Wheeler Trigg O’Donnell Wins Recommended Decision in Power Co-Op Exit Dispute

If a ruling for WTO stands, could create a pathway for leaving Tri-State co-op

In a ruling from a Colorado Public Utilities Commission administrative law judge, United Power Inc., represented by Wheeler Trigg O’Donnell, was on the winning side of a recommended decision in a billion-dollar dispute against Tri-State Generation & Transmission, Inc. If the decision stands, it could open a methodology for co-ops in Tri-State to consider leaving the multi-state contract.

United Power, a rural electric co-op along the Front Range, for about two years sought a fair “exit charge” from Tri-State, according to a news release. It argued for a net payment of approximately $235 million, deducting both the value of ownership interest in Tri-State.

However, Tri-State, a nonprofit co-op comprised of 45 members in four states, blocked United Power from leaving and proposed a charge of $1.25 billion, which United Power considered “a discriminatory amount that would have resulted in an enormous and unfair windfall to Tri-State’s remaining members,” according to the release.

WTO previously represented Delta-Montrose Electrical Association in its exit charge dispute with Tri-State, which led to its successful exit, according to the release. United Power’s online trial took place over a two-day period in May, including 11 witnesses that the parties presented.

WTO partner Peter Herzog said the central issue of the case surrounded how much a member should pay to exit the cooperative. United Power is the largest member of Tri-State and is approximately four-times the size of Delta-Montrose when it exited. The PUC ruling is only binding on United Power and the La Plata Electric Association, another Colorado co-op, who both submitted different methodologies for withdrawal. Ultimately, the methodology of United Power presented was selected.

However, if another member of Tri-State wished to withdraw it would have the option to provide that methodology when withdrawing from Tri-State, Herzog said. The exit charge consists of buying out of the Wholesale Electric Service Contract between the distribution co-op and the generation and transmission (G&T) co-op.

WTO partner Marissa Ronk compared the methodology to selling real estate: When someone sells a house, they look at similar properties to estimate value. She added that there was a difference on what the parties considered a fair assessment, Tri-State was concerned with looking to the future and predicting what would happen under the 50-year contract, while United Power focused on historical data and debt incurred and proposed an exit charge based on that data.

WTO partner Joel Neckers said other co-ops around the country looking at the option of exiting a similar agreement might look to this ruling as persuasive authority, even if the ruling is not binding.

“Tri-State’s refusal to provide an exit charge to La Plata and United Power was unjust and unreasonable,” Administrative Law Judge Robert Garvey wrote in his conclusion, also noting that the refusal was discriminatory. Garvey said United Power’s exit charge methodology “is the proper methodology” for exit fee calculation for Tri-State members “and will be adopted as an exit charge rate for Tri-State.”

The ruling established a methodology of “calculating” non-discriminatory and just terms over which a co-op may withdraw from a G&T co-op, according to a press release from WTO. “Going forward, electric cooperatives, courts and regulators across the nation will look to Colorado for guidance as these disputes escalate.”

In his discussion, Garvey noted that both United Power and La Plata’s methodologies provided a “clear answer” to future members looking to leave the co-op. However, due to needing to expand this methodology to apply to all other Tri-State members, only one method could be approved. In whichever method was adopted, the exit charge “must be just and reasonable” for those who stay and those who leave.

“The ALJ agrees with United Power that a common-sense approach to calculating the exit charge requires that it be based upon Tri-State’s outstanding debts attributable to the exiting Member,” the discussion states. In the bylaws of Tri-State there is reference for a member to pay pro rata share of indebtedness in event of a transfer by a member. “Taking that total indebtedness and subtracting a Member’s patronage capital, as argued by United Power, would leave Tri-State in a position had the Member never joined Tri-State.”

The discussion states that “most importantly” this methodology leads to exit charges comparable to those paid by Kit Carson Electric Cooperative and DMEA. “United Power showed, and the ALJ agreed, that its proposal was appropriate and in line with the exit charges paid by two other members that recently had withdrawn from Tri-State,” the press release states.

Herzog said that United Power held high value to Tri-State for both its size and growth and that almost everything was being done to block its exit. Without the large input of United Power, Tri-State would be looking at raising prices for other members.

Tri-State’s Chief Executive Officer Duane Highly was quoted in a press release stating that if the decision was allowed to stand “more than $1 billion in costs will be unjustly added to our members’ electricity bills.”

“In an effort to save money for themselves, United Power and LPEA are a step closer to forcing costs they agreed to pay onto smaller, less wealthy utilities and their rural consumers,” the release states. Both United Power and LPEA “freely signed” contracts with Tri-State over a decade ago to share power costs. The contract is set to end in 2050.

Herzog noted that these claims by Tri-State were nonsense, referring to them as the spin placed on the situation to set the other members of Tri-State whose rates have not been raised to try to keep them in Tri-State and vote against United Power from withdrawing. However, the amount of money United Power would pay to buy-out the contract would leave Tri-State in the same position had United Power never joined, he said.

“Many G&Ts, like Tri-State, are beholden to deep investments in fossil fuels that are expensive, outdated and inconsistent with current market forces,” the release states. As such, co-ops nationwide are searching for ways to modify the “inefficient and outdated” structure. “This in turn will provide members with better access and flexibility to “cleaner and cheaper renewable energy sources.”

In addition, this was one of the first adjudicative hearings for co-ops looking to exit a G&T association, and one of the first “fully online” trials, according to the WTO release.

“The decision paves the way for United Power to exit Tri-State and pursue cheaper and cleaner power sources for its customers,” the WTO release states.

The parties had 20 days to file exemptions with the Recommended Decision with the PUC, according to the Tri-State release. After that time, the commission will consider the complaint. 

—Avery Martinez

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