Two electric cooperatives filed formal complaints with the Colorado Public Utilities Commission this week, requesting that the Commission determine the price for them to buy out of their contracts with Tri-State Generation and Transmission Association. The disputes could have major implications for the coal-heavy power supplier, and reveal problems with the governance system of Tri-State and other generation and transmission associations, which sell wholesale power to hundreds of electric cooperatives across the United States.

The United Power and La Plata Electric Association requests’ to the Colorado PUC follow Delta-Montrose Electric Association’s successful effort to end its membership with Tri-State; all three member cooperatives have said that they want to build more local renewable energy than Tri-State allows and purchase cheaper wholesale power. Tri-State settled with Delta-Montrose Electric in July, after the Colorado PUC determined that it had jurisdiction to determine a fair exit fee, and Commissioner Frances Koncilja raised the possibility of public hearings to question Tri-State’s executives about the company’s conduct.

If United Power and La Plata Electric stop purchasing wholesale power from Tri-State, it would have a much larger impact on Tri-State than the departure of Delta-Montrose Electric. While Delta-Montrose accounts for 5% of Tri-State’s electricity sales to member co-ops, La Plata Electric accounts for 6% and United Power accounts for 15% – Tri-State’s largest member by far.

Colorado PUC ordered Tri-State to respond to the complaints, and set hearings for January 21 and 22, 2020. 

Both co-ops urged Tri-State for years to relax its restrictions on local energy development

United Power and La Plata Electric are the two largest co-ops that have reached Tri-State’s 5% limit on local energy development, and both have sought for years to gain more flexibility in their contracts with Tri-State.

After reaching the 5% limit in 2017, United Power shifted from developing solar projects to a battery project, but Tri-State responded by changing its policies to discourage local energy storage projects. United Power warned that Tri-State’s restrictive policies were turning away large customers, and appealed to other co-ops to support solutions to “increasingly outmoded G&T business models.”

United Power’s formal complaint to the PUC makes clear that its efforts to work within Tri-State’s membership have not succeeded. While Tri-State member co-ops approved a change to Tri-State’s bylaws in April to allow for new types of contracts, United Power says those discussions have stalled. The complaint describes how Tri-State instead used that bylaw change to add a new non-co-op member in an effort to become rate-regulated by the Federal Energy Regulatory Commission, instead of state regulators.

“United Power members deserve clean, affordable energy and we have an obligation as a cooperative to look out for the financial interests of our member-owners. We have been working for the last few years on solutions with Tri-State that would allow the co-op the flexibility to add local resources, or purchase lower cost power from other sources,” said John Parker, Chief Executive Officer for United Power. “Conversations regarding our power agreement with Tri-State have stalled and the cooperative is seeking out all possible alternatives to build in rate reductions and offer more renewable options to our energy mix.”

La Plata Electric Association also tried to persuade Tri-State to loosen its restrictions on its members. The co-op passed a resolution in 2017 urging Tri-State to increase the 5% limit on local energy development, but the Tri-State Board voted against the proposal. Earlier this year, the co-op commissioned a study of its wholesale power options, which showed it could save money if it left Tri-State.

La Plata Electric then requested an exit fee from Tri-State in July, but Tri-State refused to provide one, and in September passed a resolution that suspended the process for withdrawing from Tri-State until April 2020. La Plata Electric argues in its complaint that “Tri-State’s assurances of voluntary and open membership, and the right to withdraw from Tri-State, are empty promises.”

“We have run out of options to obtain a fair exit charge from Tri-State,” said Jessica Matlock, Chief Executive Officer for La Plata Electric Association, “Particularly in light of Tri-State’s exit charge moratorium, combined with its efforts to circumvent PUC jurisdiction over exit charges, we needed to act now. It is our responsibility to LPEA members to examine all future power supply options. We cannot adequately do this unless we have been provided an exit charge that would allow us to potentially withdraw from Tri-State on terms that are fair – both to LPEA and its members, and to Tri-State’s remaining members.”

Are generation and transmission associations actually governed by their members?

Both United Power and La Plata Electric’s filings also highlight a core problem with Tri-State’s system of governance – while the Tri-State board of directors is composed of a director from each Tri-State member co-op, those directors are told they can’t actually represent their co-ops’ interests.

Here’s how the United Power and La Plata Electric’s filings with the Colorado PUC explain the problem:

Tri-State also touts “democratic member control” as one of its core principles. Id. Tri-State is governed by a Board of Directors. Each of Tri-State’s member cooperatives elects an individual from its own Board of Directors to serve on the Tri-State Board. These individuals are often referred to as “dual directors,” since they serve both on the member Board and the Tri-State Board. Tri-State characterizes this as “democratic” governance. In reality, however, these dual directors are required to represent Tri-State’s interest when sitting on the Tri-State Board, as Tri-State makes clear in regular fiduciary duty presentations to its Board. See excerpt from Fiduciary Duties of Corporate Directors, TRI-STATE GENERATION AND TRANSMISSION ASS’N (Dec. 2013) (attached hereto as Attachment A) (“The Board of Directors of a G&T is not a representative democracy where each director’s responsibility is to represent the interest of his or her distribution cooperative.”). If a system’s interests conflict with Tri-State’s interests, then, according to Tri-State, the “dual director” must either recuse from the vote or resign from one or both boards. Id. The dual director therefore may not represent and vote their home system’s interest in the precise situation when it would be most critical to do so. The notion that these dual directors “represent” their home systems—a common plank in Tri-State’s advocacy platform—is a myth.

Those filings also include an example of what Tri-State directors are shown, to remind them of their fiduciary duties to Tri-State:

Unlike investor-owned utilities, generation and transmission associations are mostly unregulated by public utilities commissions, in large part based on the theory that they are governed by their member cooperatives. The filings by La Plata Electric and United Power, and the problems they highlight with dual directors’ fiduciary duties, calls that theory into question.

Posted by Joe Smyth

Joe Smyth is a Research and Communications Manager for the Energy and Policy Institute.