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La Plata Electric Association settles with Tri-State in effort to buy-down its contract

If approved, local electric co-op will reduce its carbon footprint and save money
Ty Mortensen, a troubleman with La Plata Electric Association, goes up in a bucket in August 2021 to inspect a power pole on Coal Bank Pass. LPEA and Tri-State Generation and Transmission Association have agreed to a settlement for a 50% buy-down of LPEA’s contract with the wholesale power provider. (Jerry McBride/Durango Herald file)

The La Plata Electric Association is one step closer to its environmental and financial goals, and a partial split from Tri-State Generation and Transmission Association.

LPEA and Tri-State submitted a settlement agreement to the Federal Energy Regulatory Commission on Thursday that would see the Southwest Colorado co-op buy-down half of its power contract with Tri-State for an undisclosed amount. Poudre Valley Rural Electric Association and San Miguel Power Association were also included in the settlement.

FERC must approve the agreement, but if it does so, LPEA will move to finalize a contract with Crossover Energy Partners to get up to 50% of its power from renewable energy.

“What we really did is we achieved something we didn’t know we could get,” said Jessica Matlock, LPEA’s CEO. “We always thought that it was either you leave (Tri-State) fully or you stay fully. This year we really worked hard to try to figure out the middle of the road, and so we worked and pushed Tri-State and we came up with that middle-of-the-road solution.

“We’re pretty excited because we feel like this was better than what we thought,” she said.

The settlement marks a partial buy-down that will require LPEA to purchase 50% of its power, or 71 megawatts, from Tri-State and allow the co-op to purchase up to 50% from Crossover to reduce its carbon footprint and save money. The agreement has been more than three years in the making, Matlock said, as LPEA has weighed breaking from its 50-year contract with Tri-State.

Hillary Knox, spokeswoman for LPEA, said the co-op is excited by the deal.

“We really want FERC to approve it. I think all parties consider this a win-win agreement,” she said.

Duane Highley, Tri-State’s CEO, also lauded the settlement.

“Reaching an agreement to implement flexible power supply options with our members is another significant milestone in our Responsible Energy Plan,” he said in a statement. “In the spirit of our cooperative model, it’s a win for all involved.”

However, an ongoing battle between United Power, a Front Range utility, and Tri-State looms in the background, raising questions as to whether LPEA and the other utilities will have agreed to a fair exit price.

United Power, Tri-State’s largest member, has sought to leave the wholesale power provider entirely, objecting to restrictive contracts, high costs and Tri-State’s reliance on coal-fired power plants.

Tri-State calculated an exit fee of $1.6 billion, but a recent report from FERC found that Tri-State’s calculations were obstructive and excessive, and that United Power should be allowed to break its contract for less than a tenth of that, according to reporting from The Colorado Sun.

It marks the first time that Tri-State has been regulated by FERC, Matlock said.

The battle between United Power and Tri-State should not have any bearing on LPEA’s settlement with the power supplier, Matlock said. United Power aims to leave entirely while LPEA is seeking a partial buy-down, and United Power and Tri-State are sparring over the methodology used to calculate the utility’s exit cost, which LPEA’s partial buy-down lacks, she said.

“You would think that maybe there’ll be some spillover, but there really shouldn’t be because it’s totally different,” Matlock said.

Because the agreement has not been approved by FERC and settlement negotiations are private, LPEA cannot reveal how much it is paying to buy-down its contract with Tri-State, Knox said.

United Power’s $1.6 billion exit price is public because federal filings with FERC are open to public scrutiny, she said.

If FERC approves the settlement, LPEA will then renegotiate its contract with Tri-State and finalize a contract with Crossover. Partnering with Crossover will move LPEA closer to both its environmental and financial goals.

In 2018, LPEA targeted reducing its carbon footprint by 50% by 2030. LPEA’s buy-down with Tri-State, where it would now get half of its power from Crossover, which relies entirely on renewable sources, would meet that goal within the next few years, Knox has previously said.

LPEA would likely reduce its carbon footprint by more than 50% with Tri-State’s investments in clean energy, Matlock said.

LPEA also projected that it would save its co-op members $7 million per year with the buy-down, though that figure has been tempered by inflation and rising power costs. The buy-down will still represent significant savings, Matlock said.

Tri-State has portrayed itself as a reliable wholesale power provider for rural electric co-ops in Colorado, New Mexico, Wyoming and Nebraska. However, the buy-down will shore up LPEA’s power supply, Matlock said.

“Just like diversifying your financial assets to spread the risk, it’s the same thing with power supply. We believe this will increase our reliability and resiliency,” Matlock said.

There is no timetable for when FERC will rule on LPEA and Tri-State’s settlement, but Matlock said she hopes that it will come sometime this summer so the co-op can begin to move forward with new contracts with Crossover and Tri-State. In February, Knox pinpointed 2024 as the date when LPEA will likely begin accepting power from Crossover.

“Prices for energy are going up (and the) cost of everything is going up, so we’d really like to get moving,” Matlock said.

LPEA will continue to watch the battle between Tri-State and United Power, and FERC’s rulings on the matter. Tri-State does not give its members the option to undertake incremental buy-downs, so LPEA is waiting for a complete picture of what a full buyout would look like, Matlock said.

However, Thursday’s settlement is a step in the right direction.

“We’re getting close. We’ve got to get FERC approval, then we’ve got to finalize the new contracts and then our board votes one more time. Then we’re golden,” Knox said.

ahannon@durangoherald.com

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