Tri-State Generation and Transmission Association is a generation-and-transmission cooperative providing wholesale electricity services to about 40 utility members across Colorado, Wyoming, New Mexico, and Nebraska. Members join through long-term, all-requirements contracts lasting through 2050 that require them to purchase almost all their electric services from Tri-State. The dispute arose when several distribution cooperatives—United Power Inc., Mountain Parks Electric Inc., La Plata Electric Association Inc., and Northwest Rural Public Power District—sought early termination of their memberships.
The court found FERC's reasoning sound in rejecting Tri-State's preferred lost-revenues approach and adopting a balance-sheet methodology instead. Circuit Judge Phillips wrote that FERC properly concluded a lost-revenues approach would 'go beyond compensating Tri-State' for actual costs and would violate cost-causation principles by overcompensating remaining members. 'FERC reasoned that most of the fixed costs Tri-State identified could be avoided or mitigated, especially with the two-year notice period,' the court noted, finding FERC's explanation adequate under the Federal Power Act's just-and-reasonable standard.
The regulatory battle began in 2020 when Tri-State filed Rate Schedule No. 281 proposing an exit-fee methodology based on lost revenues. FERC initiated section 206 proceedings and hearing procedures, with an administrative law judge ultimately concluding that Tri-State's approach was unjust and unreasonable while approving a balance-sheet approach proposed by FERC Trial Staff. Under the adopted methodology, departing members pay their pro rata share of Tri-State's debts and other obligations based on three-year average billing shares, with a transmission-crediting mechanism to prevent double recovery.
The decision resolves four consolidated petitions challenging various FERC orders from 2023-2025 and could influence how other generation-and-transmission cooperatives structure exit fees. Tri-State had argued the balance-sheet approach ignored significant fixed costs and violated contractual obligations, but the court found FERC adequately weighed competing views and provided reasoned explanations. The ruling affirms FERC's broad discretion in rate-setting while establishing precedent for cooperative exit fee methodologies in an era of increasing member departures from traditional utility arrangements.