Colorado ALJ sides with United Power against Tri-State over exit charge methodology

Dive Brief:

A Colorado administrative law judge (ALJ) has recommended that regulators approve an exit fee methodology proposed by United Power that would set the cost for cooperatives to leave the service of Tri-State Generation and Transmission.
The decision comes amid a two-year fight involving United and La Plata Electric Association (LPEA) against Tri-State, which has seen members seek to exit in search of cleaner and cheaper power alternatives. Lawyers say an appeal is likely, and litigation is possible.
The recommended methodology would set a charge of approximately $235 million for United Power to leave Tri-State's service. The G&T provider says that would leave more than $1 billion in unjust costs split between remaining members in Colorado, Nebraska, New Mexico and Wyoming.

Dive Insight:

The Colorado Public Utilities Commission will need to adopt the ALJ's proposed decision for it to become effective. Parties have until the end of the week to file "exceptions" that would trigger a full review. But attorneys for LPEA called the recommendation a "landmark decision" that could signal greater power for rural cooperatives across the country.

"This is really the first time that a cooperative has gone to a hearing with Tri-State and prevailed," said Matthew Larson, an attorney at Wilkinson Barker Knauer, which has represented LPEA in its bid to leave Tri-State's service and coal-heavy generation mix.

The ALJ's recommended decision is proof that "where G&Ts aren't being responsive to what their members want, they can be taken on and they can be defeated," said Larson.

Officials at Tri-State, however, say the recommended exit fee methodology would mean its remaining members would be unfairly stuck with costs that exiting utilities had committed to pay for years. The provider argues that in 2007, LPEA and United agreed to wholesale power supply contracts and to share costs with the other members over the remaining 30 years of their contracts.

"In an effort to save money for themselves, United Power and LPEA are a step closer to forcing costs they agreed to pay onto smaller, less wealthy utilities and their rural consumers," Tri-State CEO Duane Highley said in a statement, "Our efforts to protect the interests of all our cooperative members and their electricity consumers will continue both at the Colorado Public Utilities Commission and at the Federal Energy Regulatory Commission.”

Federal regulators in June accepted a contract termination payment methodology proposed by Tri-State.

Both United and LPEA proposed buy-out methodologies and ultimately United's simpler approach was recommended by the ALJ. The recommended decision notes the methodology is "simply a member's pro rata share of Tri-State's indebtedness," based on filings with the Securities and Exchange Commission, "minus the member's patronage capital."

For United, that formula balanced a debt share of $354.7 million against $119.9 million in patronage capital. For LPEA, the calculation still must be completed. Under LPEA's methodology, it proposed an exit fee of about $97 million. Larson said LPEA was supportive of United's proposed methodology.

According to Tri-State, United Power's share of outstanding debt and other obligations is approximately $762 million. Tri-State filed an offer of proof with the Colorado PUC that it said established the fair value of the buyout for United Power in excess of $1.5 billion.

The ALJ's recommended decision was harsh on Tri-State, saying it is important that members who wish to seek alternatives "can easily assess the pros and cons of maintaining membership. The evidence presented in this proceeding, and the reason this proceeding was filed, makes it clear that Tri-State is not overly concerned with addressing the concerns of its members.”

LPEA and United praised the decision.

“This is a momentous decision in United Power’s effort to have more control over our power mix while keeping costs down," United Chief Energy Resource Officer Dean Hubbuck said in a statement.

“The recommended decision provides one more piece of LPEA’s power supply puzzle,” LPEA CEO Jessica Matlock said in a separate statement. “We’ve been asking for this number for a long time so that we can fully evaluate our options and determine the best course of action for our members."

Tri-State is working to add more renewable energy to its system. In addition, changes to its bylaws last year allowed for members to develop more of their own supply. The G&T provider has developed a plan to eliminate coal emissions in New Mexico by the end of 2020 and in Colorado by 2030, and is adding more than 1,000 MW of new wind and solar resources.

On July 8, Tri-State announced that the 410 MW coal-fired Craig Station Unit 2 in Colorado will be closed on Sept. 30, 2028. Previously, the unit was slated to be mothballed by 2030.