“Our goal is a transition that lowers rates. It might be hard – but it might be beautiful,” the G&T’s new CEO told Utility Dive.
Herman K. Trabish in Utility Dive Aug. 7, 2019
Though many rural power suppliers, burdened by debt from stranded fossil fuel assets, have resisted the growing shift toward renewables and distributed energy resources, some are beginning to see the economic promise of that transition.
Tri-State Generation and Transmission (G&T) Association, which serves 43 member cooperatives in the West, has been a prime example of this trend. Driven by member discontent and the growing cost effectiveness of renewables, the G&T’s new CEO says he wants to embrace the change.
“I saw the need for a shift into the new energy economy before I stepped in,” Duane Highly told Utility Dive. “Utilities once had almost no choice but to build coal, but now policies are different, and economics are drastically different. Our goal is a transition that lowers rates. It might be hard – but it might be beautiful.”
Stakeholders and long-time Tri-State watchers are hopeful of a transition, but want action, not words. It may be “hard” to address longstanding financial obligations in fixed fossil assets, but changes will be necessary to prevent dissatisfied member cooperatives from following former member Kit Carson Electric Cooperative (KCEC) and soon-to-be former member Delta Montrose Electric Association (DMEA) to early contract exits.
A “beautiful” transition that lowers customer rates might seem out of reach for electricity suppliers like Tri-State with deep debt in stranded fossil fuel assets, observers told Utility Dive. But if it realizes its proposed transition, it can be a model for others willing to take new approaches to their resource mixes and overcome the burden of their fossil fuel habits.
Despite low-cost renewables options, much of “rural America” is still served by G&Ts whose resource portfolios remain dominated by fossil fuels, Erik Hatlestad, Energy Democracy Program Director for Clean Up the River Environment Minnesota, told Utility Dive.
Distribution co-op customer rates and dissatisfaction are escalating as power suppliers refuse to accept “the new financial reality,” Hatlestad said. “Their need to pay off their debt is creating a dictatorship of capital that is driving a pro-coal dogma.”
Similar to tensions between Tri-State and its member cooperatives, coal-reliant G&T’s elsewhere are struggling to keep their members happy.
“The perception that renewables are something negative comes from a political context and doesn’t make any economic sense.”
CEO, Guzman Energy
The Wabash Valley Power Alliance, which serves 23 Midwest co-ops “is pushing to extend fossil fuel-dominated contracts at $0.08/kWh,” Riley told Utility Dive. “They could buy system power with more renewables at under $0.05/kWh.”
Tipmont Rural Electric, one of its member co-ops, filed a request in 2018 with federal regulators to leave its service.
And Northwest Iowa Power cooperative reported difficulties absorbing an “unexpected” rate increase from its G&T, Basin Electric, the most carbon intensive utility in the country, according to Hatlestad’s research.
These power suppliers’ need for coal, “has evolved into an irrational negative attitude towards anything that is not coal,” Guzman Energy CEO Chris Riley said. “The perception that renewables are something negative comes from a political context and doesn’t make any economic sense.”
The ‘pro-coal dogma’
On July 17, Tri-State took a step away from its pro-coal dogma, announcing “a collaborative stakeholder process” led by former Democratic Colorado Gov. Bill Ritter’s Center for a New Energy Economy (CNEE) to expand a Responsible Energy Plan.
On July 22, the G&T reached a settlement with DMEA, allowing the co-op to exit its contract and independently pursue generation. But change at Tri-State has not always come so readily.
“By 2007, the handwriting was on the wall for coal, but Tri-State was blinded by an almost religious dedication to fossil fuels.” Ron Binz Former Chair, Colorado PUC
“Tri-State has been recalcitrant in the extreme on state clean energy policies and allergic to state regulation for a long time,” Former Colorado Public Utilities Commission (CPUC) Chair Ron Binz told Utility Dive. Despite small procurements of solar and wind, “it has never come close to substantial carbon reductions,” he said.
“By 2007, the handwriting was on the wall for coal, but Tri-State was blinded by an almost religious dedication to fossil fuels,” and proposed an 895 MW expansion of its Holcomb coal plant in Kansas, according to Binz. The G&T is still paying for Holcomb, a more than $93 million loss, according to its August 2017 SEC filing.
In 2004, Colorado voters passed the first electorally instituted U.S. renewables mandate, calling for 10% renewables by 2020. In public debates with CPUC Commissioner Ron Lehr, Tri-State “claimed without documentation it would cost an extra billion dollars, but our studies showed it would be cost neutral or save the system money,” said Lehr.
After the campaign, Tri-State revealed a two-page cost-benefit analysis “that listed all the potential costs of renewables integration and none of the potential benefits,” Lehr said. “It was being intentionally obtuse by ignoring the full value of renewables.”
“[Tri-State] literally took me aside and suggested if I didn’t go along, there may be problems, though they were not specific. It was intimidation.” Luis Reyes, CEO, KCEC
But as the trend of increased renewables has emerged over the last few years, Tri-State turned to stronger resistance tactics, former members and employees told Utility Dive.
“I was on the Tri-State board for two years,” Luis Reyes, the CEO of New Mexico’s KCEC told Utility Dive. “There was an underlying tone of ‘To get along, you need to go along,’ and if you didn’t, you were shunned.”
Asking questions against the status-quo got him “taken to the corner,” Reyes said. “They literally took me aside and suggested if I didn’t go along, there may be problems, though they were not specific. It was intimidation.”
A dispute over a contractual provision preventing member co-ops from obtaining more than 5% of their supply from local renewables led to KCEC exiting its Tri-State agreement. The co-op is now working with Guzman Energy and on track to obtain 100% of its daytime power from solar by 2022.
Before KCEC’s exit, it and DMEA rejected an extension of their contracts from 2040 to 2050 because of the limitation on local renewables and doubts on the Holcomb investment, Reyes said.
“Co-ops dissatisfied with Tri-State’s direction represent almost half its load and that is an existential problem for the entire business. It has to make changes. But the new leadership recognizes that.” Chris Hansen, Colorado state representative
The co-ops “weren’t provided with information to justify the need for Holcomb,” former DMEA CEO/General Manager Dan McClendon told Utility Dive. “We thought there should be more analysis of the potential for efficiency and renewables.”
When the co-ops refused the contract extension, they were told the appearance of disunity could cause Tri-State’s credit rating to fall, increasing its financing costs, McClendon said. “TriState said it would move those additional costs to the co-ops that did not sign the extension. You may or may not call that intimidation.”
Both stood firm on the contract extension, but Tri-State backed off on the rate increase, Reyes and McClendon said.
KCEC is out and the July agreement frees DMEA to pursue more renewables with Guzman. Other member cooperatives are moving in the same direction, with commitments to new renewables and emissions standards they cannot meet through Tri-State’s current resource portfolio and contract.
“Co-ops dissatisfied with Tri-State’s direction represent almost half its load and that is an existential problem for the entire business,” Colorado Rep. Chris Hansen, D, said. “It has to make changes. But the new leadership recognizes that.”
A new beginning?
The July 17 and July 23 announcements of new resource planning and the DMEA settlement suggest Highley, who became CEO February 12, is ready for a new beginning.
The transition process aims to set goals for “aggressive carbon reduction, renewable energy and resource planning requirements” and protect reliability while lowering rates, according to a Tri-State statement.
“[P]artial requirements contracts” will address member co-ops’ demand for more local renewables. The G&T previously planned to close its 428 MW Craig coal unit by the end of 2025 and will now also close its 114 MW Nucla unit by the end of 2020 instead of 2022, setting aside $500,000 to help transition the plant’s 35 employees.
Tri-State also plans to issue a new renewables solicitation in June, along with its February 2019 100 MW wind and January 2019 104 MW solar procurements. The board also approved an energy services development company that will do solar, battery storage and electric vehicle development, a business concept Highley used at his previous role as CEO of Arkansas Electric Cooperative.
“This is going to be an enormous transition that will affect about 700 Tri-State employees in coal mining and coal burning. But there is no other choice for us.” Duane Highly, CEO, Tri-State
Ritter believes Tri-State’s commitment to a transition “is genuine,” he told Utility Dive. “The new legislation in Colorado requires it and the market is moving in the same direction. Tri-State’s leaders see the writing on the wall.”
Both Ritter and Highley stressed the new process does not replace the G&T’s obligation to Colorado’s integrated resource planning. “It is intended to support commission planning and our commitment to it,” Highley told Utility Dive.
Participants in the new process have not been confirmed, but it will include a variety of stakeholders, he said.
“This is going to be an enormous transition that will affect about 700 Tri-State employees in coal mining and coal burning,” said Highley. “But there is no other choice for us.”
“The plan is good news, but the real meat is that resource plan. I am willing to trust Tri-State to make a transition, but I also want to verify it.” Ron Binz, Former Chair, Colorado PUC
Three solutions are critical, Highley said: State assistance to impacted communities, reform on “air permit restrictions that prevent running natural gas units to their fullest capabilities” and expedited siting and permitting for new transmission. “If we get help on those three challenges, we can make a transition to renewables that will lower our members’ rates” and show G&Ts nationwide how to “leverage disruptive technologies,” Highley said.
He understands stakeholders may be skeptical but said, “Just watch us.”
Former CPUC Chair Binz said he will indeed be watching.
“The transition plan is good news, but the real meat is that promised participation in Colorado’s resource planning,” he said. “I am willing to trust Tri-State to make a transition, but I also want to verify it. The best thing it can do for its members is to begin coal plant closures and renewables acquisitions immediately. That is no longer a green agenda, it is a smart economics agenda.”