Trojan horses and de facto bribes.
Secrecy with the intention of imprisonment.
And then a clandestine project, co-named Blue Sky II, which the electrical cooperative United Power claims was the project designed by its wholesale supplier, Tri-State Generation and Transmission, to explore ways to get jurisdiction by regulators in Washington D.C.
To keep United Power, the largest among Tri-State’s 43 members that are spread across Colorado and three adjoining states, as a member—and contributing fistfuls of dollars for decades to come. And also to keep the Colorado Public Utilities Commission from exercising authority over determining what would constitute a fair and reasonable exit fee.
Or so goes the argument in the lawsuit filed by United Power against Tri-State and three of its new, associated members.
Much of the argument had been previously shared by United Power and La Plata, both member co-ops that want to leave Tri-State. See: Why Tri-State’s new policies don’t work for these two dissident members And also: FERC order leaves Tri-State dispute with its largest members in Colorado.
This lawsuit adds specificity to the complaints coupled with colorful language.
La Plata Electric is not a party to the lawsuit.
Tri-State dismisses the lawsuit as so much folderol, calling the assertions “false and reckless.”
“United Power’s most recent complaint smacks of desperation and is completely without merit,” the wholesaler said in a statement yesterday evening, after hours after copies of the lawsuit were disseminated by Untied Power.
“Tri-State will vigorously defend its members and its board of director’s lawful, appropriate, and open decisions and actions to seek federal regulation,” the statement added. “Further, United Power’s complaint insults our other cooperative members, who clearly understood the direction of the association.”
It accused United of trying to foist off onto other members $1 billion in costs.
United Power is the largest among the 43 members in Colorado and three adjoining states that together constitute Tri-State, alone responsible for 17% of electrical demand from Tri-State. United serves the fast-growing suburbs north of Denver but also the electricity-heavy hydrocarbon extraction operations in the Wattenberg field.
The lawsuit says that United Power has purchased in excess of $200 million in wholesale electricity annually from Tri-State in recent years that it then distributes to its individual members as well as the oil and gas customers. This power is sold by Tri-State under its “Class A” rate, which is “materially higher now—and has been for years—than what United Power would be required to pay if it purchased electricity on the open market.”
Included in this $200 million per year is a built-in margin, which United Power calls profit. It might also be called overhead. That so-called profit has totaled $45 million to $70 million among all of Tri-State’s members in recent years. United, however, pays the lion’s share, $150 million during the past four years alone, it says.
In the future? More of the same, several hundred million dollars in just the next decade. The current contract does not expire for three decades.
Not a fair deal, says the lawsuit – and to avoid that fair deal Tri-State has “misused the cooperative governance structure in an effort to deprive United Power of its right to exit Tri-State.”
That effort to leave began in August 2018, when United Power asked for a buyout. Tri-State came up with a figure of $1.2 billion. That’s what Tri-State said United Power would have to pay to leave its so-called all-requirements contract before 2050. That contract allows members to procure only 5% or less of their own power.
One other member co-op, Kit Carson Electrical Cooperative in Taos, N.M., had already left in 2016, and Delta-Montrose Electric had started negotiating with Tri-State to leave. That agreement was reached last July and will take effect on July 1, 2020.
United Power didn’t want out. That’s what the lawsuit says, and that’s also consistent with what this writer reported at the time. It only wanted the ability to generate more of its own power and take advantage of emerging opportunities for cleaner and cheaper sources.
Now comes the equine subterfuge. The lawsuit says that Tri-State amended the bylaws to allow for partial requirements contracts, allowing more self-generation than the 5% allowed under the all-requirements contracts. Coupled with this was a new classification proposed by Tri-State managers in April 2019. This new class allowed members who weren’t electrical co-operatives.
To what end the new class of membership?
United alleges duplicitous behavior by Tri-State.
“Tri-State staff knew that Tri-State’s loss of all, or even part, of United Power’s load would have enormous adverse effects on Tri-State’s financial health,” the lawsuit says. “Tri-State staff also knew that other Tri-State member-owners were, for similar reasons, interested in retaining United Power as a Tri-State member. So Tri-State saw its opportunity, using United Power as a Trojan horse to convince Tri-State’s membership to amend Tri-State’s bylaws in a way that members believed would benefit them.”
Tri-State had been consulting with the lawyers, in-house and outside, about becoming FERC jurisdictional for at least six months and possibly much longer. This effort was called Blue Sky II. More about Blue Sky later.
Why did United, as a voting member of Tri-State go along with all this—indeed, by its own admission, champion it? United claims naiveté. Or, more precisely, deception.
“Tri-State concealed the existence of Blue Sky II from its members. By December 2018, Tri-State already had drafted the tariffs that it would need to file with FERC if it were to seek to become FERC regulated. Tri-State concealed from United Power and even from the Colorado PUC the existence of those draft tariffs,” the lawsuit says. The intent of all this was to “displace the Colorado PUC’s jurisdiction over member withdrawals.”
Why did Tri-State want to avoid the Colorado PUC jurisdiction in this matter? That is never explicitly stated.
But United Power says that it believed Tri-State’s good intentions throughout 2018 and 2019, even voting for the new bylaws that are now being used against its own best interests. Those bylaws allowed Tri-State to expand its membership to include:
MIECO, which sold natural gas to Tri-State.
Ellgen, which rented land from Colowyo Coal Co., a wholly owned subsidiary of Tri-State.
Olsons, a greenhouse in Fort Lupton, which purchases steam from Tri-State.
Each “received additional payment from Tri-State for engaging in the scheme to deprive the Colorado PUC of its jurisdiction over Tri-State through purported “patronage capital’ and, in the case of Olson’s, an increased discount in the price it paid for steam.”
Tri-State argues that these new additional members pre-empt the PUC’s jurisdictions over member withdrawals. They are also named as defendants in the lawsuit by United Power.
Tri-State all along has maintained that it added the members in order to gain FERC jurisdiction over rates. Because it has members in four states, it has explained, and so it’s easier to have one rate-reviewing body, even if in Washington D.C., than four in state capitols. However, in practice, Colorado’s jurisdiction is the one that matters. Wyoming and Nebraska do not exercise rate jurisdiction and New Mexico has not consistently done so.
Tri-State explains its case somewhat differently: “Tri-State and its member cooperatives have been open and transparent about their desire to be regulated by the FERC, to eliminate inconsistent rate treatment across the states. In recent years both Colorado and New Mexico have exercised rate jurisdiction, which resulted in increased costs, unrecovered revenue and inconsistent rates to its members.”
And in seeking FERC rate regulation, says Tri-State, it’s doing what almost all “other similarly situated wholesale generation and transmission providers” already do. That also includes Xcel Energy and its contracts with non-Tri-State Colorado cooperatives, which includes Yampa Valley Electric and Holy Cross Energy, among others.
Meanwhile, an administrative law judge at the PUC is scheduled to hear the case of both United Power and La Plata on May 18-22. Tri-State wants the FERC to hurry up and take on the same case. United portrays this as a sinister conspiracy:
“Notwithstanding that imminent proceeding, it has become completely clear that Tri- State has declared war on the Colorado PUC and literally will stop at nothing to try to prevent it from deciding a just, reasonable and non-discriminatory charge for United Power to withdraw as a member-owner of Tri-State. Tri-State’s legion of attorneys―whose fees are paid by Tri-State member-owners―are desperately seeking the expedited assistance of the Federal Energy Regulatory Commission in creating a conflict that Tri-State will then use to claim that the PUC’s jurisdiction has been pre-empted.”
As for Blue Sky II, if United is correct that it existed, what’s with the name? One hypothesis would be that it alludes to an area of the Vail ski resort, the one newest and most remote from the base-area ski lifts, closer to the town of Red Cliff than to the town of Vail.
Blue sky thinking can refer to brainstorming no limits.
The United Power press release.
The Tri-State G&T statement.
And United’s court filing: Adams County – United Power Complaint-c3.pdf