Recently, the Federal Energy Regulatory Commission rejected an application for Tri-State for regulation. Tri-State has another chance at applying, but in the meantime, it’s very good news for Colorado electricity co-ops that want to get out of their contracts with Tri-State. The Colorado Public Utilities Commission — now their primary regulator — helped DMEA escape their contract via a civil negotiation. Chances are they can help others. The reason co-ops want to leave: Tri-State charges wholesale power rates that are 40 percent higher than what is on offer at neighboring utilities.
Tri-State is a four-state generation and Transmission Electricity Cooperative that supplies wholesale power to 43 member co-ops. It came into being in the 1940s as a way for small, rural cooperatives to collectively save money by owning and operating a generation and transmission company. For decades, this model served the rural west. The one co-op, one vote system meant that even the tiniest of cooperatives were served and most importantly, heard in Tri-State’s headquarters.
At some point however, Tri-State became a corporate titan. It gobbled up another Generation and Transmission(G&T) company, called Colorado Ute, in 1990 when that G&T went into bankruptcy. With Colorado Ute came a big ownership stake in the 1338-megawatt Craig Power plant and the responsibility of running the whole station. They bought not one, but two coal mines in Craig to feed the coal-fired plants.
They hired hundreds of employees in Westminster to manage the distribution of electricity across their member systems. They doled out generous pay packages and pension plans to those people, then promptly fell behind paying for those pensions. Now, Tri-State admits in their annual report their 1,000-plus person plan may be 40% underfunded.
Along the way, they coerced, cajoled or just convinced member co-ops to sign contracts stretching out decades. Those contracts made Tri-State the sole provider of electricity to member co-ops. The contracts are bolstered by neighboring utilities that signed contracts not to poach Tri-State’s member co-ops. Existing contracts with member co-ops last until 2050 but when signed — were 50 years in length. That was a lot of power to give to a corporation that had designs on being master of the universe.
Somewhere along the way, probably after they had 50 years of captive consumers for their electricity, Tri-State forgot that their No. 1 mission was to provide low-cost power to its member co-ops.
That one mission — of least cost electricity provider — Tri-State is failing miserably at. For example, Tri-State has been spending on coal at a furious pace. In 2011, they bought the Colowyo coal mine for $71 million — even though its current pit was played out. Fixing that, they spent several hundred million more building the new Collom Pit — a huge, brand-new strip mine.
Yet to the north, in the Powder River Basin, two of Wyoming’s Powder River Basin’s 10 massive strip mines just went bust. More are soon to follow. Rational investors aren’t buying or building coal mines, and without Craig power plants buying that coal, the Collom Pit has negative value. Once closed, reclamation is a very pricey process.
Governor Polis has a 100% renewable mandate by 2040. All this spending on infrastructure that will be useless in 20 years is a boondoggle of epic proportion. While most companies employ traders and strategists for long-range planning. It seems Tri-State doesn’t own a stack of old envelopes for basic addition and subtraction.
Modern business methods are to outsource, also known as — asset-light production. Corporations maximize dollars and keep capital costs low. Like an old codger, Tri-State has held onto to the vertical model. Mine the coal, burn it for electricity and sell it on to captive co-ops. Even as the Powder River Basin in Wyoming introduced draglines twice the size of the excavators used in Craig and costs for big coal plunged. Tri-State continued owning not one, but two high-cost Craig coal mines. Let’s face it, the basic blocking and tackling of power generation is beyond them.
For Tri-State, it’s time to wake up to a clock that is ticking fast. They have dug a deep financial hole. With $3.4 billion in debt atop just $1.3 billion in annual sales, financial results grow worse by the year. According to the Western Way, a Republican-leaning conservation group, profit margins have declined every year since 2013. Now, margins are so slim Tri-State risks violating debt covenants.
The painful reinvention and transition process needs to begin right now. That means shifting to an asset-light model. While Craig operates — Tri-State should buy coal from Wyoming at a big discount. Then work toward shutting down coal generation and utilizing Colorado’s coal securitization program. Tri-State should catch up on pension payments and start paying employees rationally. Tri-State’s top executives make $1 million plus salaries. As a non-profit cooperative, Tri-State should align salaries with the not-for-profit world.
Meanwhile, take advantage of the cheap California solar farms that push wholesale prices down just as Colorado wakes up and needs peak power.
With less overhead and input costs — Tri-State can deliver a price break and clean power to rural western customers. Eventually, when Tri-State has less debt, they can explore building new generation and look toward a clean energy future. The West is windy and sunny, opportunity for renewables abounds. It’s time for Tri-State to embrace their mission of being the low-cost supplier of electricity to member co-ops.
Dave Marston grew up in Delta County and owns commercial property in both Paonia and Hotchkiss. He lives in New York City.