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Federal agency rejects Tri-State’s buyout policy

Order says proposal imposes excessive and unjustified barriers to utility members
The Federal Energy Regulatory Commission has rejected a Tri-State Generation and Transmission board of directors’ policy that determines how the power supplier calculates a contract-termination payment from members. (Durango Herald file)

A federal agency has thrown out a policy from La Plata Electric Association’s power supplier, Tri-State Generation and Transmission, that guides how Tri-State determines contract-termination payouts.

The ruling boosts LPEA’s efforts to get a cost estimate for how much it will be to leave its long-term power supply contract with Tri-State.

Tri-State’s policy, called Board Policy 125, structures how Tri-State administers requests from members that seek estimates of a contract termination payment.

“This indicates that FERC is taking a hard look at Tri-State’s policies,” said Matt Larson, an attorney representing LPEA before the Federal Energy Regulatory Commission. Larson addressed LPEA’s board of directors at its meeting held Wednesday on Zoom.

A statement issued by Tri-State said FERC accepted its methodology to determine a contract termination in April 2020, but the latest ruling rejects how Tri-State intends to implement the methodology.

“We are reviewing FERC’s order on the CTP (contract-termination payout) implementation procedure, which provides Tri-State (the) opportunity to refile,” said Tri-State CEO Duane Highley in a statement issued by the firm Tuesday.

Board Policy 125 says members like LPEA, seeking to buy out their long-term power supply contracts, must pay an initial $75,000 fee to cover costs of making a contract termination payout calculation.

In addition, Tri-State requires members that want out of their power-supply contracts to pay an additional $25,000 every 30 days if the cost of making the contract termination payout calculation exceeds the initial $75,000.

Board Policy 125 caps the total expenses for a member seeking a contract termination payout calculation at $200,000.

The policy also says that after a contract-termination payout, or CTP, is obtained from Tri-State, the CTP is good for only 180 days. If a member does not depart from Tri-State within that time period, it must begin the contract termination process all over again.

The policy also limits the number of contract termination payouts Tri-State will conduct annually to three, saying the time and effort involved in figuring out a contract termination payment, estimated at 760 work hours, is so arduous it is too administratively burdensome to conduct multiple payout calculations at the same time.

The FERC order rejecting Tri-State’ Board Policy 125 says: “As a general matter, we find that Tri-State’s proposal imposes excessive and unjustified barriers to utility members seeking information to assess whether to terminate their (wholesale electric service contracts) with Tri-State.”

LPEA executives and board members are frustrated by the lack of responsiveness from Tri-State in providing an estimate of how much it will cost LPEA to buy out its power-supply contract with Tri-State. The contract runs through 2050.

Beginning in 2019, LPEA has sought a cost estimate from Tri-State for buying out its power supply contract.

The FERC order says the limit of three CTP calculations per year “will effectively prevent its utility members from obtaining the information needed to assess their potential departure from Tri-State’s membership.”

The order also objects to the fee charged by Tri-State:

“We also find that Tri-State’s proposed calculation fee is not justified and does not appear to be just and reasonable. Tri-State has not adequately explained the complexity associated with the CTP methodology calculation that requires 760 personnel hours of work.”

The order said it shares concerns from members, such as LPEA, seeking a contract termination that Tri-State’s policy gives it “unfettered discretion on how long it will take to calculate a CTP.”

For years, LPEA and United Power of Brighton have been exploring buying out their power supply contracts with Tri-State, which provides electricity to 42 rural electric cooperatives in Colorado, New Mexico, Wyoming and Nebraska.

In April, six other rural electric cooperatives joined LPEA and United Power in exploring buyouts of their power-supply contracts with Tri-State.

Those rural cooperatives have joined LPEA’s effort before FERC, asking the federal agency to force Tri-State to provide them with a dollar estimate of what it would cost to buy out their contracts.

LPEA believes leaving Tri-State would allow it to find cheaper electricity on the open market while increasing the amount of locally produced renewable power it can buy, an amount now capped at just above 5% of LPEA’s electrical load.

Tri-State maintains it has loosened rules to allow member cooperatives to buy more renewable power, and rural cooperatives’ efforts to end long-term contracts will hurt other Tri-State members that have all agreed to share costs of power generation.

It also has lowered its rates for wholesale electricity it charges its members by 2% for 2021, retroactive to March 1, and it plans to lower its rates another 2% in 2022.

Besides examining a complete buyout of its power supply contract with Tri-State, LPEA is also looking at gaining more flexibility within the contract so it can purchase more locally generated renewable power. It is also exploring negotiating a partial contract with Tri-State.

Settlement talks overseen by FERC with Tri-State are ongoing in the effort by LPEA, United Power, and now the other rural cooperatives, to get a dollar cost estimate of a buyout of their 30-year contracts. But there is no clear timeline for when the matter might be concluded.

In 2016, a smaller Tri-State member, Kit Carson Electric Cooperative in Taos, New Mexico, bought out its contract with Tri-State for $37 million.

In June 2020, Delta-Montrose Electric Association agreed to pay $62.5 million to leave Tri-State. In addition, in a related contract, it agreed to purchase Tri-State transmission assets for $26 million and forfeit $48 million in capital credits. The related contract brought the overall buyout cost to $88.5 million plus the capital credits forfeiture of $48 million.

parmijo@durangoherald.com

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