An electric-power giant is poised to fail

A radical change could be coming to the way electric co-ops across the country do business.

 

David battling Goliath is a cliché. But how else to describe the struggle between a rural electric co-op and its powerful supplier of electricity?

“David,” in this case, is the Delta-Montrose Electric Association, a medium-sized co-op in west-central Colorado. It serves 71,000 customers across two counties and 3,400 square miles with roughly 100 employees.  

“Goliath” is Tri-State Generation and Transmission Association, which sells electricity to 43 co-ops across Colorado, New Mexico, Wyoming and Nebraska. It has 1,500 employees, strip mines, power plants and 1 million customers over its four states and 200,000 square miles.

Like the biblical David, Delta-Montrose has sunk a stone deep into Tri-State’s forehead. The missile was provided by the Federal Energy Regulatory Commission, which ordered Delta-Montrose to buy any reasonably priced renewable energy on offer. The order cut the heart out of power-purchase contracts that Tri-State has with Delta-Montrose and its 42 other co-ops. Those contracts require the co-ops to buy at least 95 percent of their power from Tri-State until mid-century.

Marston says if enough co-ops substitute local renewable power for Tri-State’s power, the power behemoth Tri-State Generation and Transmission Association could go bankrupt.
Curt Carnemark, World Bank

Standing on the bedrock of those contracts, Tri-State has borrowed $3.4 billion to build power plants and transmission lines. The commission’s order throws a bombshell into that mountain of debt and the power plants it finances. If, over time, enough co-ops substitute local renewable power for Tri-State’s power, Tri-State could go bankrupt.

You would not guess Tri-State’s peril from its sunny 2015 annual report. Even the fine print in its audit statement doesn’t mention the commission’s decision.  But in Docket EL16-39, on the website of the Federal Energy Regulatory Commission, Tri-State’s lawyers warn that the agency’s 2015 decision could jeopardize “Tri-State’s well-being and existence.”

The lawyers are not exaggerating.

The electric co-ops describe themselves, accurately, as a close-knit family. Why, then, did Delta-Montrose, a typical co-op in a rural area, create this crisis? The story starts in 2004, when Tri-State asked its co-ops to extend their contracts from 2040 to 2050. Tri-State needed the extension to build a new multibillion-dollar coal plant in western Kansas. Lenders would not finance a plant that could run out of customers before the plant’s debt was paid off.

The other 42 co-ops extended their contracts. But the board of Delta-Montrose refused. It wanted to avoid spending 40 years paying for a plant it believed would be obsolete long before 2050. The co-op’s alternative strategy was to gradually generate more and more power at home. It hoped that other co-ops would follow its lead, and that as Tri-State’s aging plants were shut, the power generated by local co-ops would provide a smooth transition. But Tri-State and the other co-ops never took Delta-Montrose’s approach seriously. It ran counter to the traditional business model.  

Federally directed and financed electrification, working through small locally controlled co-ops, rescued rural America from literal darkness and deep poverty in the 1930s and 1940s. It is a glorious history. But with time, the co-ops’ focus on local economies was replaced by loyalty to the ever more centralized and large-scale system that kept those lights on. Cheap, reliable electricity, generated in huge power plants – with the host communities getting all the jobs and property taxes – ultimately became the system’s business model.

The South Canal Hydroelectric Project is one of Delta-Montrose Electric Association’s local renewable energy projects, and is the largest local member hydroelectric project within the Tri-State membership.
DMEA

But solar and especially wind are now competitive with central-station power. The Delta-Montrose co-op’s area is rich in sunlight, falling water and large flows of methane out of its underground coal mines. Thanks to a visionary former general manager named Dan McClendon, the co-op board came to see rural electrification as a path to a rejuvenated local economy. It successfully resisted extending its contract with Tri-State. 

But even without an extension, the contract was good through 2040, and it still blocked Delta-Montrose from expanding its area’s jobs and tax base. Then came freedom: the commission’s 2015 order allowing Delta-Montrose to use local renewable power.

Delta-Montrose also hopes that cheap local renewables will fend off the same threat the commission’s order poses to Tri-State. Just as Tri-State fears losing its 43 co-ops, Delta-Montrose fears losing its own customers to rooftop solar and cheaper batteries.

Meanwhile, Tri-State, rather than adapting to a new reality, is appealing the commission’s decision for the second time. Because the decision applies to all of the nation’s 840 co-ops and 65 power suppliers, this dispute – begun by a small co-op – could engage the entire system and end up before Congress.

Ed Marston is a contributor to Writers on the Range, the opinion service of High Country News. He lives in Paonia, Colorado, and served on the Delta-Montrose board of directors for 18 years.

Note: the opinions expressed in this column are those of the writer and do not necessarily reflect those of High Country News, its board or staff. If you'd like to share an opinion piece of your own, please write Betsy Marston at betsym@hcn.org.