How ARPA-/-Tri State Agreement Impacts Holly Customers

Rick Rigel, Arkansas River Power Authority (ARPA) General Manager, provided information on the proposed Power Purchase Agreement with Tri-State G & T, ARPA and Southeast Colorado Power Association during a public hearing during the Holly Trustee’s monthly meeting, June 6^th.

Holly is one of six municipal members of ARPA which Tri State G & T is proposing to take over through a construction bond refunding agreement now under consideration. As each of the member cities is deciding on approval of their ordinance, Rigel is speaking before the town’s boards, explaining the ramification of the PPA for each community.  There will be some similarities such as the length of the contract between Tri-State for power supply and the towns, and some differences such as the financial impact to each community.

Holly became an ARPA member in 1984 and is responsible for 3% of annual sales based on 2017 figures. Lamar, by comparison, uses 33% of the power output negotiated by ARPA.  A series of bonds, totaling $143.6M were issued in 2003, 2006, 2007, 2008 and 2010 to finance the Lamar Repowering Project.  Rigel told the Trustees that debt service accounts for about $0.04 per kWh on Holly’s monthly electric statement.  The annual payment on all of the bonds is approximately $10.2M.  The life of the bonds extends to 2043.  Tri-State G & T has proposed to purchase the bonds as well as ARPA’s power supply agreements and obligations.  The contract with Tri-State would be until 2050.  Southeast Colorado Power Association would act as Tri-State’s billing agent and issue invoices to customers at no additional charge.  Rigel explained that as soon as Tri-State takes over, sometime this summer, customers should see a 10 to 11% reduction in rates, starting right away and continuing until 2024.

He said that the savings for Holly would be from $450,000 to $500,000 between now and 2024, but that percentage rate would narrow to around 6%, the last factored estimate on power costs between 2025 and 2030. The PPA rate structure would tie Holly’s rates to Tri-State’s whether they rose or fell following that period.  Rigel said the timeline for the Agreement if all six members passed their ordinances by mid-June would require 30 days to take effect and that would be in late July so the agreement and new rates would begin in early August.  Each municipality would be able to terminate their contract with Tri-State with a two year notice and following the completion of the Agreement with all six members, ARPA would dissolve in about three to four years.

Each community needs to maintain a minimum level of power purchased from Tri-State without being penalized. Rigel said should sales drop below a specific level, Holly would be charged for a minimum of 7,353,350kWh for the year to maintain an income level and offset the shortfall. “That loss of load might be attributable to a very hot summer when you have small sales in irrigation, for instance,” he said, adding that scenario happened to Las Animas with the loss of the Ft. Lyon prison which consumed a lot of electricity.  Holly would have to realize a drop of 1,300,000kWh in one year to be charged on the loss of load.

Rigel added that if Holly were to purchase 5% of its annual power from another source, such as a solar farm, they would need to negotiate that loss from sales from Tri-State as well; referencing some communities that may decide to buy-in on the renewable power market in the future.

He said there are other savings and considerations which will impact ARPA’s member communities including the sale of the Lamar Repowering Project. That estimated value is $4.5M.  ARPA will receive $10M over three years in payments from the settlement of the B & W boiler lawsuit; ARPA has $6M in reserves and the settlement with Syncora was for $2.25M.  Rigel explained that all of these assets won’t be realized immediately, but as the transfers begin to wind down, each member will begin to receive its negotiated share based on its respective power sales over a course of time.

Regarding the other assets such as the wind turbines in Lamar and Springfield, Rigel explained they could become either assets or liabilities based on their useful performance over the remaining life of the turbines, expected to run until 2024 before some anticipated repairs may be required to maintain them. The communities would need to decide how those assets would be allocated to each of the six members.  Also, Holly has a diesel generator and Trinidad has three and they too would have to be depreciated and an assessment given for their worth.  The value of a transmission line between Holly and Lamar Light and Power will also be factored into a discussion of the complete assets, set for June 13th. The Trustees tabled any action on the PPA ordinance pending additional information and time for discussion.

By Russ Baldwin