Duane Highley and Tri-State’s journey from coal

Colorado’s second-biggest electrical generator looks at geothermal, nuclear, and other options as it closes coal plants

 

by Allen Best

Duane Highley has a career-defining position. Since 2018 he has been the chief executive of Tri-State Generation and Transmission, the nation’s third-largest power provider for electrical cooperatives and public power districts.

Under his predecessor, Tri-State had clung to coal even as evidence was emerging that utilities would have to embrace renewables or be left on a boat adrift. Arriving at the headquarters of Tri-State in a tree-shaded campus in a Denver suburb, Highley very quickly set out to shift the direction of Tri-State. At the time, Tri-State delivered electricity across Colorado and three other states to 43 member electric cooperatives and public power districts, as they’re known in Nebraska.

Earlier in his career, Highley had worked at two other G&Ts, Associated Electric in Missouri and Arkansas Electric.

In a webinar on May 28, Highley spoke for the better part of an hour about Tri-State and shifts in energy more broadly, including how he sees nuclear possibly playing a role in the mid to late 2030s along with thoughts about resource adequacy.

The transcript has been abridged somewhat, the comments in some cases slightly edited for context and flow.

 

A bit about electric cooperatives

We don’t work for shareholders; we don’t work to make a profit. We return excess capital back to members. The more than 900 rural electric cooperatives serve over 50% of the land mass of the country. Incidentally, we serve 92% of the persistent poverty counties in the country. We tend to serve the most rural, most desolate areas.

 

Rural vs. urban

(Nationally), a typical coop has about seven consumers per mile. In our case, in the West, it’s more like five consumers per mile. Some of our members have as few as one consumer per mile of line.

That’s a lot of investment to make to serve not much load, not a lot of sales. If it weren’t for the non-profit cooperative business model, there wouldn’t be power in those areas today. We control costs like nobody else does. We care a lot about reliability and affordability.

And so, if you live in a rural area of the United States, you probably pay just about the same energy bill, about the same rate per kilowatt-hour as somebody who has the privilege to live in the middle of a city with 30 consumers per (line) mile or 50 consumers per (line) mile. It’s because we focus on cost.

 

On over-investment in coal plants

When it comes to making major investments in the future, you also have to honor a whole set of expectations about how you got here.

Highley went on to call out the Power Plant and Industrial Fuel Use Act. The 1978 law, which was created in the wake of the second Arab oil embargo, prohibited the use of natural gas or petroleum as an energy source in any new electric power plant. Natural gas was perceived as too valuable for generation of electricity.

This came as cities were expanding into formerly rural areas served by the electrical coops created in the 1930s,

Co-op loads were skyrocketing. They had to build something to meet that demand. They typically built coal-based power plants starting in the very end of the ‘60s through the ‘70s and ‘80s. So co-ops more so than municipal utilities, more so than investor-owned utilities

became more reliant on coal for the majority of their generation.

Now, as we make a transition, it’s especially challenging, because to reduce carbon emissions, we’re retiring coal. And if you think about the size and scale of a co-op and the size and scale of a typical coal plant, which tends to be large, that means that a co-op might be dominated by one or two plants that provide almost all of their power.

So when you talk about “Oh, just shut down your coal plant,” what if that’s over half of your capacity in one plant?

 

Red and blue states

When he became chief executive, said Highley, he asked what direction the board members wanted Tri-State to go. They said they were ready to make a transition but for it to be reliable and affordable.

So that’s what we’re doing, and we’re doing it at what I would call lightspeed for a utility. We are now retiring coal and have more to retire and are building hundreds and hundreds of megawatts of wind and solar. And people who said, “You can’t do that and keep the lights on” are wrong. We are able to do this and provide reliability at an accelerated level compared to other utilities.”

We’re going to have higher reliability. This is because of what we call level-two reliability metrics that we’re putting into place.

Diversity of Tri-State members

Let’s think about the diversity of Tri-State for a moment. It’s kind of a microcosm of the United States. You have New Mexico and Colorado, states that are blue and leaning heavily into climate change adaption. They want to see renewable energy as fast as possible. New Mexico requires 50% renewables by the end of the decade. We’ll be there by 2025, five years early. Colorado requires 80% decarbonization compared to a 2005 baseline. We’ll be at 89% by the end of this decade. But if you’re living in Wyoming you don’t feel the same way about clean energy. If you’re living in the panhandle of Nebraska, you don’t feel the same way. Those are red states, and they behave that way.

Why, at our board table, do we get this support for the transition? It’s because of what I said earlier, reliable and affordable. Sometimes the Wyoming people would be like, “I don’t want to see coal plant closures. I don’t want to see coal jobs lost. “ But it’s like, “Do you like affordable energy?” We’re blessed to live in a part of the country with abundant wind and solar, and by deploying it aggressively, we’re actually putting downward pressure on rates.

Keeping oil and gas in the mix

We are going to keep a lot of gas and oil generation around because we have to for reliability. As we make this transition, we overbuild renewables to a massive extent. For example, we’ll have four gigawatts of renewables on a three-gigawatt system. You just have to have wind and solar, but they’re not always there.

We look at extreme weather events. Those are the scariest times I’ve had in my whole career. With Storm Uri, for example, we were purposefully opening breakers. There wasn’t enough power to power communities. That’s scary. Winter Storm Elliott (December 2022), similar situation. So as we look at extreme weather events, when you can get a massive wind drought across multiple states and multiple regions.

It’s not enough to just say, “I’m geographically dispersed with my wind farms. I’m geographically dispersed with my solar panels.” On the worst days, you’ll lose wind for four or five days at a time.

We’ve looked at what’s happened historically. Winter peak conditions are becoming the most crucial for us, because loads peak at 7 a.m. and again at 6 or 7 p.m. Guess what? The sun’s not shining.

How do you keep the lights on? You have to keep fossil fuels in the mix or have long-duration storage. We’re not talking about lithium-ion four-hour batteries, the typical deployment for utilities today. Or maybe even eight-hour batteries. Beyond that it gets unaffordable. We’re looking at 100-hour iron-air batteries as part of our mix because we can rely on those for days at a time.

Beyond that, we must have an RTO, a regional transmission organization. The Southwest Power Pool, which is just east of us and in the eastern grid, is now integrating during some hours over 80% wind energy into that grid, which covers 14 or so states. We need that in our system in order to integrate the massive amounts of renewables we’re building, because there’ll be many, many hours when we have more wind and solar than we have appetite for. By having a regional organization that moves power across multiple states and multiple regions (and time zones) we can balance it out better.

The build-out of the transmission to make all that work may take years, but we need to get started as quickly as possible. And that’s why we’ve been such an advocate for the western expansion of the Southwest Power Pool. We believe it’ll be starting up the first quarter of 2026 in our area.

 

Resource adequacy

Growth is coming, and it is exceeding what we’ve been previously forecasting. We see three things really driving it: data centers, electric vehicles and overall electrification, including households having incentives to replace gas appliances.

Distribution centers are finding it economical now to switch their entire fleets of trucks to electric because they make the same routes every day. Why not have that electrified?

Then there’s the question of data centers. They’re looking at the confluence of high-speed (internet) access (and electricity), and there are some places in Colorado that work for that. The problem is when you talk about the size of some of the data center proposals, they can be up to a gigawatt. There’s just not a utility that I know of in the West that has a gigawatt of surplus capacity.

Plus, there’s the transmission question. There are very few areas on the grid where you can drop hundreds of megawatts of load without making some significant transmission investments. And In the past, we’ve seen it can take anywhere from 5 to 15 years to get a new transmission line built. Five years would be light speed.

If we ‘re going to get to the electrification goals we have as a country, we have to more than double the transmission capacity in the grid today. Imagine if that takes 15 years — and it’s going to take every bit of that.

We can make lots of growth. We just can’t make maybe as much as fast as people would to see in some instances.

 

More on transmission

Transmission helps both reliability and affordability. From the reliability standpoint, we have a lot of renewables that we want to move. It’s especially valuable if they move east and west.

Think about solar in particular. The existing structure in the United States of RTOs tends to be north-south. You think about MISO. It’s a north-south oriented RTO. Southwest Power Pool tends to be north-sound, California ISO is north-to south.

If those entities had the same size but they were running east to west, there wouldn’t be a duck curve. … If we could build transmission regionally that moves east and west, we could shift that power.

The wind does tend to blow the best at 4 a.m. OK, so how about we shift that wind over. Moving the solar power east and west is the thing we have to do as a country.

Now, the Department of Energy has identified some preferred transmission corridors. That’s fantastic. We can keep doing studies. It’s not really the question. The question is where it’s going to land and who’s going to pay for it. I’m proud that FERC has issued a rule. I haven’t read the 1,300 pages yet, but from what I’ve read of other people who have supposedly read it, it appears to address some of these questions about cost allocation. We totally applaud the idea of getting some regional transmission built and having it allocated as broadly as possible.

It’s going to benefit people across broad, broad geographic areas – not just for reliability, but also for affordability. Let’s face it. The more solar you’re building in an area, the less value it has, at some point you eventually hit your peak demand, and now you’re building additional solar that has to be paired with storage or it has no value at all. That just increases the cost. But if we can instead move that solar east and west to somebody else who needs it, it’s obviously a good solution for everyone.

 

On the Inflation Reduction Act

It’s definitely accelerating our energy transition. It allows us to move faster than we would have moved otherwise. And also more affordably. That really matters for our rural members. Before the IRA, a non-profit cooperative or municipal utility could not access the federal tax credits. We didn’t have a tax appetite, so we couldn’t take the tax credit. That means we had to have tax equity partners to build a solar or wind sfarms. When you have a tax equity partner, they don’t do that for free. They want the tax benefit, but they’re going to keep a portion of it, maybe a third, maybe a fourth.

What’s really great about the Inflation Reduction Act, one of the key components, are the direct-pay tax credits. We can apply for the same credit even though we don’t pay taxes. And that way, the full financial benefit flows directly to our rural electric consumers.

We can now deliver, wind and solar, geothermal and other things at a lower cost to our rural consumers than we could have otherwise.

 

Money for retirement of coal plants

The IRA had a provision called New Era funding, and Congress allocated $9.7 billion that non-profit rural electrical cooperatives can apply for.

“We’ve been invited to apply for funding there. That could be hundreds of millions of dollars. It will again help us accelerate our transmission more rapidly and more cost effectively. We filed our energy resource plan (with the Colorado Public Utilities Commission) in the assumption of being able to access those funds. It’s allowed us to accelerate the retirement of coal and build additional renewables faster so that we actually don’t even worry about the EPA rule. We’re going to be in compliance.

 

Natural gas – and CCS, too, in 2031

Tri-State submitted an electric resource plan to the Colorado Public Utilities Commission in December 2023. It calls for what Highley described as massive amounts of wind and solar.

We’re talking about 800 megawatts each of wind and solar and then maybe 300 megawatts of storage.

But even with 100-hour long-duration storage batteries, we can’t keep the lights on through these extreme weather events, the hottest weeks of summer, the coldest week of winter. So we have to have some kind of a plant that you can push the button and it will run for days on end. To us, that’s a natural gas-based plant typically with oil backup. So when gas goes to 100 times normal commodity prices, we don’t have to suffer that.

And that plan will eventually have carbon capture and storage on it.

In our proposed resource plan, we actually build a combined-cycle gas plant, then we get to 2031, we add the CCS and begin to take advantage of that tax credit as well.

 

Nuclear in the 2030s

It’s going to be more of a mid-2030s or late 2030s solution for us.

The United States just hasn’t figured out how to deploy nuclear cost-effectively. Part of it’s the regulatory regimen. And despite really good contracts, Vogtle (in Georgia) is two-times its original budget and six years or so late.

I have a lot of enthusiasm for small modular reactors. I actually worked on a project when I was working with co-ops in Missouri. We partnered with the Tennessee Valley Authority on what would have been the country’s first small modular reactor located at the Clinch River site. It was canceled by the Obama Administration. I never understood why. We had funding. This was in the mid-2000s.

Now here we are 20 years later almost. I’m enthusiastic about the thorium stuff and what is going on in Wyoming with Bill Gates’ money behind it to kind of put a cap in the price.

We need to see a couple of these built and prove that they can be built cost-effectively, then everyone will be lined up. Everyone wants to be the first in line to be serial No. 2 – including us. But we’re a co-op. We can’t take that kind of financial risk with our members’ money.

In my mind, if the federal government would just build a few of these with their dime and prove it works. Put ‘em on the military bases. Then we could get this technology rolling and everybody else would be lined up to do it.

That’s why I say it’s 2034 at the earliest deployment, and it will be what we need to make this energy transition work. That can be the fixed base-load power.

 

Geothermal

Geothermal has a similar cost profile (to nuclear), but especially where we sit in the West, there’s some fantastic geothermal resources. They can be exploited and enhanced with horizontal drilling and fracking in a way that wasn’t possible before with typical vertical wells.

I think the cost will tend to be similar to nuclear, but it’s clean 24/7 base-load non-emitting. And I think the public might accept it even better than a nuclear plant just because of the fear of nuclear that’s out there.

And then you can’t discount fusion, which is also developing nicely. I would predict it is a 2035 to 2045 type technology.

 

On emissions-reduction goals

Highley was asked about his confidence of executing the clean-energy transition while retaining affordability and reliability.

Tri-State is demonstrating that we can do it while maintaining reliability at higher levels than any other utility of which I’m aware. The level-two reliability metrics that we developed we have shared with (multiple national organizations) have been well received. We’re not the only one with this idea that you model extreme weather events and it results in higher levels or reserve margins.

 

On just transitions

How does Tri-State factor in just transition issues when making resource decisions such as retirement dates for coal plants?

We had a coal retirement (Escalante) in a very economically challenged community in New Mexico, for example, and worked with them to try and restore the tax base. Frankly, we couldn’t really restore the jobs because there just weren’t jobs. But the counties were looking at significant loss of tax revenue, which could impact their essential services.

One thing we intentionally did was put a 120-megawatt solar facility right there at the site of the retired coal plant, the goal being to restore some tax revenue to the county. It doesn’t replace it, but it helps.

In Western Colorado we’re also dealing with a community (Craig) where we’re closing both a plant and a mine and facing similar issues. We work with the state, which has what they call an office of just transition, to identify what opportunities are there to help those communities in that transition.

Once again, for us, part of the answer is reinvestment. I’m hopeful that we can actually build a new plant there in the future, and we will see how that siting process works out. But I’d say right now the community is very eager.

There are a few places where you can talk about building a fossil-based plant that people would say, oh yeah, bring it on. I think this might be such an area, if you’re retiring a coal plant. The community might be welcoming of a gas plant that would provide intermittent capacity, but some jobs and some tax revenue.