SMPA to negotiate partial split from wholesale power supplier Tri-State Generation & Transmission
"may yield significant cost reductions for SMPA”
San Miguel Power Association powerpoles at Rico, Colorado
Ore Cart photo
April 1, 2022
More than four years of research and comparing options has positioned San Miguel Power Association for negotiations with Tri-State Generation and Transmission Association to allow SMPA to purchase some wholesale electric power from an alternative supplier. The SMPA Board of Directors voted to commence these negotiations at its regular monthly meeting March 29, 2022.
SMPA's existing wholesale purchasing relationship with Tri-State G&T is an All-Power-Requirements contract, which has been in effect for about 30 years.
Also at the March 29 meeting, the SMPA Board selected Guzman Energy of Denver CO to be the alternative power supplier.
SMPA also considered a total withdrawal from the contract with Tri-State G&T during the multi-year analysis of costs and risks.
The cost for SMPA the exit fee which SMPA would pay Tri-State G&T will be determined by the US Federal Energy Regulatory Commission.
Two electric distribution cooperatives achieved total exits from Tri-State G&T all-requirements contracts in recent years: Delta-Montrose Electric Association in Colorado, and Kit Carson Electric Cooperative in New Mexico.
Why is this important for SMPA consumer-members?
The cost of wholesale electric power purchases was more than half of SMPA's total annual expenses is 2020. Potential savings in this expense category may offset future increases in others.
SMPA expenses in 2020. Totals for 2021 are pending completion of SMPA's audit report.
Next steps, rising costs, and potential savings explained
SMPA's power supplier news release is reproduced below:
. . .
(March 30, 2022) FOR IMMEDIATE RELEASE
SMPA to Investigate Diversifying Power Supply
At its regular Board Meeting in March, the SMPA Board of directors accepted two recommendations from the SMPA Staff: The first was to begin contractual negotiations on a transition away from its “All-Power-Requirements” contract with current wholesale power provider, Tri-State Generation and Transmission (Tri-State). SMPA may transition to a “Partial Requirements” contract, thereby allowing room in SMPA’s total power load, for service from another supplier. The other was to select a finalist from the recent SMPA Request for Proposals (RFP) for alternative power supply providers. The selected finalist was Denver-based Guzman Energy.
Since 2017, the SMPA Board has been evaluating its wholesale electric supply contract (WESC) with Tri-State and gathering the data necessary to determine if adding a different source of wholesale electricity would be advantageous to the membership. A detailed cost analysis was presented to the Board during a recent Executive Session. Based, partly, upon this analysis, the board, in open session, directed staff to move forward with the negotiations.
“Supplying a portion of our power from Guzman may yield significant cost reductions for SMPA,” said Board President, Rube Felicelli. But members are cautioned not to expect a retail rate decrease. “There are a number of unprecedented cost hikes affecting SMPA at this time,” said SMPA CEO, Brad Zaporski, “... including increased need for fire mitigation measures, increased tool and material costs due to inflation, increased cost of labor, the need for reliability improvement projects including a possible transmission line reconstruction project on Red Mountain, as well as likely wholesale rate increases from Tri-State.”
“The pressure is currently quite strong to recover more revenue through a higher access fee,” said Zaporski. “However, a reduction in overall wholesale costs could provide some relief.”
Asked why SMPA would not seek a full exit from Tri-State, like neighboring co-op, Delta-Montrose Electric Association (DMEA), Zaporski noted that Tri-State, as a member-driven cooperative, offers a number of significant benefits, including preferential access to the Tri-State transmission system, multiple points of risk mitigation, and financial aid for critical reliability projects.
“Even though the Board has given SMPA the go-ahead, it is still far from a final step in diversifying SMPA’s power supply,” said Board President, Felicelli. “Several critical pieces of the puzzle still need to be put into place.” For one, the methodologies of the Partial Requirements calculations still need final approval from the Federal Energy Regulatory Commission (FERC). Beyond that, new contracts will need to be negotiated and drawn up with both Tri-State and Guzman. “We are on the 50-yard line,” said Zaporski to illustrate the point.
Nonetheless, many are encouraged by recent developments, and even though the Board has signaled that retail rates will likely not go down, there are still a myriad of potential benefits to be realized, including:
- Lower carbon footprint
- Improved fire mitigation within the territory
- A more reliable grid
- Greater stability through diversification in wholesale rates
- Preserved Tri-State membership rights, including a seat on the Tri-State Board
- Lower pressure on retail rates
“The difficulties of the past few years have forced us to adapt,” remarked Felicelli. “But the changes we are making in response, have the potential to make us stronger than ever.”
About San Miguel Power
San Miguel Power Association, Inc. is a consumer-controlled rural electric cooperative with offices in Nucla and Ridgway, Colo. It is the Mission of the San Miguel Power Association, Inc. to provide our members with safe, reliable, cost-effective, and environmentally responsible electrical service, while demonstrating both co-operative responsibility and support for the communities we serve. SMPA serves approximately 10,000 members and 14,000 meters and supports local communities with over $300,000 annually in property taxes, over $100,000 in energy efficiency and renewable energy rebates and over $80,000 in scholarships, community donations and economic development grants.
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