Once again the question looms, this time prodded by a downgrading by S&P Global Ratings, whether Tri-State Generation & Transmission can pivot rapidly enough to stay afloat in the turbulent world of this energy transition.

Two years ago S&P Global Ratings gave Tri-State an A rating. Then it downgraded the wholesale power provider for 42 electrical cooperatives in Colorado and three surrounding states to a rating of an A-.

Now, S&P has downgraded the ratings to BBB-plus.

David Bodek, an analyst for S&P, told BondBuyer.com that early departures by member cooperatives could produce “an economic tipping point where a smaller customer base frustrates Tri-State’s ability to achieve economies of scale in its operations and hinders (Tri-State’s) capacity to sustain financial performance consistent with historical levels.”

In a statement on its website, Tri-State described the rating as “comparable to the ratings of other investor-owned and cooperative utilities in the region.”

Duane Highley, the chief executive since April 2019, conceded the “challenges and uncertainties that are reflected in changes to our investment-grade credit ratings,” but urged that member cooperatives stay the course with Tri-State.

“A complex effort like this does not happen overnight, but there is a long-term plan to transform the association and address the issues raised by the rating agency,” he said. “While it will take time, when our transition is complete, I believe Tri-State will be a leader in the cooperative world and recognized as the most competitive power supply option for our members.”

Having lost two member cooperatives already, Tri-State has seven additional cooperatives that want to shop their options.

Based in metropolitan Denver, Tri-State grew rapidly in the 1990s, when it added many of the members previously supplied by the bankrupt Colorado Ute. It expanded again in 2003 with the addition of several cooperatives in New Mexico. That put it at 44 members.

In planning for the future, it looked entirely to the past. It assumed continued rapid growth of electrical use and laid plans to meet that demand by building a massive new coal plant at Holcomb, Kansas.

To finance this new coal plant, in 2006 Tri-State asked for member cooperatives to extend their contracts to 2050, a decade longer than existing contracts.

Two refused and both are now gone.

Kit Carson left in 2016 after agreeing to pay a $37 million exit fee. Luis Reyes, the chief executive of Taos, N.M.-based Kit Carson, this week told Big Pivots that he expects the exit fee to be paid off within the next 15 months.

Following Kit Carson’s lead, Delta-Montrose then asked for an exit fee, and after much more difficult wrangling, reached a settlement for a far larger figure, one that reflects it has more customers. It left the Tri-State cooperative in July 2020.

Two Colorado cooperatives followed suit: Brighton-based United Power then asked for a figure, and it was soon followed by Durango-based La Plata. United was told it would have to pay $1.25 billion.

The two cooperatives appealed to the Colorado Public Utilities Commission to determine what constitutes a fair and just fee. After a week of hearings in August 2020, an administrative law judge at the PUC recommended $234.8 million for United Power to leave and $97 million for La Plata. This was based on what Tri-State had charged Kit Carson and Delta-Montrose.

Tri-State had headed off the Colorado proceedings by getting jurisdiction under the Federal Energy Regulatory Commission for such matters, using a legal maneuver that included expanding its membership to include a greenhouse in Fort Lupton.

Though the venue was moved to Washington, D.C., Tri-State’s core problem remains the same. There are many options out there for power supply, and Kit Carson, the first to leave “the family,” seems to have never regretted its decision. But Tri-State needs to hang onto its members.

In February, United and La Plata – this time joined by five others— – omplained to FERC that Tri-State was stalling in giving exit numbers.

“Tri-State’s refusal to perform the calculation required by Rate Schedule No. 281 violates the filed rate doctrine and is patently unjust and unreasonable under Section 206(a) of the Federal Power Act,” the cooperatives said in a Feb. 26 filing with FERC.

Notable about these seven member cooperatives wanting buy-out numbers from Tri-State is their diversity. They range in size from 3,000 to 100,000 members, from semi-urban customers to ranch country, from places that hew conservative in all things political and cultural to recreation-dominated resort communities that tilt liberal.

United Power, with service territory stretching from homes in the foothills along Coal Creek Canyon west of Arvada to the oil-and-gas fields between Denver and Greeley, has nearly 100,000 members and gained 5% in sales in 2020. United was responsible for 18% of Tri-State’s total demand.

Two cooperatives, Wheat Belt and Northwest Rural Public Power, are in the ranch and farming country of western Nebraska.

Springer Electric Cooperative has 3,000 members in the sparsely populated ranch country of northeastern New Mexico.

The remaining two asking for exit numbers are San Miguel Power, which includes Telluride in southwestern Colorado, and San Isabel Electric, which serves Pueblo West, the housing development, and the country south to the New Mexico border, including Walsenburg and Trinidad.

United Power, at its recent annual meeting, was asked about the negotiations with Tri-State.

Bryant Robbins, the chief operating officer, answered that United – which still has a lawsuit against Tri-State in Adams County District Court – has never said it will leave Tri-State.

“All we have asked is to get a number so that directors can decide what is best for members,” he said.

Looking from the outside, the S&P analyst sees Tri-State as taking on water.

“We view the members’ FERC complaint as an outgrowth of more than a decade of divisiveness that three successive general managers and the board have been unable to conciliate,” Bodek told BondBuyer.com. “This level of discord can consume management resources and frustrate strategic planning.”

S&P also considers Tri-State’s $3.3 billion debt, as reported to the SEC in December 2020, a high debt-to-capitalization ratio, if not atypical for a generation and transmission cooperative utility.

As for the coal plants, Tri-State pursued the Kansas plant until about 2010 but not seriously after that. Still, it didn’t formally drop its plans until 2020.

Allen Best is a Colorado-based journalist who publishes an e-magazine called Big Pivots. Reach him at allen.best@comcast.net or 303.463.8630.