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Duane Highley insists struggling wholesale provider has delivered results in energy transition despite dour predictions of detractors

 

by Allen Best

As the waters around Tri-State Generation and Transmission continue to rise, its chief executive, Duane Highley, strode onto the stage of the wholesale cooperative’s annual meeting on Wednesday morning to deliver a defiant, at times combative speech.

The theme was momentum, and Highley’s favorite metaphor was of trains. “Our train, the Tri-State train, has left the station and we’re already on our journey in our transition,” he said in his wrap-up.

At the start, he was more specific: “A freight train is the perfect example of mass times velocity. It’s got lots of mass. It’s got velocity. You do not want to get in the way of the train. It has lots of momentum, and once it’s moving, it’s really hard to stop.”

With trains come risks, too, as attested by many cliched metaphors. Highley in his 21-minute talk only  alluded to the risks facing Tri-State indirectly.  Paramount is the debt that Tri-State carries on is coal-burning fleet. The plants are mostly relics but still unpaid for, at least several of them, although the precise amounts, I do not know.

Tri-State went directly to Washington D.C. as the Inflation Reduction Act was being crafted to lobby for a carve-out of $9.7 billion to be awarded to electrical cooperatives to buy down debt on assets stranded by this transition to renewables and alternatives that are cleaner and lower-cost.

Now, Tri-State is betting that it will get a hunk of federal money. Highley was very clear about this.

“We now have an opportunity to apply for a massive amount of federal funding. I’m told that I can’t share the number,” he said.

“So let’s say it’s well over half a billion dollars of federal authority that, when converted to grants and loans and zero-interest loans, can be well over a billion dollars of funding coming to Tri-State.”

And then he drew colorful images: dollars bills lined up for 42 miles and dump trucks delivering loads of greenbacks on Tri-State’s back loading dock.

Contract termination payments paid by departing Brighton-based United Power and Nebraska’s Northwest Rural Public Power District will give Tri-State some short-term cash.  Both are slated to leave May 1. A rating analysis firm mentioned a payment by United of $700 million, apparently using information from Tri-State. That figure appears to be on the extreme high end of what may be possible, once the formula is finalized.

That faith in federal funding represents robust optimism. Maybe it will be rewarded.

Also still in doubt is whether Tri-State handcuffed itself in seeking jurisdiction by the Federal Energy Regulatory Commission, most notably bypassing state regulators in Colorado but also in New Mexico in determining those exit fees. Colorado’s Public Utilities Commission was doing just that  in 2020 when FERC proclaimed primacy on the issue—something that Tri-State had been edging toward since 2017, before Highley arrived.

There’s irony in this. In avoiding regulators in Denver, Tri-State now has been unable to get FERC approval of the 6% rate increase it says it needs. And that lack of revenue, along with the decision by La Plata Electric to leave Tri-State, caused two of three Wall Street credit firms to downgrade Tri-State’s worthiness.

See: Wall Street quickly lowers Tri-State ratings after La Plata votes to leave

But if Highley was unwilling to look over his shoulder at past decisions, he  was eager to share memories of  perceived slights. He wanted his members to feel victimized by naysayers. A sample:

“In 2019, we announced our responsible energy plan and everyone scoffed. I can remember the governor scoffing. You’re not actually going to do that. The public utility commissioners scoffing. You’re not actually going to do that. You’re just going to keep operating plants the way you’ve always operated them. And then the press, they said, we wouldn’t. They said we couldn’t and they said we wouldn’t execute on this plan. But instead we’re building more and more momentum.”

Along the way, he named other names: San Juan Citizens Alliance, Arkansas Valley energy community, a story from High Country News in 2016 predicting Tri-State bankruptcy.

“They’ve been saying it for years. This headline (from High Country News), do you note the bottom there, that’s from 2016. They’re still using the same talking points today. I would say in the words of Samuel Clements, the news of our death has been greatly exaggerated and maybe we should base our fears and our optimism on reality and on the evidence, the solid evidence of the past. How has Tri-State actually performed? And what if instead of focusing on what if all the bad things that could possibly happen happened, what if all the good things that could possibly happen actually happened?”

Indeed, Tri-State has been pivoting rapidly. It’s closing coal plants. It’s adding renewables. And, if more sluggishly than some of its members coops wanted, it is working toward flexibility.

Partial-requirements contracts were offered to several cooperatives, but that idea was halted — “blown up by protests from a member,” he said. That member was United, whose objections on procedural grounds also halted the plans for La Plata Electric, San Miguel Electric and others. At least for a time, there was friction between La Plata and United if, at this point, they’re both headed out the door.

Highley announced plans for a new flexible-contract that’s being called Bring Your Own Resources, or BYOR. He said that will be filed this summer with the Federal Energy Regulatory Commission. Highley did not provide details but said it doesn’t have a buy-down payment.

He also called Tri-State’s progression toward renewable energy: 50% by 2025, 70% by 2030 (and 89% reduced carbon compared to 2005 levels). And he said that Tri-State will be within an operating RTO (regional transmission organization) by 2026 – four years ahead of Colorado’s deadline. Tri-State already participates within a day-ahead organized market operated by that RTO operator, Southwest Power Pool.

Tri-State’s strongest argument likely is its generating assets including gas plants, wind and solar  farms and, of course, the coal plants, all of them coupled with its transmission. This contrasts with alternatives, most prominently Guzman, which has a power-purchase agreement on a wind farm in northeastern Colorado, and the generating capacity of Comanche 3 that belongs to Holy Cross Energy.

Highly has played up this argument  in other speeches. He used “reliability” 13 times in the speech. This has been central to his argument about why Tri-State has firm legs:

“Our neighbors are retiring plants as well. We know there’s going to be less and less surplus capacity and it’s going to be a time of greater stress on the grid. This is what protects you from those prices. It is unmatched. Independent power resellers cannot match this portfolio. They can offer you one plant, two plants, three plants, five plants. They can’t offer you this. This is protection from risk. NERC (North American Electric Reliability Corporation), FERC (Federal Energy Regulatory Commission), and WECC (Western Energy Coordinating Council) have all said they’re worried about resource adequacy by the end of this decade, and they should be because other utilities don’t plan for reliability the way Tri-State does.”

A confused footnote to the proceeding was that Willie Phillips, chair of FERC, had been scheduled to deliver the keynote address. He was at the conference but was a last-minute no-talk, so to speak. Tri-State spokesman Lee Boughey confirmed what others had speculated in advance: a decision was made that with Tri-State expecting to file proposals with FERC in late May, it was better to keep some distance.

A note about the photo: It was taken via the Zoom link at this writer’s desk, as I was too sick to attend in person.

Allen Best
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