[Editor’s Note: This article has been updated to clarify state-federal jurisdictional issues raised in this docket.]

In the face of opposition from Colorado officials and others, FERC last week set hearing and settlement judge procedures on Tri-State Generation & Transmission’s proposal for computing member exit fees (ER20-1559).

FERC accepted the contract termination payment (CTP) methodology for filing with a refund effective date of June 13, saying it raises issues of material fact that cannot be resolved based on the existing record and has not been shown to be just and reasonable.

In doing so, FERC’s June 12 order rejected a request by 14 Colorado legislators to decline jurisdiction, saying the commission’s consideration of Tri-State’s proposed exit-fee methodology “is consistent with our past practice.”

The Colorado legislators asked FERC to decline jurisdiction “to allow” the Colorado Public Utilities Commission to continue its consideration of complaints by United Power and LaPlata Electric Association asking the PUC to set a just and reasonable fee for their exit from Tri-State.

The PUC held a hearing on the complaints in May, and an administrative law judge’s decision is expected by next week. Before the hearing, the ALJ granted the complainants motion to reject Tri-State’s defense that the PUC lacked jurisdiction (19F-0620E, 19F-0621E).

‘All Requirements’ Contracts

The commission in March accepted Tri-State’s request that it be recognized as jurisdictional to the commission (EL20-16). (See “Ruling Permits Tri-State to Become FERC Jurisdictional,” SPP FERC Briefs: Week of March 16, 2020.) Tri-State’s 43 utility members in Colorado, Nebraska, New Mexico and Wyoming signed all-requirements wholesale service contracts obligating them to purchase at least 95% of their requirements at cost-based rates through 2050.

Tri-State’s proposed CTP methodology is designed to calculate the payment an electric distribution cooperative or public power district must make to terminate its contract. The cooperative said its determination of exit fees on a case-by-case basis has led to disputes “with and among” members and that the proposed methodology was overwhelmingly approved by its members in April.

The CTP methodology uses a mark-to-market analysis incorporating demand and energy charges to ensure remaining members are financially unaffected by withdrawals and Tri-State can continue to fund its operations and debt service.

The Colorado PUC protested CTP, saying a similar methodology resulted in an initial exit charge for members Kit Carson Electric Cooperative and Delta-Montrose Electric Association that was 70% higher than the amount on which Tri-State settled. On June 9, the commission approved Delta-Montrose’s withdrawal, allowing the cooperative to exit Tri-State as planned on June 30 (EC20-51). (See Tri-State G&T, Delta-Montrose Reach Withdrawal Deal.)

Northwest Rural Public Power District argued that the methodology was improperly based on projected revenues and calculates payment over an excessively long time period, benefiting non-withdrawing members.

Wheat Belt Public Power District contended the methodology violates the cost-causation principle by socializing among all utility members some costs to provide wholesale electric service to members in Colorado and New Mexico.

Tri-State CEO Duane Highley called the commission’s acceptance of the filing “a decidedly positive outcome” and an “important step forward” for its members.

“Each [member] now has a voice and will be treated equally on wholesale contract and rate matters,” Highley said. “We believe this issue is now properly before the appropriate regulatory commission.”

‘Civil Conspiracy’

United in May also filed a lawsuit against Tri-State and the three non-utility members in a Colorado county district court, claiming a “civil conspiracy” to deprive state regulators of jurisdiction over Tri-State’s exit fees. United said it plans to seek punitive damages after suffering “hundreds of millions of dollars in damages.”

Tri-State responded with a lengthy statement, saying United’s complaint “smacks of desperation and is completely without merit.”

“Tri-State will vigorously defend its members and its board of directors’ lawful, appropriate and open decisions and actions to seek federal regulation. Further, United Power’s complaint insults our other cooperative members, who clearly understood the direction of the association,” Tri-State said.

Tri-State and the other three entities have until Friday to file a response, in what could be another protracted legal proceeding.