Upheaval & Tension in Colorado

The Delta-Montrose story is a microcosm of the upside down 21st century energy world

by Allen Best

This is from the April 23, 2020, issue of Big Pivots, an email-based e-magazine. To subscribe, send your e-mail to [email protected]

In 2006, directors of Delta-Montrose Electric Association had a choice of two paths. One led toward construction of a coal-fired power plant in a distant location. The other path was less clear, but involved more robust development of local renewable energy sources.

The coal plant never happened, nor will it. An air-quality permit for the 895-megawatt coal plant planned in southwestern Kansas expired in late March. That’s a good thing not only for air quality but also for farmers, ranchers and other members of electrical cooperatives in Colorado and three other states that collectively compose Tri-State Generation and Transmission. They would have been saddled with paying for an expensive and archaic technology.

Directors of Delta-Montrose by 2006 envisioned a different future. They could clearly see potential for developing of local hydroelectric resources. That has largely already happened. Not as easily foreseen were the plummeting prices in solar energy, from $1 per kilowatt-hour then to 4 cents per kilowatt-hour today, undercutting coal. Too, utilities have figured out how to integrate intermittent wind and solar to much higher degrees than was then thought possible.

Delta-Montrose will begin enjoying those lower costs as the result of a new contract with Guzman Energy. The private wholesaler has pledged to develop 10 megawatts of new and local solar generation by the end of next year in the cooperative’s service territory in Western Colorado. The cooperative currently generates 7% of its own power, but that will climb to 20%, with the new solar coming from the joint development agreement between Guzman and Delta-Montrose. It won’t stop there, promises Chris Riley, the chief executive of Guzman Energy.

Chris Riley

Riley said the proportion of renewable energy used by Delta-Montrose consumers will be “well in excess of 40%.” That includes imported power. The co-operative’s exit from Tri-State becomes official on July 1.

The breakaway of Delta-Montrose provides a microcosm of the tensions and upheavals in the energy world in the 21st century. The century began with mostly large, central coal plants, but they are rapidly being replaced by renewable generation that is far more dispersed. That shift poses major challenges to the business model of not just Tri-State but other utilities as well, both those privately owned that serve primarily urban areas and those like Tri-State created to supply electrical cooperatives in mostly rural areas.

The upheaval is far from over. In addition to Delta-Montrose, Tri-State lost another member in 2016 and now has two of its three largest members banging on the door, trying to get out. After Delta-Montrose leaves, these two large members will between them represent close to 30% of total electricity delivered to Tri-State’s 42 remaining members. Tri-State has been steering a sharply altered course, but it’s an open question whether it can survive. It clung to coal, and it’s true that at one point coal kept the lights on. Whether it clung on just a little too long is a question still unanswered.

How very different from January 2001, when George W. Bush was inaugurated as president. He quickly delegated his vice president, Dick Cheney, to convene an energy task force. Time Magazine dubbed it the “Fossil Fuel Club.” In May of that year, Cheney reported that task force members had concluded in their private meetings that a new power plant would be needed every week for the next 20 years to satisfy growing demand. Coal, said Cheney, who officially called Wyoming home, was cheap and widely available.

Tri-State was on the same page. Working with Sunflower Electric, a utility in Kansas, it settled on building two 700-megawatt coal-fired units adjacent to an existing coal plant near Holcomb, Kansas. To satisfy lending requirements of the Rural Utilities Services, the federal agency created to support rural electrification, Tri-State wanted commitments from its members. All 44 had all-requirements contracts to 2040. Tri-State wanted extensions to 2050.

New Mexico’s Kit-Carson Electric Cooperative refused. So did Delta-Montrose. The two co-ops shared a vision. Luis Reyes Jr., manager of Kit Carson, drove from his office in Taos to a half-way spot at Salida several times to meet Dan McClendon, then general manager of Delta-Montrose. They shared notes. Ultimately the boards for the two co-ops also met.

In superficial ways, the two co-operatives are very different. Taos and surrounding counties with their overlapping Hispanic, Native American, and Anglo cultures reliably vote for Democratic presidential candidates. Delta and Montrose counties haven’t cast a majority of votes for a Democratic presidential candidate since Lyndon Johnson’s landslide in 1964. They’re alike, however, in their common valuation of self-reliance.

Hydroelectric potential of the South Canal was understood from its completion in 1909. Circa 2009 photo/Allen Best

Also influential was the late Ed Marston, a board member of Delta-Montrose and then publisher of High Country News. One former board member describes him as the “heart behind this, the real driving force.” Another former board member describes him as the individual who composed the narrative that many people had a role in creating.

Marston, a native of New York City, had written a book that caused him to ponder resource exhaustion. Moving to the North Fork Valley in 1975 with his wife, Betsy, he saw Colorado Ute, the wholesale supplier to Delta-Montrose wooing its member coops with perks, says Betsy. Tri-State, the successor to Colorado Ute in supplying the Delta-Montrose co-op, he saw as even worse.

“His mantra, lead or get out of the way, was a powerful goal to staff and board,” says Betsy. “Most of all, he loved his early days at Delta-Montrose because of the grit of the farmer-members. They were the real thing, he said, grounded and smart. Ed had a PhD in physics, but he respected street smarts, or in this case, rural smarts, much, much more than formal education.”

I called Marston one day maybe 7 to 10 years ago. I asked him exactly what he objected to. He growled that he was tired of sending checks to Craig, a reference to where most of Tri-State power was being generated in the big, coal-fired power plants. This was the ultimate shop-at-home argument, and it’s one that Guzman emphasizes as it solicits new clients.

Marston had predicted that solar, although expensive then, would drop in price. Tri-State had a different vision, one tethered to fossil fuels. “They had a closed mind,” says Les Renfrow, the board chairman in 2006. “It was if we always did it this way, we will always do it this way.”

Renfrow, who left the Delta-Montrose board in 2011 after serving four terms, said Tri-State staff members continued to press his cooperative to sign a contract extension for several years after being rebuffed by the two co-ops. “We were the black sheep of the family. They never got over that,” he says. “We weren’t in lockstep, and that bothered them.”

Now, he says, remaining cooperatives probably wish they hadn’t signed the contract extension.

Nancy Hovde then represented Delta-Montrose at the Tri-State meetings in suburban Denver. She sees the decision confronting Delta-Montrose as one of weighing risks and opportunities. Others only saw risk. Delta-Montrose saw opportunity.

Still, she remembers a difficult time. She was the only female among the 44 representatives at Tri-State meetings. Her co-op’s refusal to the contract extension set her apart even more. She remembers getting “an awful lot of pressure, just terrible pressure” from Tri-State executives. She remembers veiled threats to kick her off the board. The Tri-State board adopted a punitive policy, authorizing higher rates to member co-ops who did not approve the contract extension. It has never been used. “It wasn’t an easy time,” she says.

About a year after the two co-ops rejected contract extensions, Tri-State suffered an even greater setback. Kansas refused to award the coal plants air-quality permits because of carbon-dioxide emissions. The New York Times carefully cited opponents of the plant in an October 2007 story, saying it was the first instance of a regulatory agency’s rejecting a permit singularly on the basis of greenhouse gas emissions.

Tri-State eventually got its permit. In March 2017, the Kansas Supreme Court issued a decision upholding an air permit for a single 895-megawatt plant. It was an academic victory. The economics of energy had turned upside down. Tri-State directors had already concluded that plant construction was a “remote” possibility, according to a 2018 filing by Tri-State with the Securities and Exchange Commission. In January 2020, Tri-State directors officially pulled the plug. Even by 2016, Tri-State had spent $91.3 million on the vision.

At least $75.2 million more was spent as of December 2019 on land and water for a possible power plant near Holly, which is in Southeastern Colorado, about an hour from Holcomb. Tri-State has never decided what to do with the assets, although at times it talked about both nuclear and algae.

Delta-Montrose’s conflicting vision initially focused on the opportunity to develop hydroelectric power. The South Canal funnels water from the Gunnison River to the Uncompahgre Valley around Montrose and Delta. The idea had been around since at least 1909, when the tunnel that diverts from the Gunnison River was completed. President William Howard Taft arrived to mark the occasion. During the last decade Delta-Montrose has developed several hydroelectric plants on the canal.

When Delta-Montrose said no to a new coal plant in Kansas, three coal mines were operating near Paonia, within the co-operative’s service territory. 2019 photo/Allen Best

Coal itself, somewhat surprisingly, was never an issue among consumers of Delta-Montrose. In 2006, when the co-operative declined the contract extension, the Bowie, West Elk, and Elk Creek Mines were all operating near Paonia. Only one remains in operation.

Tony Prendergast, who was elected to the board in 2007, says coal miners weren’t threatened because coal from the local mines didn’t go to Tri-State. And the idea of local self-reliance and economic development through local renewables appealed to the conservative streak of farmers.

In his life, Prendergast represents the shift of Colorado and the United States altogether. His coal-mining ancestors migrated from Ireland to Pennsylvania. There, his great grandfather was a coal miner. Arriving in Colorado, his grandfather mined coal near New Castle, west of Glenwood Springs. His own father worked at Twentymile Mine, near Oak Creek and Steamboat Springs. “Coal probably bought my first horse,” he says.

(Chris Riley, from Guzman, also comes from a coal-mining family. He grew up at Emery, Utah, the son and grandson of coal miners, as related in a 2017 story in Mountain Town News. The New York Times did a more elaborate story in 2019.)

When Prendergast came of age, the recreation economy was starting to expand in Colorado. He was an Outward Bound instructor for eight years, then continued to guide big-game hunters even as he began a cattle-ranching operation near Crawford, on the western flanks of the West Elk Mountains, producing grass-fed beef at the XK Bar Ranch.

Prendergast sees coal as a transition fuel. “It allowed us to get somewhere, but that doesn’t mean we need to cling to the past. There are new opportunities opening up in energy, and undoubtedly they will make our lives better. We need to look forward.”

But solar energy economics have developed more quickly than he expected. “Ultimately I think that will be a primary energy source here,” he says.

Climate change also did not drive the decision by Delta-Montrose, although it was a concern of some members. For Tri-State early in the century, though, it was. Tri-State belonged to the Western Fuels Association, which funneled money to organizations sometimes described as advocates of climate change denial. Among the recipients: Patrick Michaels, the author of “Climate of Extremes: Global Warming Science They Don’t Want You to Know.”

Tri-State was reluctant to get engaged in energy efficiency, bending down the demand curve. “We have to be careful about getting too much into the business of our customers (the individual co-ops),” Harold “Hub” Thompson, then the president and chairman of the board at Tri-State, told this writer in a 2008 interview for a Colorado business magazine. We don’t have a relationship with the end user.”

The coal plant near Holcomb, Kan. Tri-State had planned a plant adjacent to this plant. Photo/Allen Best

By 2009, the economy in recession and electrical demand slackening, Tri-State put plans for the coal plant in Kansas on hold. The talking points remained the same. Ken Anderson, then the chief executive, spoke at the Morgan County Rural Electric Association annual meeting in 2009. He said transitioning from coal to other fuels would be difficult and expensive, according to a Fort Morgan Times story. Natural gas he compared to being forced to buy $6 a gallon gasoline when $2.50 gasoline, the coal in his analogy, was available. (Natural gas had spiked in 2008 to $14.50 a million Btu; it’s been at $2.50 to $3 since the Great Recession). As for renewables, said Anderson, they were like gasoline that cost $8 to $12 a gallon.

Even after it started building renewable energy a few years later, Tri-State fiercely resisted mandates. Unlike investor-owned utilities like Xcel, it did not have to answer to state regulators. It answered to its member coops. At Delta-Montrose, Renfrow saw it in reverse. “They tell members what to think,” he says. “Don’t ever get that wrong.”

From his farm in eastern Colorado, between Wray and Burlington, Michael Bowman saw something else. A fifth-generation Coloradan, he had been co-chair of the campaign that that led to the adoption by Colorado voters in 2004 of the state’s first renewable energy standard. The 10% mandate applied to investor-owned utilities, most importantly Xcel Energy. Xcel had fought it bitterly in 2004. Then it figured out how to make it happen, agreeing to step up again, this time without complaint.

Bowman points to how Tri-State responded to SB 13-252, a law adopted by Colorado in 2013. It required Tri-State to supply 20% of its electricity from non-hydro renewable sources by 2020, unless the cost of doing so elevated member rates by more than 2% a year. Tri-State didn’t like it, proclaiming ruinous economics. It also funded a public relations campaign that painted rural Colorado as a victim. It was called the “war on rural Colorado.”

“It’s a war waged by entrenched rural interests steeped in 20th-century business models, powered by 19th-century energy resources: coal,” Bowman wrote in a 2013 op/ed posted on Colorado Pols. “Entrenched interests cling to a model that, by design, is the enemy of entrepreneurship and innovation. Entrenched interests who resist a new energy paradigm: a distributed energy generation model. It is a war of our own making.”

Bowman saw potential for a new synergistic farm-and-city alliance, with the rural parts of Colorado producing energy consumed by urban areas, where most Coloradans live.

“We had a perfect storm,” said Bowman last week, speaking by telephone from his family farm near Idalia. “We had urban centers willing to pay premium prices for green power, which could have been produced by our rural electrical coops and sent to the Front Range. But then, you couldn’t have an adult discussion about why a green energy mandate was good for rural counties. Because mandates were the enemy, Democrats were the enemy, and green energy was the enemy. We lost a lot of good time.”

Olathe, famous for its corn, is one of the communities served by Delta-Montrose Electric. 2019 photo/Allen Best

First out of what was often called the Tri-State “family” was Kit Carson. It hooked up with Guzman Energy, a new company formed to take advantage of the rapidly changing energy mosaic. Guzman paid the $37.5 million exit fee. Part of the plan was to rapidly develop the solar capacity of Kit Carson’s service territory in northern New Mexico, for which Guzman is providing assistance. If the covid-19 pandemic has complicated the schedule, says Reyes, the chief executive, the cooperative still expects to meet 100% of daytime needs during sunny times by 2021.

Delta-Montrose in 2017 also asked Tri-State for a buy-out figure. The negotiations continued in private, seeming to reach an impasse until an agreement was announced last July. The terms were released last week. Guzman will pay Tri-State $62.5 million for the right to take over DMEA’s power supply agreement. In addition, DMEA is purchasing $26 million in transmission assets from Tri-State. Delta-Montrose also forfeits $48 million in patronage capital, or its share of the common assets of Tri-State.

Delta-Montrose has roughly twice the number of members as Kit Carson. Still, it’s hard to compare the two exit fees, as the agreements were separate and distinct, says Mark Stutz, Tri-State spokesman. Representatives of Guzman and Delta-Montrose agree.

In 2019, two more members asked for exit fees. Brighton-based United Power, by far the largest member co-operative of Tri-State, with 95,000 meters, and Durango-based La Plata Electric, the third largest, will likely be responsible for close to 30% of the power delivered by Tri-State after Delta-Montrose leaves in July. Under Tri-State’s one co-op, one-vote rules, however, they together have 2 of the remaining 42 votes on the Tri-State board.

United Power and Tri-State butted heads over United’s addition of Tesla batteries. Tri-State’s policies provoked a provision in a new law adopted earlier this year. 2018 photo/Allen Best

Both co-ops appealed to the Colorado Public Utilities Commission to determine what constitutes fair and reasonable exit fees. That case is scheduled to be heard by a PUC administrative law judge on May 18-22. Both dissident co-ops dispute a new methodology announced by Tri-State to determine exit fees as well as a policy that in theory is supposed to allow cooperatives to generate more of their own power.

(See related story, “Why Tri-State policies don’t work for these two members,” on page XX).

“Change is hard, and this is just one example,” says Bowman. He points out that it has taken two decades and a number of vigilant people and groups who could envision the change and remained committed to the cause. In the case of Delta-Montrose, where term-limits force turnover in directors, it required new leaders stepping up. “People kept having to step to the front of the battle,” says Hovde.

Also important to note in this energy transition, says Bowman, is that change has come at the local, state and federal levels. Among the changes at the federal level was the decision by the RUS, the federal financing authority for electrical cooperatives, to put the kibosh on funding for new coal plants.

Tri-State has been pivoting dramatically in the last year. It had to. The analogy used the chief executive in 2009 in Fort Morgan have turned upside down. Coal has become expensive, renewables cheap. Too, there are the stepped-up state mandates by Colorado and New Mexico, effectively decarbonizing electricity by mid-century.

In actual performance, there’s relatively little difference between Tri-State and Xcel Energy. Xcel will close two of its Colorado coal plants in 2023 and 2025, while Tri-State makes its first major closure in 2025 and quite possibly will close another plant in 2026. This can be done, said chief executive Duane Highley in January, while keeping rates flat or even lowering them.

Duane Highley

Highley, who arrived at Tri-State 13 months ago, has his hands full. He inherited a staff that had been on substantially a different voyage.

In an op-ed posted on the Colorado Politics website this week, he emphasized the pivot underway under his tenure, which is undeniable, but glossed over why two of his three biggest members want to jump ship, threatening to capsize everything, and failing altogether to address why Tri-State wants decisions made in Washington D.C. instead of Denver. That’s not exactly a persuasive move to argue that you have local interests at heart.

Tri-State continues to emphasizes its argument why FERC should have jurisdiction: “As we are an interstate wholesale power supplier, FERC is the entity that would best adjudicate the interests of all of our cooperative members and public power districts across all four states where we serve (as opposed to one state utility regulatory commission),” said Mark Stutz, a Tri-State spokesman, in an email received after this was published on April 23.

In Taos, Luis Reyes isn’t looking back with remorse on leaving, and in Montrose, Nancy Hovde is, after all these years, “ecstatic.” Change started nearly 15 years ago is occurring.

But for others, the tension only continues to grow. Whether it will eventually cause Tri-State to fall apart is a question likely to linger for several years.