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Moffat County, Colorado Tri-State Generation and Transmission Association: Inc.; CP; Rural Electric Coop <br />nevertheless projects relatively stable DSC and FCC while introducing modest rate increases. Tri-State expects that <br />lower near-term debt service will reduce rate pressures on its member distribution cooperatives, allow for greater <br />use of cash financing of portions of its large capital program, and can appease members that have challenged recent <br />years' rate adjustments. <br />Revenues from non-members represented 150/6-200/6 of 2013-2016 operating revenues. However, the high level of <br />contracted nonmember sales tempers risks of revenue -stream volatility. Also, the percentage of members' <br />contributions to energy sales has been increasing. We view the trend of rising member sales as reducing the utility's <br />exposure to wholesale markets and their uncertainties. Members are allowed to procure up to 5% of their electric <br />power requirements from distributed or renewable generation. To date, members have dedicated 145 megawatts <br />(MW) of capacity to this program, compared to their 2,802 MW peak demand on the Tri-State system. <br />The cooperative's mortgage indenture provides that its revenues and most of its tangible assets secure its first <br />mortgage bonds. The Springerville plant's Unit 3 and its related assets secure another approximately $419 million of <br />debt. <br />Tri -State's nearly $3.4 billion of debt at year-end 2016 was sharply higher than 2008's $1.7 billion, in part because of <br />2009's consolidation of debt associated with the utility's lease interest in the Springerville Unit 3 coal generating station <br />in Arizona. More recently, debt rose to $3.4 billion at Dec. 31, 2016, from $3.0 billion at Dec. 31, 2012. <br />Although the cooperative projects about $1.3 billion of 2017-2021 capital spending, its financial forecast plausibly <br />shows relatively constant debt balances because nearly $500 million of existing debt will amortize during those years <br />and funds available after debt service could create about $725 million for of capital spending, which should temper the <br />need for additional debt. Investments in transmission and existing coal facilities represent the largest elements of the <br />capital plan. <br />Six owned and leased, coal-fired, base load generation stations providing 1,874 MW of capacity dominate Tri -State's <br />2,841 MW portfolio of owned and leased generation. This fleet incudes 967 MW from natural gas- or oil -fueled peaking <br />power plants. In addition, the utility contracts for low-cost hydroelectric power purchases from the Western Area <br />Power Administration (WAPA), and renewable resources consisting principally of wind turbines. Members' peak <br />demand has been between 2,600 MW and 2,800 MW since 2010. Tri-State believes that its supply portfolio will meet <br />its needs through 2025. Economy market purchases rose to 13% of 2016's power supply, up from 4% in 2013. <br />Average wholesale rates of 7.1 cents per kilowatt-hour (kWh) were unchanged for all members during 2013-2015 <br />partially because of member discord, with Colorado and New Mexico members that challenged the utility's rate <br />adjustments and the cooperative's allocation of demand and energy charges. Because Tri-State has revised its rate <br />structure's demand and energy charges and has made strides in resolving the customer conflicts, management believes <br />the utility can incrementally raise rates. The average member wholesale rate was 7.2 cents per kWh in 2016. Tri-State <br />lacks a formal fuel and purchased power adjustment mechanism. Consequently, its board's willingness to adjust rates <br />as costs rise is an important credit quality indicator. <br />WWW. STANDARDANDPOORS. COM/RATINGSDIRECT <br />SEPTEMBER 11, 2017 4 <br />rnzFa% � .uuoi�ret,++ <br />