Colorado-based Tri-State Generation and Transmission Association is taking a credit downgrade as it seeks to prevent seven members from leaving the wholesale power supply cooperative.
S&P Global Ratings cited the potential loss of members as a factor in lowering Tri-State’s issuer rating to BBB-plus from A-minus. The outlook was restored to stable.
Seven of Tri-State’s 42 members have asked federal regulators to order the association to disclose termination costs in the event they drop out. Tri-State has asked the Federal Energy Regulatory Commission to dismiss the requests.
S&P Analyst David Bodek said the rating agency believes if the members' interest in contract termination payment calculations leads to departures, "the utility might reach an economic tipping point where a smaller customer base frustrates Tri-State's ability to achieve economies of scale in its operations and hinders the cooperative's capacity to sustain financial performance consistent with historical levels.”
Tri-State, headquartered in Westminster, Colorado, said it is in the process of reducing its dependence on coal while seeking to lower power costs for its members.
“Tri-State’s member-led transformation to be cleaner, more affordable and more flexible creates new opportunities for powering rural communities, but also brings challenges and uncertainties that are reflected in changes to our investment-grade credit ratings,” said Tri-State chief executive Duane Highley.
The seven members petitioning FERC represent 30% of the 2019 operating revenues of Tri-State's class A members, according to the federal Energy Information Administration. The petition comes after two other Tri-State members cut ties with Tri-State after paying exit fees. Delta-Montrose Electric Association left in 2020 and Kit Carson Electric Cooperative Inc. departed in 2016.
“We view the members' FERC complaint as an outgrowth of more than a decade of divisiveness that three successive general managers and the board have been unable to conciliate,” Bodek added. “This level of discord can consume management resources and frustrate strategic planning.”
In 2019, Tri-State's largest member, United Power Inc., and third-largest member, La Plata Electric Association Inc., began regulatory proceedings before Colorado's Public Utilities Commission that asked the regulator to establish contract termination payments and provide flexibility to source electricity from providers other than Tri-State. The proceedings were shifted to FERC, which claims exclusive jurisdiction over the utility's rates and exit fees.
In 2019, S&P Global Ratings lowered its rating on Tri-State to A-minus from A to reflect the member discord underlying the filings by United Power and La Plata.
Tri-State reported $3.3 billion of debt at Dec. 31, 2020, and what S&P considers a high debt-to-capitalization ratio of 75%. Analysts said that is not atypical for a generation and transmission cooperative utility.
In January 2020, Tri-State released its Responsible Energy Plan, a clean energy transition that expands renewable generation and reduces greenhouse gas emissions while ensuring reliable, affordable and responsible electricity for its members and their communities.
“Our focus remains on the long term and our mission to deliver reliable, affordable and responsible power to our members,” Highley said. “While it will take time, when our transition is complete, I believe Tri-State will be a leader in the cooperative world and recognized as the most competitive power supply option for our members.”
“A complex effort like this does not happen overnight, but there is a long-term plan to transform the association and address the issues raised by the rating agency,” Highly added.
