Delta Montrose Electric seeks new financing options to end contract with Tri-State

By Joe Smyth | [email protected] | @joesmyth

The Delta Montrose Electric Association (DMEA) board of directors is urging members to support a proposal that would change the electric cooperative’s articles of incorporation, to support DMEA’s efforts to end its contract with Tri-State Generation and Transmission Association.

DMEA posted a video and background information on its website to explain the proposed changes, and the reasons the board of directors is recommending that members vote yes this October to support the proposal. According to DMEA:

The revisions do three general things. First, they modernize and streamline language (which in some cases been in place since 1938). Second, they allow DMEA to take advantage of being governed by a newer Colorado cooperative law (called the Colorado Cooperative Act). Third, they give DMEA more financial flexibility by allowing it to issue capital stock to non-members.

Those new financing options could be a first for electric cooperatives. DMEA says, “While we are not aware of any electric cooperatives that have issued capital stock to non-members, many other types of co-ops have,” including major agricultural cooperatives like Sunkist, Oceanspray, and Land O Lakes.

DMEA will host a series of town halls next month about the proposed changes, and members will receive ballots the last week of September. DMEA members can cast their vote by mail, or in person at an October 16 meeting.

The video focuses on how the changes would help DMEA finance a buyout of its contract with Tri-State, in an effort to stabilize electric rates and pursue more local renewable energy projects.

You may have noticed that your electric rates keep going up. Why? Our supplier Tri-State has increased rates by more than 30% over the past ten years. This is frustrating because rates in the electric market have actually gone down. Being with Tri-State can feel like being on a ship on a course that is already set. DMEA has tried to influence Tri-State to modernize, to meet the needs of today's member. But because there are 42 other co-ops also at the wheel, it's hard to move the ship in a direction that would benefit you - OUR members.

With more than 32,000 members, DMEA is the fifth largest of the 43 co-ops that buy power from Tri-State - yet it has one representative on the Tri-State board of directors, the same as co-ops with far fewer members.

DMEA has challenged Tri-State’s restrictions on local energy projects for several years, including by filing protests with the Federal Energy Regulatory Commission (FERC). FERC ruled in favor of DMEA in 2016, establishing that the Public Utility Regulatory Policies Act (PURPA) supports electric cooperatives’ abilities to pursue local renewable energy projects despite Tri-State’s 5% limit. Tri-State has challenged those FERC rulings, aiming to impose additional fees on co-ops that build more local generation projects.

More recently, DMEA has shifted its approach and is seeking to end its contract with Tri-State. According to DMEA’s board meeting minutes, the co-op filed a formal complaint under Tri-State’s policy 316, which “addresses DMEA's request for certain withdrawal-related information and its failure to receive equitable withdrawal terms from Tri­ state.”

Growing concerns that major customers could be driven away by high electric rates 
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The video highlights the urgency of avoiding more rate increases from Tri-State: “to avoid losing jobs when businesses go elsewhere because power costs are too high.”

Screenshot from DMEA "Vote Yes" video

The risk of losing major customers because of high electric rates is driving concerns with Tri-State among other electric cooperatives in Colorado as well, including United Power, the largest Tri-State member co-op. In a cover story last week for ColoradoPolitics.com, Mark Jaffe writes:

The area south of United’s service territory gets its electricity from Xcel Energy, the state’s biggest electricity provider. Xcel’s wholesale electricity rate is about a penny lower than Tri-State’s, [United Power new energy program coordinator Jerry] Marizza said.

“We have oil and gas customers making demands we can’t meet,” Marizza said. “For an industry that uses a lot of energy an extra penny a kilowatt-hour is unacceptable. … We have to push Tri-State to help us mitigate that penny a kilowatt difference.”

Tri-State’s Boughey said, “We are working hard to control costs, and we anticipate that our rate remains flat over the next five years.”  

Still, that price gap is creating a market of which energy traders, like Guzman Energy, are trying to take advantage. 

“Presently the co-op is caught between a carrot and the stick,” said Leo Guzman. “The carrot is the wholesale price is a lot cheaper than they can get with a G&T. The stick is that their own large industrial and commercial customers could defect.” 

“The economic incentives to change is higher in Colorado and New Mexico than anywhere else in the country,” Guzman said. The Coral Gables, Florida-based trader has opened an office in Denver.

Guzman Energy helped finance Kit Carson Electric’s buyout of its contract with Tri-State in 2016. Kit Carson Electric CEO Luis Reyes explained that the break from Tri-State “had two clear advantages: certainty on the price of power and freedom to expand locally generated renewable energy.” 

The Delta Montrose Electric board apparently considers those advantages important enough to navigate an exit from Tri-State, including asking its members to make significant new changes to the co-op’s financing options.

And new investors are counting on similar opportunities with other co-ops - yesterday, Guzman Energy announced that it "has secured $130 million in additional liquidity to continue to expand its efforts to deliver cheaper and greener energy to consumers in the West and beyond.”