ship and get what they need or jump off and swim on your own. That is not the way that La Plata has evaluated this. We currently do not see Tri-State as a stable ship. There are a lot of chinks in their armor, and it makes us nervous to be attached to that.”

LPEA, he added, feels more comfortable charting its own future. Tri-State, he said, got off course by seeking federal regulation.

Tri-State went into the clean energy transition carrying heavy debt. It had pinned much hope on federal aid through the Inflation Reduction Act to cover the cost of retiring stranded coal assets even as it built lower-cost renewables and natural gas.

But Wall Street analysts in the last couple of years have taken an increasingly dim view of Tri-State, downgrading its credit-worthiness.

And Compton observed that Tri-State has encountered many problems at FERC.

In its statement, Tri-State made its case for why it should be seen as a viable wholesale provider going forward. In 2030, when 70% of its energy comes from renewables, Tri-State is forecast to achieve an 89% reduction in greenhouse gas emissions in Colorado from a 2005 baseline.

Tri-State has not raised its wholesale rates since 2017 – with an average 6.36% wholesale rate increase proposed to go into effect in 2024. That is being held up at FERC.

“Tri-State’s members have created tremendous momentum toward an energy transition that will provide long-term reliability and rate competitiveness, while reducing emissions and increasing flexibility,” Duane Highley, Tri-State’s CEO, said. LPEA’s board “has chosen not to be part of this future and go it alone on a different path, even as the region faces increasing reliability challenges.”

Why now for this decision?

Why a special meeting for the decision? And why just 10 days after Jessica Matlock, LPEA’s general manager for five years, left for a job in the Pacific Northwest?

Compton said the timing of the decision had nothing to do with Matlock’s departure.

But why not wait until April and the regularly scheduled board meeting? Because, he said, the board had decided the time was right to make the decision. It had all the information it needed.

He dismissed an observation made by the chief executive of another Colorado co-op that the timing allows LPEA to use its 2023 financials in its application to FERC. That will make LPEA exempt from capital investments going forward, such as new generation and transmission planned by Tri-State – and hence might lower the amount it will have to pay Tri-State.

Compton repeatedly characterized that observation as speculative. “It was just one of many factors that we saw coming in the April 1 timeline,” he said.

LPEA joined Tri-State in 1992 when it and other electrical cooperatives in Western Colorado joined in the wake of the bankruptcy by their former wholesale supplier, Colorado Ute.

Colorado Ute had over-extended itself to build three coal-burning units at Craig for an oil-shale industry that never arrived. Tri-State took over Colorado Ute’s members and its coal plants at Craig. Now, Tri-State is struggling in part because of the burden of those coal plants that will be closed between 2025-30. 

Allen Best is a Colorado-based journalist who publishes the e-magazine “Big Pivots” www.bigpivots.com. Reach him at allen.best@comcast.net.