Wholesale power provider Guzman Energy has agreed to cover the cost of a $62.5 million exit fee that Delta-Montrose Electric Association is being charged by Tri-State Generation and Transmission Association to end its supply contract with Tri-State.
DMEA also has agreed to pay Tri-State $26 million for transmission assets it will use to serve its members, and to forfeit potentially $48 million in what’s called patronage capital that it might have received from Tri-State over 30 years.
DMEA and Denver-based Guzman Energy said in a news release this week that they have entered into a 12.5-year wholesale power supply deal.
The two said they also will immediately begin developing at least 10 megawatts of new solar generation projects in DMEA’s service territory.
Guzman is to begin serving DMEA later this year after Tri-State obtains required approvals from the Federal Energy Regulatory Commission.
Tri-State said in a separate release that DMEA will terminate its membership June 30 subject to certain conditions and approvals. Tri-State and DMEA reached an agreement to part ways last July but didn’t make the financial terms of the separation public until recent days.
Member-owned DMEA provides power to 28,000 members in Montrose, Delta and Gunnison counties. Its contract with Tri-State runs through 2040 but it sought to get out of it because of a desire to use more renewable energy and more locally produced power, while also providing its members with cheaper power than it says would be the case if it stayed with Tri-State.
“We would not have agreed to a settlement that we did not think would benefit the members of DMEA. We believe it’s fair and equitable and it’s beneficial to our membership,” said Virginia Harman, a DMEA spokeswoman.
She said the patronage capital is basically DMEA’s equity in Tri-State. In giving that up, she said, it’s forgoing money that “may or may not” otherwise have been paid back to DMEA over 30 years, based on decisions by Tri-State’s board each year, with that payment not necessarily being guaranteed.
Tri-State spokesman Lee Boughey said that over the last four years it has returned $100 million to its members in what would be considered profits if Tri-State were a for-profit entity. It serves more than 40 local power cooperatives and public utility districts.
DMEA’s $62.5 million exit fee compares to $37 million Tri-State charged Kit Carson Electric Cooperative in New Mexico to get out of its contract. That money also was paid by Guzman, which then began supplying power to Kit Carson. Harman said DMEA’s power usage is about twice that of Kit Carson’s, but a number of factors go into determining a fair price to leave.
Exit fees are charged at least in part to address debt Tri-State has incurred on behalf of its members to build power generation and transmission facilities.
DMEA has been upset over Tri-State’s level of reliance on coal-fired power generation at a time when clean power sources such as wind and solar have been falling in price. It also chafed under a Tri-State requirement that prevented its members from generating more than 5% of their power locally.
DMEA says that under Guzman its local power generation is expected to eventually top 20%.
DMEA and Guzman said in their release that Guzman will be paying the $62.5 million to Tri-State “for the right to take over DMEA’s power supply agreement and to sell power to the co-op at a more competitive rate.”
Jasen Bronec, DMEA’s chief executive officer, said in the release, “This power supply agreement better positions DMEA to maintain stabilized rates and it allows for the development of diverse and low-cost local energy.”
DMEA’s exit comes as Tri-State is moving to increase how much of its power comes from renewable sources and reduce its reliance on coal power. It plans to shut down the coal-fired power plant it operates in Craig by 2030, and half of the energy consumed by its members will come from renewables by 2024.
Its board also has approved a contract option that will give its members the ability to significantly increase local renewable energy development and self-supply of power, and Tri-State is expanding their opportunity to pursue community solar projects.
“Tri-State is transitioning to become a much cleaner and more flexible power supplier” while maintaining stable to lower rates, Boughey said.