More Colorado energy co-ops line up to leave Xcel, Tri-State for cleaner, cheaper electricity providers

United Power CEO Mark Gabriel has a countdown clock on his desk ticking off the time until his electric cooperative leaves the Tri-State Generation and Transmission Association on May 1, 2024.

Brighton-based United Power, however, isn’t the only Colorado co-op counting days.

Seven other rural electrical cooperatives have left, are looking to leave, or renegotiate contracts with their traditional power suppliers — Tri-State and Xcel Energy — enabling them to venture into a wholesale market filled with merchant power suppliers and brokers.

“The energy transition is now providing lower-cost, local and cleaner power solutions that offer a number of advantages to co-ops,” said Seth Feaster, an analyst with the nonprofit Institute for Energy Economics and Financial Analysis. “It allows co-ops to forge their own energy independence.”

Traditionally, rural cooperatives bought their electricity from generation and transmission associations, created to serve the co-ops, or an investor-owned utility, like Xcel Energy. Those purchases account for 60% to 70% of the cooperatives’ budgets.

“I think that the old world is just fading away,” Gabriel said, undermined by cheap wind and solar electricity and technological innovations, such as battery storage. “Those companies that don’t march with time, end up just relics on the side of the road.”

United Power is striking deals with multiple suppliers for power and storage. “It’s important to recognize we really will have a much more balanced portfolio than our current power supplier offers us,” Gabriel said.

Mark Gabriel, President and CEO of United Power, at the companyÕs headquarters on Sept. 20, 2023 in Brighton. United Power is a member-owned distribution electric cooperative serving more than 106,000 meters across six counties along the north-central Front Range. (Kathryn Scott, Special to The Colorado Sun)

Reasons for departing vary, but start with price

While there are some similarities, the co-ops leaving Tri-State and those exiting Xcel Energy each have their own particular reasons.

For the cooperatives departing Xcel Energy — the CORE Electric Cooperative, Grand Valley Power and the Yampa Valley Electric Association — the focus is on the volatility of the Xcel’s wholesale prices and questions of management.

CORE, formerly known as the Intermountain Rural Electric Association, is the largest cooperative in Colorado with 175,000 members — customers actually own the co-op — across 11 Front Range counties. 

The cooperative has had a longstanding relationship with Xcel Energy, including owning a quarter of the Comanche 3 power plant.

The Sedalia-based cooperative is suing Xcel Energy for breach of contract over the troubled, 750-megawatt, coal-fired power plant in Pueblo, which has suffered more than 700 days of breakdowns since it went on line in 2010.

“Taking a share of Comanche 3 was probably the biggest mistake CORE ever made,” said Steve Figueroa, the co-op’s commercial operations director. The lawsuit is slated to go to trial in Denver District Court in October.

While CORE and Xcel Energy battle it out in court, the cooperative is moving to replace its power supply. “Largely it is the transition from capital intensive resources, like coal plants, to more modular resources,” Figueroa said. “It’s the promise you don’t have to live with the historical mistakes anymore.”

Xcel Energy’s Comanche Generating Station coal-burning power plant is bounded by solar generation near Pueblco. (Mike Sweeney, Special to the Colorado Sun)

In January, CORE signed a 20-year contract with Invergy, a multinational power project developer, to provide electricity, including 400 megawatts of new solar and wind energy and 100 megawatts of battery storage, backed up by 300 MW of existing natural gas resources starting in 2026. 

The cooperative also signed a contract for some extra natural gas-fired generation with Onward Energy and is negotiating for additional renewable energy capacity, Figueroa said. CORE is also exploring adding more battery storage.

“When the terms of our deal (with Xcel Energy) are over we don’t want to stay with this old business model,” Figueroa said.

The other issue the co-ops had with Xcel Energy was the explosive increase in rates due to natural gas prices — first as a result of the 2021 Winter Storm Uri, which shutdown Texas gas wells tripling spot market prices, and then last winter’s high prices.

Especially hard hit were Xcel Energy’s smaller cooperatives, such as Grand Junction-based Grand Valley Power and the Steamboat Springs-based Yampa Valley Electric Association. 

Grand Valley has 19,000 members and Yampa Valley 27,000 members and under their Xcel Energy contracts the price of natural gas was passed directly to their members — as is to the utility’s own residential and commercial customers.

“The philosophical issue for me and the smaller co-ops is that it is managed exclusively by Xcel and we have zero input, but our Grand Valley consumers have to pay for it,” said Tom Walch, Grand Valley’s CEO.

The high natural gas prices added about 10% to Grand Valley member bills. “It certainly motivated us to look at other options,” Walch said.

Yampa Valley saw a 14% increase in its rates in 2023, according to a letter to members from co-op CEO Steve Johnson announcing the plan to leave Xcel Energy. The cooperatives will leave after a five-year transition.

So frustrated were four cooperatives served by Xcel Energy — CORE, Grand Valley, Yampa Valley and  Glenwood Springs-based Holy Cross — that they filed a complaint with federal regulators in January contending the utility had mismanaged its Storm Uri gas supplies.

The four were seeking a refund of $6.9 million in fuel charges, but the Federal Energy Regulatory Commission rejected their request.

“We thought we had a good case, but we were dealing with a situation where it was David versus Goliath,” Walch said. “It was Xcel’s home court.”

“It was the big kid pushing the little kid around,” Walch said. “I am not saying Xcel is a bully, it just feels that way sometimes. But if a bully is taking your lunch money, maybe you find a different route to school. That’s what we are doing, taking a different route to school.”

Guzman is the go to

“We were disappointed that they chose to go elsewhere but understood the decision that they were making,” said Robert Kenney, CEO of Xcel Energy’s Colorado subsidiary. “We never want to lose the customer.”

While United Power and CORE have the resources to manage their own power portfolios, Grand Valley needed to find a single provider to replace Xcel Energy, Walch said.

The co-op settled on Denver-based Guzman Energy, a wholesale power provider, and signed a 15-year contract with fixed power prices. “What It provides for us is certainty of what our power costs will be and that’s something we never had with Xcel,” Walch said.

Yampa Valley also chose Guzman and the power wholesaler has already been instrumental in the departure of two co-ops from Tri-State, which serves 42 cooperatives in four western states.

In 2016, the Kit Carson Electric Cooperative, in Taos, New Mexico, was the first to pay an exit fee and leave Tri-State. Guzman financed the $37.5 million fee and included it as part of a long-term power contract.

Four years later Colorado’s Delta-Montrose Electric Association paid a $136.5 million exit fee to Tri-State, also financed through a 12.5-year power contract with Guzman.

“It has gone extremely well,” said Jack Johnston, DMEA’s chief executive. “Our last rate increase was right before switching to Guzman at the end of 2019 and we announced at  our annual meeting that we won’t have a rate increase in 2024.”

Compared to Tri-State wholesale prices, DMEA customers will save tens of millions of dollars over the course of the Guzman contract, Johnston said.

Tri-State managed to hold its rates stable for seven years through 2023 before increasing them about 6.3% for 2024 to $77.91 a delivered megawatt-hour of electricity.

Still, United’s Gabriel said comparable wholesale prices on the open market for a delivered megawatt-hour are $60 to $65.

The main complaints that co-ops have voice about Tri-State are that the association’s rates are high, its 50-year contracts are too long and require the co-ops to buy 95% of their electricity from the association, thwarting efforts to develop local projects.

Some cooperatives have also been dissatisfied with Tri-State’s reliance on fossil fuels, which accounted for more than half its power in 2022, with coal-fired plants making up about 36% of the electricity.

Guzman contracts offer shorter terms, usually 15 years, fixed prices, and emphasis on clean energy and carve outs for local projects.

The company now has 13 clients — cooperatives, municipalities and tribes — in Colorado and New Mexico. The smallest is the Acoma Pueblo, west of Albuquerque, with 110,000 members.

By guaranteeing the price of power, the company takes on some of the risk for its clients.

“Twenty-four-seven, we have a manned desk that is charged with making sure that our customers get that 24/7 reliable power,” said Robin Lunt, Guzman’s chief commercial officer. “We have pretty robust risk policies to make sure that we’re properly using all the tools in our toolkit to access a variety of markets.”

“Our near-term focus is to win the West,” Lunt said. “And when we say win the West we mean, Colorado and New Mexico.”

Still, while Tri-State and Xcel finances are overseen by state and federal regulators, many of the operators in the wholesale market are privately-held, and financed by private investors. Guzman, for example, has raised $130 million from ZOMA Capital and Vision Ridge Partners.

“There appears to be little transparency with some other options in the marketplace, including public information on wholesale rates, generation resources, resource adequacy, emissions profiles and other important areas, even the financial position of the supplier,” Lee Boughey, a Tri-State spokesman, said in an email. 

Under new Colorado laws, Lunt said, Guzman is filing resource adequacy plans and clean heat plans for some of its cooperatives with state energy and public health officials and its rate information is filed with the FERC.

Grand Valley’s Walch said his co-op understands the risk of swapping an established power generator for Guzman. “We are committing to some risk and so are they,” he said.

United Power, with its larger portfolio, is hedging its risk in multiple ways. It has taken contracts or made agreements with several power supplies, including Xcel Energy. Guzman’s contract with United is for a third of the co-op’s power needs.

The co-op is also requiring its contractors to post bonds and it has hired the Energy Authority, a nonprofit company that manages and aggregates electricity loads for public power providers.

“You have to understand, it’s a different world where you move from a single power supplier who assumes the risk for you,” Gabriel said. “You have to be willing to assume that risk yourself.”

Tri-State is taking the demands seriously

Tri-State has responded by embarking on a $23-billion resource plan that will close coal-fired plants, shift the association to 70% renewable generation by 2030, cutting its greenhouse gas emissions by 80%.

“Tri-State is in the middle of a meaningful transformation of our cooperatives, and our not-for-profit model,” Boughey said

It has also proposed partial-requirement contacts. The La Plata Electric Association, in Durango, and the Poudre Valley Rural Electric Association, in Fort Collins, are hoping to obtain partial-requirement contracts, enabling them to get half their electricity on the wholesale market.

“We are trying to support Tri-State in developing a partial option,” said Jessica Matlock, La Plata’s CEO. “In the meantime, we are not going to wait. …We’re going out and seeing what’s available, what is being built and what is in the pipeline.”

When United Power leaves next May, so will another Tri-State member, the Northwest Rural Public Power District in Hay Springs, Nebraska. Mountain Parks Electric, in Granby, won’t be far behind, looking to leave in 2025.

“Mountain Parks was part of the group looking for a partial requirement contract,” said Virginia Harman, the co-op’s CEO. “At this point we feel that a full withdrawal is our best path.”

Inside the United Power headquarters in Brighton the company began to fabricate components and parts during the worst of the supply chain crisis. Since training themselves, they continue to fabricate their own parts to this day. (Kathryn Scott, Special to The Colorado Sun)

Harman said the cooperative is close to completing negotiations for an alternative power supplier.

The biggest hurdle and point of contention for the departing co-ops has been the exit fees demanded by Tri-State.

Since its creation in 1952, the association has taken on the debt to build a network of 10 generating stations, including six coal-fired plants, with 5,800 miles of transmission lines to serve its 42 member cooperatives and their 1.2 million consumers across 200,000 square miles of Nebraska, Wyoming, Colorado and New Mexico.

The 50-year contracts are needed to amortize that big system, Tri-State officials said. The association has maintained that any co-op leaving must assume its share of the debt or pay the revenues it would have paid over the life of its contract.

That formula yielded a $1.6 billion exit fee for United Power. The figure became the subject of a case before the FERC, which regulates Tri-State.

Rene Terry, a FERC administrative law judge, called the lost revenue argument “unpersuasive” and the commission staff recommended a fee in the range of $250 million. A final decision by the commission is pending.

Mountain Parks has given notice it will leave without knowing its exit fee. “While we don’t have complete certainty of the contract termination,” Harman said. “We have an assessment.”

The defections and partial-requirements contract could lead to Tri-State losing more than 25% of its electricity sales. On Sept. 5, facing the imminent loss of United Power, Northwest Rural Public Power and Mountain Parks, the association offered to sell its excess power on the wholesale market.

“In a tightening regional power market, Tri-State has the opportunity to reduce cost pressures on our remaining members by selling power to other parties,” CEO Duane Highley said in a statement.

Still, the pressure on Tri-State and other generation and transmission associations will only increase, said Feaster, the energy institute analyst.“The generation and transmission/co-op model is being fundamentally altered by the new economics,” Feaster said. “Now that there are real and proven alternatives in place, and there is greater clarity around the cost and regulatory paths to get there, more are likely to switch.”