US electric co-ops face ‘outrageous’ exit fees to leave Tri-State

Nine members are trying to buy their way out of the association so they can increase their reliance on renewables

Rural electric co-ops which are trying to leave the Tri-State Generation and Transmission Association so they can source cleaner energy have been told it will cost them billions of dollars between them in exit fees.

Nine members of Tri-State have been trying to find out how much it will cost to leave the association. Under their membership terms they are required to buy 95% of their energy from Tri-State, which still generates a substantial amount of coal energy.

Last week they received the estimates in a federal filing, submitted by Tri-State after it was criticised by regulators. For two Colorado co-ops which have been leading the exodus, United Power and La Plata Electric Association, these come in at $1.5bn and $449m respectively.

Tri-State says its exit fees are based on whichever figure is higher out of the exiting co-op’s share of the utility’s debt, or the present value of all the electricity Tri-State would have sold to the co-op up until 2050. It says its remaining members must be left in the same financial position they would have enjoyed if no other co-ops had left.

Eric Frankowski, executive director of green campaign group Western Clean Energy Campaign, said the exit fees are “barriers to leaving” for the co-ops.

The bid by the co-ops to leave Tri-State is a long-running saga which saw the Federal Energy Regulatory Commission rule against the association in June.

FERC said in the ruling: “Several utility members have outstanding calculation requests, and cannot reasonably move forward in evaluating their continued membership until Tri-State responds to those requests.

“Thus, the lack of clear and transparent exit provisions has allowed Tri-State to impose substantial barriers for its utility members in evaluating whether to remain in Tri-State.”

In a response to the ruling, Tri-State said it recognised FERC’s concerns and would review the order to resolve the issues – a process which led to its calculation of the exit fees.

Related: More electric co-ops to join exodus from Tri-State supplier contract

“It is disappointing that it took us multiple years to get an exit charge from Tri-State and that they did so only under pressure from FERC,” said La Plata CEO Jessica Matlock, who branded he co-op’s fee “outrageous”.

Tri-State, which supplies wholesale electricity to co-ops in Colorado, New Mexico, Wyoming, and Nebraska, has also announced changes to make the exit process more transparent. It has scrapped a charge levied on co-ops asking for an exit estimate as well as a rule giving its board discretion over whether a co-op can leave. And it has agreed to share the data and methodology it used to calculate the fee.

It is also making efforts to generate more of its energy from renewable sources. Last September, it said it will close its coal plants in Colorado and New Mexico and build a gigawatt of new wind and solar projects.

Ray Gifford, former chairman of the Colorado PUC, and Matt Larson, a partner at Wilkinson Barker Knauer LLP, who are representing La Plata in its exit bid, have welcomed FERC’s ruling in an opinion piece for Utility Dive website, where they argue that the generation and transmission model for electric co-ops has long been in need of reform.

They wrote: “For too long, distribution co-operatives across the country have felt pain … as many of them ineffectually pursue a different energy future for their customers – a future with lower costs, cleaner generation and increased flexibility.”

They say FERC’s ruling “should be applauded, as it can and should mark the beginning of brighter days for disenfranchised G&T members.

“After multiple years of no movement, Tri-State’s response to the show cause order shows incremental improvements to the exit process and increased transparency – a response that must be attributed to the proactivity of FERC in issuing the show cause order.”

The case comes as the wider energy co-op movement in the US continues a push for cleaner energy. In Michigan, Wolverine Power Cooperative – which comprises five electric co-ops – is being lobbied by environmental groups to break its contract with Ohio Valley Electric Corporation, which uses two coal plants, or to persuade it to work more efficiently.

And a campaign is being mounted by news and consultancy sharable Shareable, the Rural Power Coalition and activist electric co-op members, calling for $100bn in federal support to help the sector transition to renewables.

“Low-income member-owners of these co-operatives face three times the energy burden of their higher-income urban peers,” says Shareable.

“Rural communities need the authorisation of $100bn in appropriations for federally insured Hardship Loans from the Rural Utilities Service along with conditions for loan forgiveness akin to those offered in the CARES Act through the Small Business Administration.

“These conditions would facilitate the retirement of all coal plants currently in operation and potentially all outstanding electric co-operative debt in exchange for new investment in clean energy, distributed energy resources, energy efficiency, high-speed broadband, storage, and electric transportation with new loans at US Treasury rates.”

There is still reliance on coal among electric co-ops, however. In Minnesota, 27 of the 28 member co-operatives of Great River Energy have just approved the sale of the financially struggling Coal Creek power coal power plant in North Dakota to wholesale company Rainbow Energy Center – and have agreed to purchase electricity from it over the next ten years.

Great River has also said it intends to source more wind energy; and Rainbow Energy says it is introducing carbon capture storage to halt climate emissions from the plant.

But Margaret Levin, director of the Minnesota chapter of clean energy campaign group the Sierra Club, said the deal ”sets the stage for an environmental and financial fiasco. There is no reasonable scenario where this ends well for consumers and our shared environment.”

And the largest of the Great River co-ops, Connexus, voted against the deal. In a letter to members, chair Fran Bator and president and CEO Greg Ridderbusch said the Midcontinent Independent System Operator, which manages the regional grid, is “highly alert and organised in managing reliability”, so that Minnesota is never reliant on a single plant. 

They added that the proposed carbon storage process at the plant, “while commendable, is an extremely speculative project, whose financial success depends on Federal 45Q tax credits, while parasitically consuming about 30% of the electricity generated for the process and storage”.

“The Connexus staff and board have spent considerable time and dedication considering all aspects of this complex sale and the implications for our members. The Connexus board of directors finds the decision and approach to sell Coal Creek Station and related transactions have neither fulfilled the savings Connexus expected for its members nor reduced greenhouse gases by enabling the continued operations of that plant.”

  • This story was amended on 4 August to state that Connexus had voted against the deal to sell Coal Creek, and that the vote was not unanimous as previously stated.