Crunching the numbers at LPEA

To the editor,

Annually, LPEA compares itself to approximately 800 other electric cooperatives in the U.S. The most recent data we have is for 2016. Tri-State’s wholesale power cost to LPEA was 64 percent of our expenses in 2016, compared with 61 percent for all electric coops in the U.S. LPEA’s cost per kWh was less than other coops according to this annual study. Looking at our power costs for 2017 being just under 7.3 cents, we know Tri-State’s wholesale rates are competitive.

Additionally, when one considers the blended cost of the 7.3 cents we pay Tri-State, we need to remember that this bundled cost includes both the cost of energy as well as capacity. Our members rely on us to supply their energy needs, while also supplying all the energy they want at any part of the day, what we call demand or capacity. Renewables are a great generator of energy kWh, but until storage technology matures and becomes economical, they come up short on suppling demand or capacity. We, along with the industry and researchers, are working on this challenge.

Yes, we’ve seen rate increases from Tri-State in the past, the last one at the beginning of 2017. It’s just one reason LPEA works hard on innovative rate designs, such as our Time-of-Use Rate, which allows members to control their energy use and save money.

Tri-State currently projects stable rates for the next five years – no rate increases until 2023 at the earliest. While this is good news, we still need to be hyper-diligent in controlling costs for our membership. We, along with the other Tri-State cooperatives, expect Tri-State to get even more competitive.

LPEA is concerned with Tri-State’s concentration on coal beyond its environmental impact. We’re apprehensive of the risk of relying on one fuel source. Tri-State did close its interest in the San Juan coal plant outside Farmington last year plus announced closure of its coal plant in Nucla in 2022 and one of the generation units in Craig in 2025.

Simultaneously, Tri-State is increasing acquisition of wind and solar sources. In fact, Tri-State is the leading generation and transmission cooperative in the nation when it comes to utility-scale solar energy. The company portfolio is approaching 30 percent renewable energy (hydro, wind and solar), and working to embrace more. LPEA also recognizes we need to do more.

The much-discussed 5 percent limit to local generation also needs to be put in perspective. Tri-State provided incentives that made our community solar garden projects possible, along with our hydro and waste-heat recovery generation. The 5 percent limit is a current challenge for LPEA, but other cooperatives will need to address it eventually as well.

In the meantime, while we’ve used up our 5 percent, other options for continued development of local renewable generation exist. Both PURPA’s Qualified Facility (QF) option and Tri-State’s Policy 118 allow renewable projects to continue in LPEA’s area. And here’s the really good part, doing these two types of projects could allow LPEA to lower its incremental wholesale costs. It is why in the CEO vision that can be found on our website there is a focus on renewable projects in these two categories.

Finally, what we’ve learned about Kit Carson Electric

Coop’s buyout of its Tri-State contract makes for more questions than answers, especially when reviewing the financials. Kit Carson’s rates increased in December 2016. News articles indicate that the rate increase was to help the coop with unprofitable affiliates, but the timing is a concern. Kit Carson also received approval for a wholesale tariff adjustment rider, which suggests Kit Carson’s rates are not fixed. We don’t know the exact terms of Kit Carson’s deal with its new wholesale power supplier, and it is a bit early to know if it will be a model for our membership.

I presented a preliminary look at contract valuation methodology at the Feb. 21 LPEA board meeting. This does not produce a buy-out number but should likely help us understand what a buy-out might look like. Members can review the PowerPoint on LPEA’s website, I welcome discussing this information with any LPEA member.

I am certain of two things: LPEA’s members want us to develop more local renewable energy resources, and they expect us to deliver on the promise of safe, reliable electricity at the lowest reasonable cost. That’s achievable, if we’re wise in assessing our evolving energy future.

LPEA’s employees and leadership have a long history of accomplishment. We’re committed to achieving results for you.

– Mike Dreyspring, CEO, LPEA