Dive Brief:

• The Federal Energy Regulatory Commission on June 12 accepted and suspended a Contract Termination Payment (CTP) methodology proposed by Tri-State Generation and Transmission, as Colorado regulators consider exit charges for two of the utility's cooperative members.
• An administrative law judge at the Colorado Public Utilities Commission (PUC) in May cleared the way for state regulators to determine the fees La Plata Electric Association (LPEA) and United Power will pay to exit Tri-State's service. An exit fee determination is expected by the end of June, though it could be followed by an appeal to the full commission and potential litigation.
• FERC's acceptance of Tri-State's preferred exit fee methodology means the issue is "now properly before the appropriate regulatory commission," according to Tri-State CEO Duane Highley. Determining which regulatory body has jurisdiction could wind up before the Colorado Supreme Court, attorneys say.

Dive Insight:

FERC's acceptance of Tri-State's exit fee methodology is a "decidedly positive outcome," according to Highley. Lawyers for LPEA, however, say the issue is more nuanced.

"From our perspective, it's as important what the order doesn't say as what it says," said Matthew Larson, a partner at Wilkinson Barker Knauer which represents LPEA.

FERC could have rejected the filing outright, accepted and approved the CTP methodology, or accepted but not approved it. The commission took the third route, suspending the tariff "for a nominal period" and establishing hearing and settlement judge procedures.

The commission's order says "preliminary analysis indicates that the CTP Methodology has not been shown to be just and reasonable and may be unjust, unreasonable, unduly discriminatory or preferential, or otherwise unlawful." 

Tri-State's proposed approach uses a mark-to-market, make-whole methodology to determine exit fees that includes a forecast of the Tri-State's revenue requirements. Tri-State officials say the CTP methodology was developed by a Contract Committee of its membership, which was then approved by the utility's board of directors in April.

"The methodology determines a fair price for a member to terminate its wholesale power contract with Tri-State without shifting costs from that member or to that member," Highley said.

But LPEA's representatives say it leaves too much power with the G&T provider.

"One of our problems with the methodology is that it's heavily dependent on Tri-State's long-term financial forecast, which the board can change at their discretion," said Larson. "It's impossible to ever have transparency into what your buyout figure would be. The board retains an enormous amount of discretion ... and if history is any guide, that discretion has been used to benefit Tri-State and not its members."

United, LPEA and other members have been working to leave Tri-State's service because they are unhappy with its coal-heavy generation mix. And defections from other members are possible.

"Some cooperatives have taken the plunge. But now with this FERC process moving forward, does the mutiny grow?" asked Larson. "This is not just a Colorado issue, it's a system-wide issue for Tri-State, whether they want to pretend it is, or is not, and it is also an issue on an industry-wide level across the G&T business model."

Several utility member cooperatives have filed protests at FERC over the CTP methodology, including Northwest Rural Public Power District (NRPPD) in Nebraska. The cooperative wants to see the methodology determined by a neutral party, NRPPD General Manager Chance Briscoe told Utility Dive.

"The point of the protest is to have a third party, FERC, determine whether the exit methodology is just and reasonable," Briscoe said.

Asked whether NRPPD is happy with Tri-State's generation mix and costs, Briscoe demurred. "I'm not comfortable going into what perspective our utility holds," he said. "This is going through the FERC process and could end up in litigation."

Some cooperatives have also filed comments with FERC supporting Tri-State's exit fee methodology, including High West Energy. The Wyoming cooperative said Tri-State is working to "significantly reduce carbon emissions while ensuring reliable and affordable energy."

Tri-State 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.

FERC's acceptance of Tri-State's filing sets up a full adjudication of the suspended tariff in front of a Colorado Administrative Law Judge (ALJ). And if a settlement cannot be reached, the fee methodology will go to a hearing proceeding. That likely means the process will take months, while Colorado appears closer to a decision setting exit fees for United and LPEA.

"We fully expect the ALJ to render a decision on our Colorado PUC complaints by the end of the month," LPEA CEO Jessica Matlock said in an emailed statement. "We are relieved that Colorado decision-makers will develop a fair and reasonable exit charge for a Colorado cooperative, so that we can weigh our future options."

Once the Colorado ALJ has issued a decision, parties can file what are known as "exceptions," after which the full commission would need to review the decision. While that could potentially involve changing the ALJ-determined buy-out amount, it is not common for the full PUC to alter judges' determinations, said Larson.

The fact that Colorado is further along in the process than FERC and is likely to issue a decision first is a big deal, said Larson. "What we have now is a sizable window for not only the ALJ to issue his decision, but for the exceptions process to go forward and the full [state] commission to issue a decision."

Larson said that could happen toward the end of summer.

Even the PUC decision may not be final, however. Colorado PUC decisions can be appealed to state district court. If a district judge's decision is appealed, it would go straight to the Colorado Supreme Court as a must-take appeal.

"The Colorado PUC gets a lot of deference in the courts," said Larson.

But Tri-State's Highley said federal regulators have ultimate authority over the exit fees. "Importantly, FERC rejected arguments that it did not have jurisdiction on contract termination payments," he said.