FERC order clarifies terms for United Power’s divorce from Tri-State

The Federal Energy Regulatory Commission has issued a final decision clarifying the methodology and procedures for members exiting from Tri-State Generation and Transmission Association Inc., the next step in United Power’s path to exit Tri-State by May 1.

Westminster-based nonprofit wholesale power supplier Tri-State and its largest member, Brighton-based electric cooperative United Power Inc., reached an agreement in November designed to complete the companies’ contentious two-year divorce.

The FERC’s 246-page order issued Tuesday affirms in part, reverses in part, modifies in part and clarifies in part an initial decision issued by a FERC administrative law judge in September 2022 that addressed contract-termination methodology and procedures for members exiting from Tri-State.

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Prepared statements by officials from both United Power and Tri-State said they were still reviewing FERC’s order.

“We are pleased to see that it supports a variation of the balance-sheet approach methodology we proposed versus a contract-damages or lost-revenues approach,” said Mark Gabriel, president and CEO of United Power.

The modified balance-sheet approach outlined by FERC in Tuesday’s order added the cost of transmission investments and required that that amount be paid upfront. However, it said the co-ops could have that amount credited back to them gradually, and noted that the formula should help Tri-State survive.

Robin Lunt, chief commercial officer for Denver-based wholesale power provider Guzman Energy, in an interview Wednesday with BizWest, described the “balance-sheet” approach as “saying you, departing member co-op, need to pay your pro-rata share of debt to exit from Tri-State. And then there’s a lot of details about how do you calculate debt and what do you do with patronage capital, which is basically the equity that a distribution co-op has in a G-and-T (generation and transmission) cooperative.”

Guzman in July signed a 15-year contract to deliver wholesale power to United Power. Under the agreement, Guzman will deliver approximately one-third of the cooperative’s power needs, beginning next May.

“All of the distribution cooperatives, like United Power, are member-owners of the G-and-T, which is a cooperative as well,” Lunt said. “The distribution utilities serve the retail customers, and the G-and-T owns generation and transmission.”

The order won’t affect Guzman’s contract with United Power, Lunt said, but added that “this is super favorable for distribution utilities, most importantly, to provide them transparency so that they know whether they stay or they go, they know that the number that would need to be paid and the number needed for exiting. 

“For United, specifically, who we will be serving a third of their power starting May 1, it provides a glide path to clarity around what is the price needed to pay and the mechanism to move forward with that.”

In a statement issued by Tri-State, it said its review of the FERC order will include an analysis of its “methodology and its inputs to calculate the payment that a utility member must pay to terminate its contract early and withdraw from Tri-State membership. Given the significance of the Commission’s order on Tri-State’s membership, a thorough review of the order is prudent and necessary. Tri-State will continue with its review and analysis, with FERC ordering Tri-State to make a compliance filing within 30 days of the date of the order.”

Elements of the term sheet that the parties agreed to include a mutual release of claims and provisions specifying that the parties would cooperate to complete a settlement agreement and related agreements by Dec. 8. At that time, under the agreement, United Power and Tri-State jointly filed for dismissal of a lawsuit, with prejudice, that was pending in Adams County District Court. United Power had sued Tri-State in May 2020, alleging that Tri-State illegally granted members to its roster so it could become subject to the FERC instead of the Colorado Public Utilities Commission. United Power had alleged a years-long conspiracy to keep it from exiting the association of local electric providers.

Tri-State’s board of directors unanimously approved the term sheet on Nov. 1, and United Power’s board approved it on Nov. 6.

In the Dec. 8 settlement, both utilities agreed to cooperate in good faith to provide the information necessary to calculate the amount of the contract termination payment. “To that end,” Gabriel said, “we intend to work together to determine the appropriate adjustments and offsets so that Tri-State can timely file its compliance filing, and we can file an executed withdrawal agreement. United Power is focused on efforts to ensure a positive future for our members.”.

In the statement issued by United Power on Wednesday, it said it “has taken steps to resolve disputes with Tri-State and to reach areas of alignment and agreement to timely facilitate its departure. Most recently, United Power dismissed state court litigation against Tri-State, and filed motions to withdraw its appeal and intervention in two separate matters before the D.C. Circuit Court. In September, United Power made an immediate payment to Tri-State for Reserved Issue 3 in the Stated Rate proceeding consistent with the guidance in FERC’s final order.”

The companies had taken steps during the same week in September to advance the separation. Tri-State filed an unexecuted version of the membership withdrawal agreement with the FERC that would break a contract that would have extended until 2050. Two days later, United Power announced a partnership with investor-owned utility Xcel Energy (Nasdaq: XEL) in which Xcel will provide United Power and its members with excess low-carbon, renewable electricity.

Under the agreement, Tri-State and United Power will continue taking actions to ensure United Power’s exit by May 1 upon making a contract-termination payment. That amount will be set by the FERC based on a rate schedule to be calculated April 24, and Tri-State would have the right to terminate the agreement if United Power defaults, as well as termination rights for either party. Tri-State requested that FERC accept the withdrawal agreement with an effective date of Nov. 12.

The settlement agreement did not address the FERC proceeding related to the contract-termination payment that members will pay to Tri-State to terminate their contracts early and withdraw from membership. That decision was part of the order FERC issued Tuesday.

That cost has been an issue of dispute, with United Power initially contending it would be around $150 million, while Tri-State put the exit fee at $1.6 billion. A FERC administrative law judge estimated the fee could be up to $553 million. FERC’s Tuesday ruling didn’t set the dollar value but outlined a method for calculating it, and ordered Tri-State within the next 30 days to provide exit figures to United Power and any other co-op that wants out.

In a statement, Tri-State said the exit fee would probably be higher than the numbers either United Power or the judge came up with.

“FERC notes in its order ‘that the Adopted BSA methodology is likely to lead to larger CTP payments than the DCO,’ referencing members’ debt coverage obligations,” the Tri-State statement said. “Tri-State notes that it filed in March 2022 with FERC that United Power’s DCO is $736.4 million.”

United Power serves nearly 110,000 meters and maintains and operates more than 6,500 miles of distribution line. The 900-square mile service territory wraps around the north and west borders of Denver International Airport. It includes the Carbon Valley, Brighton, Hudson, Keenesburg, the north and northeast metropolitan development corridors along Interstates 25 and 76, U.S. Highway 85, and E-470 and the Golden Gate and Coal Creek canyons. As a result of its geographic location, United Power’s system is experiencing significant demand and energy growth, averaging approximately 6% annually.

Tri-State is a power-supply cooperative operating on a not-for-profit basis, including utility electric distribution cooperative and public power district members in four states. It delivers power to more than a million electricity consumers across nearly 200,000 square miles of the West.