Check out market updates

United Power links with Xcel as Tri-State files with FERC

BRIGHTON and WESTMINSTER — The contentious two-year divorce between Westminster-based nonprofit wholesale power supplier Tri-State Generation and Transmission Association Inc. and its largest member, Brighton-based electric cooperative United Power Inc., picked up steam this week. 

On Tuesday, Tri-State filed an unexecuted version of a membership withdrawal agreement with the Federal Energy Regulatory Commission, which would break a contract that would have extended until 2050. On Thursday, United Power announced a partnership with investor-owned utility Xcel Energy (Nasdaq: XEL) in which Xcel will provide United Power and its members with excess low-carbon, renewable electricity.

United Power, preparing for an exit from its wholesale power contract with Tri-State on May 1, has been securing a variety of power-generation contracts – including a 25-year deal inked in July with Charlotte, North Carolina-based Whetstone Power LLC in which United Power will receive all the output of Whetstone’s Solar of Alamosa project beginning next May. That same month, United signed a deal with Denver-based Guzman Energy, whose customers include several other rural electric associations that have severed their ties with Tri-State. In 2016, Taos, New Mexico-based  Kit Carson Electric Cooperative paid $37 million to get out of its contract with Tri-State and struck a deal with Guzman, and in 2020, Montrose-based Delta-Montrose Electric Association paid $62.5 million to ditch Tri-State and take the same path. Last year, United Power joined the Southwest Power Pool, a nonprofit regional transmission organization in which members can access power surpluses across a wide network of suppliers.

As they prepare to part ways, United Power and Tri-State have disagreed over how quickly coal can be phased out as a power source in favor of renewable energy, a dispute that has played out before FERC, other regulators and the courts. United Power’s deals with Whetstone, Guzman and the Southwest Power Pool, as well as its new relationship with Xcel’s increasingly carbon-neutral portfolio, fit that scenario.

According to a news release from Xcel, the working agreement will allow both utilities to leverage cost savings through power purchases while continuing to invest in new, clean renewable resources.

“This is a win-win for both utilities,” said Mark A. Gabriel, president and CEO of United Power, in a prepared statement. “The ability of two large utilities working toward a common goal will benefit everyone. Together we will plan our energy needs, negotiate lower pricing, and assure reliability for our members and customers. This is an important step as we enter the new future of electric procurement and delivery.”

With the agreement, Xcel Energy seeks to leverage its renewable-energy resources by making sales to United Power at times when excess energy is available, providing United Power with access to Xcel Energy’s portfolio at attractive prices. The two utilities hope to develop a long-term relationship in which both will work in tandem to drive down power costs, understand how best to serve the future load of the cooperative’s members and Xcel Energy’s customers, and work toward the mutual goal of integrating more renewable energy in support of the state of Colorado’s renewable-resource goals. Under state law, Colorado has committed to reducing overall greenhouse-gas emissions by 26% below 2005 levels by 2025, 50% by 2030 and 90% by 2050.

“The electric industry is changing, and United Power is working with Xcel Energy to help lead this revolution,” said Gabriel. “Meeting federal and state requirements, keeping costs economical, and making certain our load is predictable are planned outcomes of this strategic relationship.”

Thursday’s announcement “solidifies our close working relationship with United Power, one of the largest and fastest-growing cooperative utilities in Colorado, by supplying increasingly carbon-free energy from Xcel Energy’s generation resources,” said Robert Kenney, president of Xcel Energy-Colorado. “Our strategic relationship will maximize the value of both companies’ combined generation toward achieving our goal of reducing carbon emissions by 80% by 2030, from 2005 levels, and providing 100% carbon-free electricity by 2050.”

United Power serves nearly 110,000 meters and maintains and operates more than 6,500 miles of distribution line. The 900-square mile service territory wraps around the north and west borders of Denver International Airport and includes the north and northeast metropolitan development corridors along Interstates 25 and 76, U.S. Highway 85, E-470 and Golden Gate and Coal Creek canyons. United Power’s system is experiencing significant demand and energy growth, averaging approximately 6% annually.

While United Power and Tri-State have negotiated and agreed to most of the terms of the withdrawal agreement, the parties agreed that Tri-State should file the agreement on an unexecuted basis so FERC can resolve the few remaining issues on which the parties could not agree.

Tri-State filed a modified contract termination rate schedule with FERC in September 2021, and United Power filed a non-conditional two-year notice of its intent to withdraw from membership in Tri-State in April 2022, with a May 1, 2024, effective date. A hearing on that payment methodology was held before an administrative law judge at FERC in May 2022 in which Tri-State and United Power presented different contract-termination payment methodologies or adjustments. The judge endorsed a methodology prepared by FERC’s staff on Sept. 29, 2022, but with significant adjustments suggested by Tri-State. The next month, Tri-State, United Power, and other parties filed exceptions to the initial decision, which remains pending before FERC commissioners.

According to the unexecuted withdrawal agreement filed by Tri-State with FERC this week, by next May 1 United Power will withdraw from its membership in Tri-State, specified contracts with Tri‑State will be terminated, and Tri‑State will retire and United Power will relinquish its rights to any patronage capital retirement or allocation arising from its membership in Tri-State or Tri-State’s furnishing of wholesale electric service to United Power.

The agreement is subject to United Power’s payment of an exit fee to be determined by a rate schedule to be calculated next April 24, and gives Tri-State the right to terminate the agreement if United Power defaults, as well as termination rights for either party in the event of a material Tri-State requested that FERC accept the withdrawal agreement with an effective date of Nov. 12.

The parties remain far apart on what the exit fee should be. United Power believes its payment for ending the contract before its scheduled 2050 expiration will be roughly $250 million, and Gabriel told The Denver Post in July that “We’ve literally been waiting every day for the final FERC ruling. The administrative law judge gave us that calculator, but FERC has to give us its final stamp of approval.” Tri-State’s contract language, meanwhile, puts the sum at nearly $1.6 billion.

Officials at Tri-State and United Power had not returned calls seeking comment on Friday before BizWest’s afternoon deadline.

Source: BizWest