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Tri-State moves to federal regulation

The Federal Energy Regulatory Commission headquarters in Washington, D.C. (Source: Ferc)

Copyright © 2019 Albuquerque Journal

The Federal Energy Regulatory Commission is expected to take over the regulation of Tri-State Generation and Transmission Association’s rates, effectively stripping New Mexico and three other states of any rate-making authority over the wholesale power supplier.

The move could have significant repercussions for the roughly 1.3 million consumers served by 43 electric cooperatives in New Mexico, Colorado, Wyoming and Nebraska that receive their wholesale power from Tri-State.

States will retain authority to regulate Tri-State’s plans for building and maintaining its generation and transmission resources, and to assure grid reliability.

But FERC will be the sole entity overseeing the rates that Tri-State member cooperatives pay for their wholesale power.

Tri-State, which formed in 1952, has been excluded from FERC until now because federal rules impede FERC jurisdiction when a wholesale provider is wholly owned by local cooperatives. But in September, Tri-State admitted its first non cooperative – wholesale natural gas supplier MIECO Inc. – as a member, paving the way for automatic FERC oversight, assuming FERC accepts MIECO as a legitimate candidate for Tri-State membership.

Apart from rates, FERC will also oversee the terms and conditions of Tri-State’s long-term contracts with its member cooperatives, which currently lock them into agreements to purchase 95% of their electricity from Tri-State through 2050. That, in particular, raised broad concerns this summer among legislators, regulators and others in Colorado, where some member cooperatives have explored pulling out of Tri-State to pursue wholesale agreements with independent power providers.

Little NM reaction

In New Mexico, Tri-State’s move to FERC regulation has generated little reaction, despite its direct impact on Public Regulation Commission authority to review Tri-State rates and possibly other matters going forward.

Energy, Minerals and Natural Resources Secretary Sarah Cottrell Propst said local officials never received a briefing by Tri-State on the issue before it filed in July with FERC to move to federal oversight, leaving many here uncertain about its impact.

“We have no great sense of what it means for New Mexico, and whether it will be more expensive or difficult for New Mexico cooperatives to have to go to Washington, D.C., in regulatory cases,” Cottrell Propst told the Journal in August.

The PRC has not formally reviewed the issue.

“It means the commission will have less regulatory authority than it currently does, but I don’t know that the commission has a position on it,” said PRC Acting Utility Division Director Milo Chavez. “We presented this to commissioners and raised the ramifications, but it was only an agenda item for discussion. They didn’t vote on it or take a position on it.”

Colorado concerns

That lack of public discussion on the issue is one of the key reasons for concern in Colorado, especially given Tri-State’s sudden decision to seek FERC regulation in July, just as Colorado regulators were conducting hearings over one member cooperative’s decision to leave Tri-State.

Tri-State reached a confidential settlement with that utility, Deltra Montrose Electric Association, right as it announced its move to FERC, effectively ending that case litigation at Colorado’s Public Utility Commission. But that left gaping questions and concerns about how future efforts by other cooperatives wanting to leave Tri-State will be handled, said Erin Overturf, an attorney with Western Resource Advocates and deputy director of WRA’s clean energy program.

“Electric distribution cooperatives that may want to exit Tri-State may see FERC as an impediment,” Overturf said. “They’ll have to go to FERC rather than state regulators. FERC takes a lot longer, its process is more costly than a local proceeding, and it also has different standards that would apply based on how FERC interprets contracts.”

In fact, in September, Tri-State asked FERC to approve its current contract structure with member cooperatives, since existing commitments through 2050 were set long before Tri-State moved to FERC regulation.

Delaying exit estimates

In addition, Tri-State declared a moratorium on providing exit fee estimates to cooperatives exploring departure from Tri-State until next year to allow the association’s contract committee to first develop a methodology to determine the value of long-term contracts and the costs for breaking them.

In response, two Colorado co-ops, La Plata Electric Association and United Power, asked Colorado regulators last week to exercise their authority to enforce “just and reasonable” exit fees. La Plata has been waiting since June for Tri-State to provide a cost estimate for the co-op to leave the association.

“Tri-State’s exit charge moratorium, combined with its efforts to circumvent PUC jurisdiction over exit charges,” forced La Plata to seek state regulatory intervention, said La Plata CEO Jessica Matlock in a statement.

Tri-State says it’s seeking FERC regulation to eliminate disparity in state handling of Tri-State rates. Until now, Tri-State hasn’t had any uniform regulatory framework across the states where it operates, with local regulators only occasionally intervening in disputes in their own states.

That’s different from most other wholesale suppliers, said Tri-State CEO Duane Highley.

“All others in the West are regulated by FERC,” Highley said. “We’re an interstate provider. It makes sense to have one referee instead of three or four arguing over how to set rates.”

NM ETA still applies

FERC regulation won’t affect Tri-State compliance with renewable energy and carbon-reduction mandates in Colorado and New Mexico, because local regulators still have authority to review Tri-State’s resource planning process, said Tri-State spokesman Lee Boughey.

“We will work constructively with states as we develop our resource plans,” Boughey said. “I don’t think FERC will affect any state mandates. We will fully comply.”

But loss of rate-making oversight could interfere with state-level authority to protect consumers as Tri-State adds renewable resources and shuts down coal-fired power plants to meet mandates, Overturf said.

“If Tri-State raises rates beyond what regulators consider reasonable to meet mandates, it will impact state enforceability on resource plans,” Overturf said. “There’s potential for conflict there between state resource planning decisions and FERC. That’s something we’re concerned about.”

No NM co-op pushback

Unlike Colorado, none of the 11 New Mexico distribution cooperatives that receive wholesale power from Tri-State has opposed its move to FERC, likely contributing to the muted reaction here.

“As far as I know, there wasn’t any pushback here from the cooperatives,” said Keven Groenwold, general manager and CEO for the New Mexico Rural Electric Cooperative Association. “All the New Mexico members supported it.”

But Kit Carson Electric Cooperative in Taos, which exited Tri-State in 2016 in good part because of frequent rate hikes, said New Mexico regulators and legislators should be asking questions, since Tri-State’s move to FERC erases a 19-year-old deal that authorized the PRC to review Tri-State rate hikes if three or more member co-ops here formally protest a Tri-State increase at the PRC.

That authority took effect in 2000, when Tri-State merged with Plains Electric, the wholesale generation and transmission association that previously supplied power to New Mexico cooperatives. State legislators and regulators negotiated it as a compromise agreement for approval of Plains’ merger with Tri-State, which opposed any local rate regulation.

The provision was written into state statute, but it will now be wiped away through FERC regulation without any discussion in New Mexico, said Kit Carson CEO Luis Reyes.

“It’s an agreement written into state law that’s being unilaterally changed without any input from the PRC or state legislators,” Reyes said. “They haven’t publicly asked the tough questions of Tri-State about how FERC regulation could benefit or hurt electric consumers in New Mexico.”

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