Why Tri-State will shelve coal in Colorado and New Mexico and the big challenges that remain

Will Tri-State ‘family’ stay intact?

by Allen Best

Tri-State Generation and Transmission announced today that it will close its Escalante Station coal-burning units in New Mexico in 2020 and all of its coal-burning units at the Craig Station in Colorado by 2030. One and probably two coal mines near the Craig units will be closed.

Sharply widened price disparities between aging coal plants and new renewable resources play a prominent role in the closures. So do the growing pressures of member cooperatives to decarbonize and take advantage of lower-cost and more distributed renewable resources. Yet another factor was the pressure exerted by advocacy groups, including the Sierra Club, with its extensive grassroots-organizing efforts.

New laws setting decarbonization goals in both Colorado and New Mexico figure into the closures. Legislatures in both states adopted laws last year calling for economy wide decarbonization, in Colorado’s case a 50% reduction in greenhouse gas emissions by 2030 and 95% by 2050. New Mexico’s law requires 80% electrical generation be renewable by 2040 and 100% carbon free by 2045.

Colorado Gov. Jared Polis, in his State-of-the-State address Thursday morning, said Tri-State’s plans within Colorado will reduce the utility’s greenhouse gas emissions 90% by 2030.

As of 2018, renewables—including hydropower—constituted 32% of Tri-States sales to members, while coal represented at least 47% and possibly more, depending upon the source of electricity purchased from other sources. Tri-State expects to be at 50% by 2024 and higher yet by 2030, said Duane Highley, the chief executive of Tri-State, at a Thursday tele-press conference.

The closures were not particularly surprising. Highley, who took the reins at Tri-State last April, told Colorado Public Utilities Commissioners in October to “watch our feet” while promising decarbonization by 2030.

But major questions remain for Tri-State, including perceptions of its long-term financial viability. S&P Global Ratings in November lowered ratings for Tri-State and for Moffat County, where Craig Station is located, from A to A-. Reading the news, some were reminded of another Colorado wholesale supplier, Colorado Ute. Overbuilt in coal generation, it went into a death spiral and then bankruptcy in 1991. Tri-State got the Craig units from that bankruptcy

Most prominent of Tri-State’s challenges will be to hang onto its existing members in what in the past has been described as a family. The family has been squabbling, particularly among Colorado’s 18 member cooperatives. One will soon leave, two more are negotiating to leave, and a fourth has informally asked for a buy-out number. Together, they represent 33% of Tri-State’s electrical demand.

Next Wednesday, Tri-State will announce details of what it calls its aggressive and transformative Responsible Energy Plan. The plan results from a process convened in July 2019 and overseen by former Colorado Gov. Bill Ritter’s Center for the New Energy Economy. The task force included multiple environmental groups as well as Tri-State.

The extent and location of new local resources in Tri-State’s generating portfolio may not be answered immediately, says Erin Overturf, deputy director Western Resource Advocates’ clean energy program. The group was among those who participated in development of the Responsible Energy Plan.

Some of those not at the table remain unhappy that they were not.

“From our perspective, we want Tri-State to clean up their carbon footprint, but we would like to be part of this,” said Jessica Matlock, the chief executive of Durango-based La Plata Electric, one of two co-ops that have formally asked the price of breaking their current all-requirements contracts. “We haven’t been involved in any of the discussions, the formulation of strategies. We would actually like to develop a large amount of renewable energy in the Four Corners and supply that to Tri-State. We don’t think they should just develop large-scale resources on the Eastern Slope. They should diversify their resources and look to the co-ops to be partners.”

While the Four Corners has what Matlock describes as “phenomenal” solar potential, land in the United Power service territory north and east of Denver has become too valuable for 200-megawatts solar farms, says John Parker, chief executive of the 93,000-member cooperative. He’s more interested in seeing whether Tri-State can execute its energy pivot without raising rates.

Rates of Tri-State going forward matter entirely to United, says Parker, whose co-operative now is responsible for 19% of Tri-State’s total electrical demand. He said United charges 20% more for residential electricity than does Xcel Energy, a neighboring and sometimes competing utility. United has somewhat higher costs for distribution of electricity to customers owing to the more rural nature of its service territory But Tri-State’s wholesale cost to United provides the larger explanation. “Tri-State is 75% of our cost of doing business,” says Parker.

But will new transmission be needed to access new renewable supplies, as Tri-State representatives have indicated previously? If so, that could cause rates to rise further, Parker fears.

“I think the biggest question that we have as far as this announcement is how are they going to pay for it,” says Kathleen Staks, director of external affairs for Guzman Energy.

Highley, in the teleconference, repeatedly said that rates will remain stable and might even decline even as Tri-State accelerates deprecation on its plants in the two states. Asked specifically if his guarantees of stable rates also applies to the cost of new generation, he replied that yes, it does. The costs of renewable generation are just that good.

Guzman Energy financed the exit of Kit Carson Electric Cooperative in 2016 from its all-requirements contract, which had been set to expire in 2040. It was the first Tri-State member to leave, a dispute that began in 2005 when Tri-State first asked members for contract extensions in order to build another coal plant, this one in Kansas. Guzman has since helped the cooperative based in Taos N.M., to build its solar potential. Luis Reyes, Kit Carson’s chief executive, says that Kit Carson will to be able to meet its peak day-time demand from locally generated solar resources by 2021. Kit Carson, says Matlock, provides La Plata the blueprint for what it hopes to achieve.

In closing the plants early, Tri-State will accelerate their financial depreciation. Value of the two generating stations at Craig at $400 million. Their original end-of-life dates were 2038 and 2044. The depreciation of those units is being accelerated to 2030. Highley suggested that retirement of one of those units, Craig Unit 2, which is co-owned with four other utility partners, could happen earlier.

Tri-State owns the 253-megawatt Escalante Generating Station without partners and values it at $270 million. Its original end of life had been put at 2045.

Still standing will be the two major generating stations in which it has a minority interest. It has 464 megawatts of the total 1,710 megawatts of capacity at Laramie River Station near Wheatland, Wyo., and 419 megawatts of the 1,629 megawatts at Springerville, in eastern Arizona. As for the future of those plants, said Highley, look at what happens legislatively in Arizona and Wyoming.

Evidence had been mounting that Tri-State, despite several relatively small additions of renewable, was being bypassed by the energy transition. The first evidence came in late 2017, after Xcel Energy had announced plans to retire Comanche 1 and 2, two aging coal-burning units at Pueblo, Colo. The bids it had received by that December for wind, solar and even storage shocked most energy analysts, drawing national attention. Conveniently, most of that new generation approved by the Colorado PUC will be located relatively close to existing transmission.

Then, in August 2018, the Rocky Mountain Institute released a report, “A Low-Cost Energy Future for Western Cooperatives,” which examined the Tri-State fleet in terms of risks, including a carbon price and load defection. That analysis concluded only the Laramie River Station in Wyoming made sense economically going forward. Key to the lower-cost of the Wyoming plant is the relative proximity to the Powder River Basin, lowering transportation costs, and a low-price contract continuing into the 2030s.

Since that 2018 study, says Mark Dyson, a co-author, prices of renewables have continued to dive. He cites one example of a project approved late last year that will deliver solar plus storage at a price of around $25 a megawatt. In some cases, he said, that’s lower the cost of coal itself delivered to a plant. And solar itself now is commonly in the lower $20s per megawatt-hour, a price unheard of even two years ago.

Tri-State in 2019 rebuffed an offer from Guzman to buy three Tri-State units (two at Craig, one at Escalante) and shut them down, replacing the 800 megawatts of lost generating capacity with wind, solar and natural gas generation.

Tri-State plans to close the Escalante Generating Station in 2020. Photo/Allen Best

“We would finance the early shutdown of these coal plants, giving Tri-State a substantial cash infusion, in the vicinity of a half-billion dollars, and we would replace the portfolio (that would be lost) with in excess of 70% renewables,” said Chris Riley, president of Guzman Energy, in an interview for Energy News Network. The offer included purchase of the Colowyo Mine.

Guzman said it would also cover the costs of dismantling the three units as well as remediation costs, which are expected to be substantial. The remediation, however, would be subject to negotiation, Riley said. In addition, Guzman offers to assist communities that would be affected by early retirement of the coal units. At least part of Guzman’s sources of funding were foundations.

In its announcement, Tri-State pledged $5 million in local community support in New Mexico to the affected communities, including Grants and Gallup.

It made no similar offer for the Craig community. And, some observers have noted, Tri-State has made little outreach to the affected communities under Highley. However, he said he planned to meet with community members next week. The Craig Daly Press reports that the news hit the Yampa Valley hard.

Highley also promised to continue work Gov. Jared Polis and legislative leaders in terms of the transition but did not say exactly what Tri-State is seeking with legislators. Colorado legislators last session created a Just Transition office, but the agency still lacks an executive director and also funding. Meetings of the advisory committee, which consists of state officials and legislators and local representatives, were held in October and December.

Duane Highley

Ultimately 600 Tri-State employees directly involved in the extraction or burning of coal will be directly impacted along with 100 employees who are not directly involved in mining or combustion. It will, said Highley, “result in a significant downsizing of our company.”

However, Tri-State now expects to expand markets to accommodate the application of energy to other uses, including transportation and home heating, a concept called beneficial electrification. Just what it has in mind there will become more clear next week.

This expansion could partially offset loss of members. Delta-Montrose Electric, which represents 4% of Tri-State’s load, will leave Tri-State in May and will instead be supplied by Guzman Energy. Poudre Valley REA, the second-largest member cooperative in terms of demand, at 8%, informally asked for a buy-out number in 2018 but, unlike United and La Plata, has taken no additional action. Directors adopted a goal of 80% carbon-free electricity by 2030.

Both United and La Plata are skirmishing legally with Tri-State at both the Colorado Public Utilities Commission and at the Federal Energy Regulatory Commission. They have asked the Colorado PUC to determine a fair and just exit fee.

Tri-State’s response to the complaints is an offer to provide a partial-requirements contract, one that allows greater ability of local co-ops to generate their own resources. At the press conference, Highley said he is confident that the committee tasked with the details will deliver an acceptable product by April. But patience is publicly wearing thin at United Power. “We’ve spent 18 months trying to change this contract, and all that we have gotten from Tri-State is delays, evasions and excuses,” Parker said in press release issued last week.

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