Under its contract with Tri-State, LPEA has to buy 95 percent of its power from the wholesaler. The other 5 percent can be purchased from outside sources, like small renewable projects. At just over 4.5 percent already, the local co-op has little wiggle room./File photo

Goodbye waive

In wake of recent ruling, LPEA to advise against controversial waiver

by Tracy Chamberlin

Even though they were waiting for it, they never saw it coming. One day after La Plata Electric Association’s Board of Directors took the wait-and-see approach on a controversial waiver issue, the Federal Energy Regulatory Commission announced a decision that completely changed the game.

LPEA Chief Executive Officer Michael Dreyspring called the commission’s decision unprecedented. One that will affect power companies and co-ops across Colorado, New Mexico and, eventually, the nation.

“It’s a very significant ruling,” he said.

It all began last year when Delta-Montrose Energy
Association, a regional electric co-op like LPEA, was
approached by a small hydroelectric power producer.

Delta-Montrose was already at the limit of a contractual cap on how much power they could purchase from providers other than Tri-State Generation and Transmission. So, Delta-Montrose turned to the commission to rule whether or not federal requirements to buy power from what’s called a “qualifying facility” override their contract with Tri-State. If the commission ruled in favor, Delta-Montrose could go over the limit and negotiate its own minimum price for that power.

The commission did rule in favor of Delta-Montrose, allowing it to choose its own rates.

In response, Tri-State created a new cost recovery mechanism, which would allow them to recover the revenues lost as a result of that ruling. It petitioned the commission earlier this year to approve this new policy. 

Tri-State, also a cooperative, claimed in the petition that the loss would have to be passed on to all of its 44 members. But, the commission said no. In fact, it went even further.

“We find that Tri-State’s proposal seeks to undermine the commission’s prior order … by imposing financial burdens on Delta-Montrose,” the ruling reads.

Dreyspring and Ron Meier, manager of engineering and member relations, said Tri-State probably didn’t see this coming. No one did.

“We are disappointed with the decision,” Tri-State CEO Mike McInnes said in a statement. “As a cooperative, it is fundamentally important that each member pay its fair share of the association’s costs.”

The first domino is actually the Public Utility Regulatory Policies Act of 1978. Written in the wake of an oil crisis that left many Americans fighting over limited supplies of gas, the act was meant to encourage energy conservation, efficiency and development in renewable resources.

One of the ways the act does this is by creating what’s called “qualifying facilities.” Projects with the qualifying facility moniker get special rate and regulatory treatment.

It makes it easier for a small power producer, like a local hydroelectric or biomass project, to get in the energy game. It also rewards larger producers who can cogenerate electricity and thermal energy byproducts, like heat or steam.

These qualifying facilities were at the heart of the controversy over the waiver. Signing the waiver would have allowed Tri-State to negotiate directly with any qualifying facility that approached LPEA.

For many, this meant LPEA was out of the picture and small, renewable energy projects in the Southwest would get pushed aside by the giant energy supplier. Tri-State would have the final say on all renewable projects in the area.

Durango has several community solar gardens either up and running or in the works. Many of LPEA’s members were concerned those types of projects could be negatively impacted by a controversial waiver agreement between the electric cooperative and its power supplier, Tri-State. It turns out it might not matter. A recent federal ruling completely changed the game./File photo

Representatives of LPEA argued that wasn’t the case. They said not only did they still have a seat at the table, but the waiver was the best way to keep energy costs low. One thing that tipped the scales was the money saved on man hours and paper-pushing during negotiations. Those costs would be Tri-State’s concern, not LPEA’s.

The other key issue was the cap – the same one at the heart of the Delta-Montrose ruling.

Under their contract with Tri-State, LPEA has to buy 95 percent of its power from the wholesaler. The other 5 percent can be purchased from outside sources, like a tribal solar garden, biomass project in Pagosa Springs or an existing waste heat recovery project.

At this point, the co-op only has about a half percent available, already using up 4.5 percent of that allowance.

If the waiver was in effect and Tri-State negotiated  directly with the power provider, it wouldn’t count toward LPEA’s 5 percent. LPEA staff felt this could give the co-op  more room for other renewable projects. Particularly the ones that didn’t get the qualifying facility status.

Debates over whether or not LPEA should agree to the waiver turned from a simmer to a boil at LPEA’s board meeting on June 15 when more than 40 members showed up to speak, an uncommonly high headcount. Most were there to ask the board not to approve the waiver.

One of the members at that meeting was J.R. Ford, owner of Pagosa Land Co. and the man behind a biomass project that could essentially turn wood waste into electricity.

His project’s not just about the power. Working with the U.S. Forest Service, Ford’s biomass facility is a tool for fire mitigation.

LPEA officials said they were willing to offer a higher price for Ford’s biomass energy production, but they couldn’t afford to go as high as Ford needed to make it work. The key player is Tri-State.

If the energy supplier could pay a little more as well, they all might be able to move forward. So far, though, Tri-State hasn’t agreed.

Ford said he put in a request last September and Tri-State hasn’t even voted on the project. “Until Tri-State shows a different attitude, I don’t see how we go forward,” he added. 

The most important number in Ford’s biomass project is also the key when it comes to the waiver and the Federal Energy Regulatory Commission’s ruling –the minimum price Tri-State and LPEA have to pay for that power.

When LPEA negotiates with an energy provider like Ford, the rate it can offer for the electricity depends on Tri-State’s. With the two amounts hitched, it meant they both end up offering the same price and getting the same amount of revenue.

The recent ruling from the commission essentially unbuckles the two rates, Meier said.

LPEA is no longer pigeon-holed by Tri-State’s numbers, nor is it required to pay the difference between the two. This is why the ruling is a game-changer.

Following the commission’s recent ruling, LPEA staff members plan to return to the board of directors in July and change their recommendation.

They’ll tell the board not to sign the Qualified Facility Waiver and instead suggest tabling the issue while Tri-State figures out its next move.

“If I learned anything last week,” Dreyspring said, “it’s that all things are possible.”