In August of 2019, the LPEA board passed Resolution 2019-10, requesting that LPEA pursue multiple contract options with Tri-State, which currently supplies LPEA with 95% of the electricity we deliver to our members, under a contract that runs through 2050. These options included:
Amendments to our current contract to allow more flexibility.
A partial exit from the contract.
A full exit from the contract.
There are two main reasons the board elected to explore an exit from Tri-State: high rates and lack of local control. According to Standard and Poor’s, Tri-State’s rates are 20% higher than average. LPEA’s initial conservative calculations for pursuing other energy options estimate hundreds of millions of dollars in cost savings over the life of the existing contract. Pursuing more local control of our energy portfolio would also bring LPEA closer to the cooperative principles on which we were founded, including autonomy and independence, and concern for our local community.
Since then, LPEA has been actively exploring these options. I want to stress that no decisions have been made and no option will be chosen that will increase rates or decrease reliability.
Option #1 – Amendments to our current contract:
This option was a big focus in 2019 and 2020 when LPEA participated in regular contract and rate committee meetings and unilateral negotiations with Tri-State. Out of these discussions with Tri-State and other co-ops, Tri-State developed the partial contract option which LPEA is now pursuing.
Option #2 – Partial contract:
There has been some recent momentum with this option, which would enable LPEA to buy a portion of our power from Tri-State and self-supply the rest. Though that self-supply could take the form of building and owning our own generation facilities, it would most likely involve third-party developers or aggregators who would build a diversified generation portfolio for us.
With this option, we would still be buying power from the Western Interconnection grid, the largest and most dependable electric grid in the United States; the same grid Tri-State pulls its power from. This means that the reliability of LPEA’s power supply would stay the same. The benefit is that our new power supply contracts would guarantee a fixed price for the power we purchase that would not be impacted by market fluctuations. We don’t have any such price guarantees within our Tri-State contract.
In May, Tri-State offered 300 MW of capacity to their members interested in pursuing partial contracts. LPEA applied for, and was eventually allocated, the full 71 MW requested, which is roughly half of what we need to power our members. Following that allocation, we released a Request for Proposal in June to 50 different power supply developers and aggregators. Their proposals were due to LPEA on June 25th.
These proposals will be evaluated and analyzed to determine if they make financial sense to LPEA and our members. There are numerous financial elements that must be included in this analysis, including the cost of securing transmission capacity from Tri-State, and the final buy-down payment to Tri-State. The buy-down payment (which is the amount Tri-State will charge us for partially exiting our contract) is not yet final. Once we have all the figures, it will take several months to complete the analysis.
Option #3 – Full exit:
LPEA and at least six other Tri-State member co-ops are meeting frequently with Tri-State, during Federal Energy Regulatory Commission (FERC) proceedings, to negotiate the terms of a fair and equitable exit charge (also called the Contract Termination Payment). If we cannot reach a settlement with Tri-State, the case will go to trial at FERC, which could be a long process. In May, FERC rejected Tri-State’s initial buyout process finding that it “imposes excessive and unjustified barriers to utility members seeking information to assess whether to terminate their wholesale electric service contracts with Tri-State.”
LPEA continues to pursue this option because if we can get a fair and equitable exit charge, there could be significant savings for our members. We are pursuing cost savings for our business just like you would for your home or business. If LPEA opts for a partial contract now, that does not prevent us from fully exiting in the future. But again, we cannot know if this is a financially viable option until we secure the final buyout figure.
IT should also be noted that, thanks to our continuous engagement with Tri-State, they have committed to decreasing their wholesale power rates by 2% in 2021 and a further 2% in 2021. This would not have occurred without intervention and pressure from LPEA and other Tri-State member co-ops. Good things are coming out of this focus.
Once LPEA has all the figures related to a partial contract, this option will be put to the board for a vote. The same will happen when we have all the figures related to a full contract exit.
Before either of these decisions is made by the board, LPEA will host a series of town hall meetings to present the findings directly to our membership and answer any questions or concerns. The board will not pursue any option that raises rates, or that jeopardizes the reliability of the electric service on which you rely.
– Jessica Matlock, CEO
For more information, visit our power supply page.