Tri-State Generation and Transmission Association has until Sept. 11 to answer “unsettled questions” from the Colorado Public Utility Commission regarding its application to move to federal oversight of wholesale electric rates.
What is even more unsettling is the negotiating position that Tri-State member cooperatives, including Empire Electric Association find themselves. EEA must either accept the rates set by the Federal Energy Regulatory Commission (FERC) or quickly move to negotiate cheaper power supply from a provider other than Tri-State and an exit fee to leave the Tri- State cooperative.
Either way, EEA faces substantial costs that were not considered when it entered into a wholesale electric service contract with Tri-State decades ago.
On Aug. 13, the PUC submitted a Notice of Intervention and Protest that asks FERC to dismiss Tri-State’s application. The PUC claims that Tri-State did not provide the details needed to set wholesale tariffs that are “just and reasonable.” One advantage that Tri-State claimed for its move to federal oversight is that FERC would use formulas to set rates that meet a federal standard for “just and reasonable.”
In its application, Tri-State included the rates in existing electric service contracts.
The PUC warns FERC in its intervention notice that it “should devote particular scrutiny to Tri-State’s WESCs [wholesale electric service contracts], and all other contracted rates Tri-State has submitted… [because] these WESCs all date back years, long before the possibility of FERC jurisdiction over Tri- State and its transactions arose. The [FERC] cannot assume that these contracts are just and reasonable when, at the time they were negotiated, the parties would not have expected the Federal Power Act to apply and the just and reasonable standard to govern.”
Furthermore, the PUC finds, “Recent litigation has revealed that member cooperatives face significant fees if they choose to leave Tri-State and procure their power elsewhere; those exit fees call into question the bargaining power the member cooperatives had available to them in negotiating the WESC. If member cooperatives’ bargaining power was constrained because they faced a choice between paying an unjust rate for wholesale electric services, and paying an uneconomic exit fee, they may have been unable to truly negotiate a just and reasonable rate.”
As pointed out by the PUC, EEA and other member associations have been put in an untenable negotiating position by Tri-State. Even if the FERC approves rates that are lower than those included in its existing service contract, EEA must carefully consider the impacts of FERC regulation on its own ability to meet future member/customer requirements for reliable, affordable power.
In the past, EEA voted on Tri-State’s wholesale rates as a member-owner of the Tri-State cooperative. That changed in May when the Tri-State board of directors voted to allow non-cooperative members to join Tri-State. This vote removed the final exemption keeping Tri- State from governmental oversight, and in July, Tri-State filed an application with the FERC for wholesale rate regulation.
In response, the PUC as well as many Tri-State members submitted a host of questions to Tri-State regarding the reasoning and timing for this move to federal regulation. For more details see “Sudden Power Shift,” Four Corners Free Press, August 2019.
The question troubling the PUC is the identity of the new member and whether the PUC will have jurisdiction over the non-cooperative utility.
Currently, the PUC does not have direct jurisdiction over Tri-State members because they are member-owned cooperatives. However, Tri-State members can file a complaint to the PUC to intervene when Tri-State and a Colorado-based member can’t reach an agreement, such as in the case of Delta-Montrose Electric Association negotiating an exit fee with Tri-State.
In its intervention notice, the PUC said, “As a historical matter, it is true that the CoPUC has not fully regulated Tri-State to the limits of the CoPUC’s broad statutory authority, out of respect for the cooperative model of governance. But now Tri-State seeks to change that model.”
The PUC further notes in its intervention notice that Tri-State says that it will admit a “New Member … that will not be an electric cooperative or a governmental entity and will not directly or indirectly be wholly-owned by an electric cooperative or a governmental entity.”
The PUC concludes that “By acknowledging that an unnamed nongovernmental, non-cooperative member will soon join Tri-State, but without providing any details as to how this new entrant or entrants will impact resource holdings, Tri-State effectively asks the [FERC] to approve a tariff that very well may be based on incomplete information and inaccurate analysis.”
Left unsaid by the PUC is the future organization and viability of Tri-State with members exiting and new non-cooperative members joining the association. It is not clear that when the Tri-State members voted to allow new members to join the association in May that they would be handing over their rate review power to the feds and placing themselves in a weaker position to negotiate future power purchase agreements.
Like other member cooperatives, EEA is facing decisions and uncertainties that it has rarely encountered in its 80-year history.