Tri-State G&T rejects $500 million offer to replace coal-fired power plants with renewables

Energize Weekly, June 5, 2019

The Tri-State Generation and Transmission Association has rejected a multi-million dollar offer by Guzman Energy to buy three of Tri-State’s coal-fired plants, close them down and supply the association with electricity from a generation mix heavily tilted toward renewables.

Guzman, a Miami-based energy contractor and consultant, contends that the deal—valued around $500 million—would allow Tri-State to unload costly assets and replace them with cheaper energy.

“It speaks to how far out of the money these assets are,” Chris Riley, Guzman’s president, said in an interview. “The assets are so expensive that to provide lower-cost energy is not hard to do.”

Westminster, Colo.-based Tri-State, which supplies wholesale electricity to 43 rural electric cooperatives in Wyoming, Nebraska, Colorado and New Mexico, spurned the offer.

“Guzman Energy brought us an imaginative and creative high-level verbal proposal, which lacked any specific or meaningful detail or terms,” Duane Highley, Tri-State’s CEO, said in a statement. “Tri-State requested a written proposal but Guzman refused to provide one, instead deciding to go the press.”

Highley said it was not in the best interests of Tri-State or its members to enter into an “exclusive agreement” with a single company before other options are explored.

After Tri-State issued it statement, Guzman responded saying that it was not asked to provide more detailed information or demanded exclusivity. “Guzman recognizes that a proposal of this scale will require a competitive process and we welcome it,” the company said in a statement.

Guzman and Tri-State are not strangers. Guzman helped the Kit Carson Electric Cooperative in Taos, N.M., which was seeking more renewable energy, leave Tri-State, and it is working with the Delta-Montrose Electric Association (DMEA), in Montrose, Colo., which also wants to end its long-term contract with Tri-State.

Several of Tri-State’s members, all of whom have long-term contracts, have criticized the association for its dependence on fossil fuel generation and limiting local renewable energy projects to 5 percent of the local electricity load.

John Parker, CEO of Brighton, Colo.-based United Power, Tri-State’s largest co-op, called the Guzman proposal “an interesting idea, and it deserves a good hard look.” United is at its 5 percent cap for local renewable generation and is also trying to develop battery storage.

Tri-State is facing pressure for change. As well as some restive members, it faces a new Colorado climate law aiming to reduce carbon dioxide emissions 50 percent by 2030 and 90 percent by 2050. New Mexico also passed similar legislation this year.

In addition, a new law, signed by Gov. Jared Polis May 30, directs the Colorado Public Utilities Commission (PUC) to draw up rules requiring state approval of Tri-State’s resource plans. Tri-State has maintained that as an interstate wholesale power provide, it was not subject to Colorado oversight.

“With new energy legislation in both Colorado and New Mexico, state rulemakings still to come and a dynamic energy market, there is much work to be done within our association to evaluate options and set a path forward,” Highley said.

Riley said that the Guzman offer would help Tri-State address these new laws and requirements. Time, however, is a key factor since the federal tax credits for wind and solar, which help the economics of these projects, are ratcheting down.

Under Guzman’s proposal, it would purchase Unit 2 and Unit 3 at the Craig Station, in Craig Colo., and the Escalante power plant in New Mexico—equal to about 800 megawatts of generating capacity. Craig Unit 1 is already scheduled to close in 2025.

It would also purchase the coal mine in Craig, a city of 9,500 in northwest Colorado, that services the Craig Station, and close and remediate the site, unless another buyer for the coal can be found.

The three units, which include all of Tri-State’s coal-fired generation in Colorado, would be shuttered.

Guzman plans to replace the coal-fired assets with 1,200 megawatts of renewable generation, storage and natural gas and sell the electricity to Tri-State under long-term contracts. The company said the mix would be 70 percent renewable energy.

The power plant and coal mine are Craig’s two largest employers and taxpayers. Guzman said that part of the package would be “substantial financial assistance to communities negatively impacted by the early retirement of coal plants.”

Guzman helped the Kit Carson co-op get out of its Tri-State contract by providing the $37 million exit fee. Guzman became the town’s electricity supplier with the advance folded into rates. Kit Carson says it will be on 100 percent renewable power by 2022.

When DMEA tried to do the same with Guzman as its partner, Tri-State insisted on a fee so high that the co-op called it “discriminatory” and filed a case with the PUC for review. The case is scheduled to be heard in August.

“Tri-State has to transition to a 21st century utility it has to look to markets,” Jasen Bronec, DMEA’s CEO, said. “I applaud Guzman for bring forward viable solutions … Tri-State should be looking at those options.”

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