By Duane Highley
Published in IHS Markit/Energy Daily
July 22, 2021
For an electric utility to make a significant and successful transition, change occurs on every front. This is true for Tri-State Generation and Transmission Association, which is rapidly transforming all aspects of our operations to be the most competitive, clean and flexible power supplier for our members. The federal regulatory process not only aligns with our transition; it supports improvements in our own processes, including evolving our approach to contract termination payments.
Tri-State operates in interstate commerce and is a wholesale power supplier with 45 members, including 42 member distribution systems across four western states. Tri-State became jurisdictional to the Federal Energy Regulatory Commission on Sept. 3, 2019. FERC regulation provides regulatory certainty across multiple states, and helps us to predictably advance our goals, including pro- viding reliable service, affordable wholesale rates and increasing contract flexibility.
To be more competitive, Tri-State has recently filed a settlement agreement to reduce our wholesale rate by 4 percent, with the first 2 percent reduction in effect in March 2021, and a second 2 percent reduction going into effect in 2022. Lower wholesale rates are part of our Responsible Energy Plan, which delivers cleaner energy and lower emissions, advocates for regional transmission organizations in the West, and provides greater contract flexibility for our members.
Some of our members desire additional contract flexibility while preserving the benefits of membership in Tri-State. The new partial requirements membership option we filed with FERC would enable members to make a buy-down payment and then assume the responsibility of securing up to 50 percent of their power requirements. In our first “open season,” three members identified a total of 209 mega- watts for self-supply through local generation or other purchases.
A few of our members want information about the value of their wholesale electric service contracts as they look at power supply options outside Tri-State. We worked with our members to develop a contract termination payment (CTP) that would provide a member with the cost for early termination of their power contract while keeping remaining members financially unharmed.
The proposed CTP that we filed with FERC was complex and the process for a member to obtain its CTP number was time-consuming. At the time, we believed the complexity was justified to make the CTP calculation as accurate as possible for any specific member seeking an exit figure.
In two separate orders, FERC raised objections to the CTP implementation. In particular, FERC objected that our process made it too difficult for members who were considering terminating their membership to obtain their CTP number. As we reviewed these orders, we recognized our proposal fell short of what we had hoped to achieve.
We are responding to FERC’s concerns, as well as the concerns expressed by several of our members. In early July, our board of directors, representing each of our utility members, approved a modified version of the CTP, which we believe will meet both our members’ and FERC’s expectations.
The modified CTP is based on simple and replicable calculations, using transparent data that is easily obtainable. The calculations can be performed quickly at minimal cost, and members can obtain CTP calculations annually. Once a calculation is performed, a member could move forward to terminate their contract without further approvals from Tri-State’s Board of Directors.
In approving these modifications to the CTP, our board also reaffirmed that the intent of the CTP is to allow members to terminate their contracts early while keeping the remaining members financially whole, and importantly, without violating Tri-State’s debt covenants.
Working with our members and through FERC’s processes, our approach to the CTP is evolving to be more workable for our members. We will be filing the modified CTP with the FERC and providing CTP calculations for all members using the modified methodology as soon as possible.
As we move forward, I remain confident that Tri-State will be the most competitive option to meet our members’ power supply needs, and we look forward to continuing in the FERC processes as we transition.
Duane Highley is CEO of Tri-State Generation and Transmission Association, a Colorado-based cooperative that supplies power to 42 rural electric cooperatives and other public power utilities serving more than 1 million customers in Colorado, Nebraska, New Mexico and Wyoming.