Get Big Pivots

by Allen Best

Tri-State Generation & Transmission has been reinventing itself at break-neck speed as compared to 5 or 10 years ago.

Coal plants are closing. The wholesale provider to 42 member electrical cooperatives in Colorado and three adjoining states has been pushing to create a new market structure called a regional transmission organization that likely will result in deeper penetration of lower-cost renewables. And the company may get engaged in research about hydrogen, what could be a game-changing storage technology.

But Tri-State has not yet embraced the deeper, broader reforms that several of its larger members say must happen for it to remain relevant in the fast-changing world of energy, a time fast becoming one of solar panels on roofs and battery packs in garages.

To regain its relevance, say those critics, Tri-State must return to its roots. It was formed in 1952 by its member cooperatives in Colorado and adjoining areas of Nebraska and Wyoming to transmit power from hydroelectric dams. In time, it began building generation. Like those of the investor-owned utilities, including Xcel Energy, the power plants got bigger and bigger.

Now, say critics, Tri-State needs to invert its mission. Instead of being a G&T, it needs to be a T&G, transmission once again coming to the fore as member cooperatives develop their local generating assets, connected by Tri-State’s 5,665 miles of high-voltage transmission lines. It must become more of a facilitator.

Glimmers of these disagreements were evident during Tri-State’s annual meeting on Aug 4-6 at a Denver-area hotel. It was the first annual meeting of Tri-State to be governed by a new Colorado law, House Bill 21-1131, which requires the annual meetings be open to news media.

Duane Highley, the chief executive of Tri-State since April 2019, paraded the organization’s accomplishments and plans but didn’t entirely ignore the challenges, either. He mentioned an essay several days prior to the meeting in Utility Dive, a national publication, that had suggested Tri-State was failing to deliver what its members want: lower costs, cleaner generation, and increased flexibility. Those critics, he suggested, had failed to acknowledge Tri-State’s plans for transformation.

Tri-State plans a hard pivot from coal. Renewable generation provided 36% of electricity in 2020, nearly identical to the 36.1% of Xcel Energy, which is seen as national leader in this pivot.

By 2024, Tri-State expects to hit 50% renewables. And by 2030, it will be at 70% in its four-state operating area. In Colorado, it vows an 80% reduction in carbon emissions as compared to 2005, in line with other major utilities.

Annual rate increases, the subject of annual complaints from the coops for many years, ceased in 2020 and in 2021, a 2% rate decrease occurred, with another 2% scheduled in 20222. This was due, at least in part, to addition of what Highley called the “green dividend,” low-priced wind that can be had for 1.57 cents a kilowatt-hour, far less than coal.

Wind, if cheap, poses challenges, as was demonstrated by the winter storm of Feb. 12-18. “Reliability comes first,” he said. “If the lights aren’t on, people certainly die, as we saw in Texas.”

Texas utilities had extended power outages for reasons that involved both natural gas and wind generation. Tri-State had its own problems during the mostly windless week. Of Tri-State’s 405 megawatts of wind-generating capacity, the average wind output was 51.2 megawatts. The nadir was on Sunday, Feb. 14, when turbines were producing just 0.9 megawatts to meet peak demand.

Tri-State managed to survive the fiasco with minimal damage, said Highley, because of its diversified resource portfolio that included fuel oil. He reported that Tri-State spent $11 million in additional costs to ensure electricity during the storm. Xcel Energy, which in Colorado is roughly twice the size of Tri-State, spent $600 million and wants a rate increase to recover its costs.

Current storage technology is not sufficient to allow Tri-State and other utilities to ensure reliability during multiple windless days. Hydrogen represents one possible advance for multi-date storage.

Highley said Tri-State has partnered with the state of Colorado in an application to the U.S. Department of Energy for funding for a proposed Craig Energy Research Center. The research at Craig, site of three coal-burning units operated by Tri-State, would explore the feasibility of green hydrogen. Created from water through electrolysis, this green hydrogen could provide the backstop for the intermittency of renewables while also using the high-voltage transmission lines to and from Craig. It could also provide a bridge for coal workers and the Craig community, he suggested.

The pace of change at Tri-State has quickened remarkably. want faster change.

United Power, the largest member of Tri-State as measured by electricity sales and meters, is among those advocating for a sharper pivot. United is a giant still growing. Membership has doubled since 2004 as the one-time farm country north of Denver between I-25 and I-76 has filled with warehouses and distribution centers, oil-and-gas mining infrastructure, and subdivisions and more subdivisions.

Earlier in the conference, Mark Gabriel, the chief executive since April at United Power, called for additional reform.

“We need Tri-State to realize that the dynamics of a changing industry mean more of our members want to generate electricity locally, to be untethered from fossil-based resources and released from the paradigm of centralized generation that is decades old,” he said. “This will require a dramatic new business model, deep cost-cutting, and jettisoning of inefficient generation even in the face of financial hurdles.”

Although Tri-State has committed to being out of coal in Colorado by 2030, it has made no such plans for its share of the Laramie River Station plant in Wyoming or the Springerville plant in Arizona. Coal must go, said Gabriel, not because of politics, but because of the shifted economics of energy.

United wants Tri-State to give its members more freedom to generate their own electricity. The existing relationship is largely one of hub and spokes. The new future envisioned by United and others is for Tri-State to be a hub, but with more power in the spokes.

Tri-State and several of its largest members have for several years been legally wrestling. The filings at government agencies in Denver and Washington D.C. have been thick, and there’s also a lawsuit. The disagreement is partly about what it would cost for United and now seven other members to get out of their all-requirements contracts. Those contracts will expire in 2050. Tri-State has delivered what appear to be preposterously high numbers for those wanting to exit their contracts, in the case of United Power well north of a billion dollars.

See: How exactly did Tri-State G&T come up with these huge contract buy-out figures for member cooperatives? 

Gabriel describes this so-called all-requirements contract as “Hotel California” rules, where you can get in but you can never leave. Any contract, he said, is subject to modification, whether it’s for a mortgage on a house or marriage that, at the extreme, ends in divorce.

United is a dwarf among Tri-State cooperatives in geographic size, covering just 90 square miles, but a giant in terms of customers and electrical demand, just recently surpassing 100,000 members.

This year alone it expects to add 5,000 new meters. By comparison, more than half of Tri-State’s member cooperatives have 10,000 or fewer members/customers. The smallest has just 1,500 members.

Gabriel said he expects peak demand from his cooperative to reach 600 megawatts this year. That’s enough to absorb the capacity of one coal-fired power plant or several wind farms.

If United has seen extraordinary changes, the smaller cooperatives in farm country have started seeing shifts that have caused them to begin rethinking their futures.

Not long after Highley’s remarks, Gabriel was talking in the hallway of the conference hall with the manager of a Nebraska cooperative. There, the cooperative has started losing revenue as farmers start employing solar generation to lift water.

“This is a societal change we are facing,” Gabriel said in an interview. “It is not just United Power. It is faster at United because of our proximity to Denver. But it will affect everybody in this century.”

Just as electrical cooperatives must alter their relationship with their members to recognize changing technology, such as Tesla batteries in homes, Tri-State must also alter its relationship with member cooperatives, he said.

“The expectations of a two-way relationship with your energy supplier is here and it’s now.”

For all the disagreements with Tri-State, Gabriel said United sees advantages to staying. How so when independent coops – Kit Carson in New Mexico and Holy Cross in Colorado—appear to be doing so well?

There is risk in going it alone, said Gabriel.

Hours after Tri-State’s meeting wrapped up, formation of a new group called NextGen Coop Alliance was announced. It aims for reform of what it calls the “outdated G&T business model that is a relic of another time where electrification at scale was the goal.” NextGen leaders say the timing of their announcement and the Tri-State meeting, as well as the Utility Dive article, was coincidental.

NextGen consists of just five members, two of them in Colorado: Durango-based La Plata Electric and Ridgway-based San Miguel Power. Others are in South Dakota, New Mexico, and Indiana. Leaders say they hope to recruit similarly minded “progressive” cooperatives in Texas and the northern Great Plains.

Jessica Matlock, chief executive of La Plata Electric and the chair of the new group, talks about the need for local cooperatives to think about dual benefits. An example for Durango, she said, would be creating a solar program at local Fort Lewis College to help create qualified workers for a more local, bottoms-up power supply model.

Matlock, who has been in Durango since July 2019, was previously with the Portland-based Bonneville Power Administration for 4 years and then for 13 years with Bonneville’s large customer. The same discussions about change that are occurring in the Rocky Mountains, she said, are taking place on the West Coast. The top-down approach of recent decades must be reversed, to maximize local benefits.

”The key is about joint community benefits,” she said. “If you are in a one-sided power contract, how can you possibly create joint benefits for your community?”

Tri-State has tentatively moved in this direction with a new policy that would allow La Plata and other cooperatives greater authority to develop solar and other local generation sources. That policy has been submitted to the Federal Energy Regulatory Commission. Matlock said she’s waiting to see if the actions match the words.

“I believe Duane (Highley) is trying hard,” she said. “I believe he has a governance issue that stalls him on what he needs to get done.”

Luis Reyes Jr., the vice-chair of Next Gen, said the complaints are not unique to Tri-State. “It is kind of universal,” said Reyes, and the chief executive of Taos-based Kit Carson Electric Cooperative. “Most G&Ts have lost their way in serving their memberships. They have gotten too big for their britches, so to speak.”

Kit Carson provides a possible model for United, La Plata, and other dissident coops. It broke free from its contract with Tri-State in 2016 and expects to have paid off its $37 million exit fee by summer and without debt on stranded fossil fuel assets. It will have sufficient solar capacity by the end of 2021 to meet day-time needs while also adding storage to improve resiliency.

It has done this in partnership with Guzman Energy, a relatively new power provider with no generating assets of its own. Guzman helped Kit Carson in developing its solar resources, and it is now doing the same in Western Colorado with Delta-Montrose, which exited Tri-State in 2020.

In buying time to thwart the exodus of members, Tri-State sought refuge in rate-making and other review by a federal agency, the Federal Energy Regulatory Commission. If likely effective in the short term, it remains to be seen how well that strategy will work for Tri-State. This strategy was approved by Tri-State’s member coops.

If this is not in their best interests, why did these cooperatives approve it?

Reyes says that the fundamental problem is that the larger members within Tri-State and likely other G&Ts are subsidizing the smaller ones. And this poses questions about the governance model. United Power with its 100,000 members and La Plata with its 46,000 members each get one vote in Tri-State matters. It’s the same with Southwestern, a 1,500-member cooperative in New Mexico, and the 3,000-member cooperatives of Colorado and Wyoming.

It’s like the U.S. Senate, where California has 68 times as many residents as Wyoming but equal representation. But in Congress, there is also the House of Representatives, for both better and worse. Reyes says the G&T model needs more checks and balances.

He sees a Congressional role in reordering the governance. Co-ops are a creation of Congressional legislation in the 1930s, a response to the laggard electrification of rural areas. He also wonders if smaller cooperatives need to merge with others, to achieve a critical mass.

Matlock says the key to moving forward is to expand the diversity of voices, something the new organization she leads hopes to foster.

Allen Best
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