Proposal includes replacing half of Tri-State’s coal production with more wind, solar
Guzman Energy, a regional wholesale energy provider, has a proposal that could remake a big swath of the energy landscape in Colorado by cutting back on coal production and increasing the use of wind and solar power.
Denver-based Guzman Energy has made an offer to Tri-State Generation and Transmission Association to buy and idle its generating capacity at two coal plants in Colorado and one in New Mexico and in turn sell the Westminster-based utility power from mostly renewable energy sources. Guzman would buy Tri-State’s shares in plants in Craig and northwest New Mexico, which account for nearly half of Tri-State’s coal-production capacity.
While not giving specific numbers, Guzman Energy President Chris Riley called the proposal “a large transaction,” in the vicinity of half a billion dollars.
“They’re getting a bunch of cash without having to take on more debt. They’re getting uneconomical, expensive assets off their books without having to take a write-down,” Riley said. “We would sell (power) back to them at a cost that is materially lower than the cost to produce the assets that are being replaced.”
The proposal would also provide a path for Tri-State to boost its use of renewable energy and meet statewide carbon-reduction targets mandated by legislation that Gov. Jared Polis is expected to soon sign.
In addition, Riley said, the plan addresses concerns about rates and reliance on coal that have been voiced by some of Tri-State’s members, rural electric cooperatives in Colorado and three other states.
Riley said Guzman Energy presented its proposal last month to Tri-State leaders, who said they didn’t plan to pursue it now but might reconsider after rules are written to implement carbon-emission mandates.
“Guzman Energy brought us an imaginative and creative high-level verbal proposal, which lacked any specific or meaningful detail or terms. Tri-State requested a written proposal, but Guzman refused to provide one, instead deciding to go the press,” Tri-State CEO Duane Highley said in a statement Monday.
Highley said it appeared that Guzman wanted to enter into exclusive negotiations and start getting confidential information from Tri-State before offering a specific proposal.
“It is not in the best interests of Tri-State, its members or its other stakeholders to enter into an exclusive arrangement with a single company like Guzman Energy before other options are also explored,” Highley added.
It makes sense for Tri-State to look at other options, but the Guzman proposal deserves scrutiny, said Troy Whitmore, spokesman for United Power in Brighton, the largest cooperative in Tri-State’s territory.
“We find it intriguing and think it’s something that would be worthwhile for Tri-State to consider,” Whitmore said.
A driver for Guzman is that the clock is ticking on federal tax credits for wind and solar facilities.
“One of our concerns is if too much time passes, the deal just might not work anymore. This is already a pretty ambitious proposal,” Riley said.
Tri-State generates and provides wholesale power to 43 member electric cooperatives over 200,000 square miles and four states — Wyoming, Colorado, New Mexico and Nebraska. It is a not-for-profit power company governed by an elected board, a structure that Guzman’s proposal wouldn’t change, Riley said.
Recently passed legislation will require Tri-State for the first time to submit its resource plans to the Colorado Public Utilities Commission for approval.
Nearly a third of Tri-State’s electricity comes from renewable energy sources, company officials have said. At the end of 2018, 47 percent came from coal and 4 percent from natural gas.
Earlier this year, Tri-State announced it will double the power it gets from solar energy with the 100-megawatt Spanish Peaks Solar Project north of Trinidad. It also plans to install a 100-megawatt wind farm in eastern Colorado, which will boost its total power from wind in Colorado to 471 megawatts.
Tri-State has said it’s also reducing its coal-generating capacity. The utility retired its capacity in a New Mexico coal plant and will retire its share in a plant in Nucla at the end of 2022 and by the end of 2025 in one of the Craig plants Guzman has proposed buying.
However, complaints that Tri-State’s rates are too high and that it’s not moving quickly enough toward wind and solar drove the Kit Carson Electric Cooperative in New Mexico to break its contract with the utility in 2016. The Delta-Montrose Electric Association has asked the Colorado Public Utilities Commission to intervene in its effort to end its contract with Tri-State.
Guzman Energy financed the $37 million buyout of Kit Carson’s contract and is working with the Delta-Montrose cooperative on its efforts to leave Tri-State.
In Durango, the La Plata Electric Association is exploring whether the cooperative could buy power for less from other sources. La Plata and others have objected to a 5 percent cap on the amount of power each association can produce on its own. A new bylaw removes the cap, but the details haven’t been worked out.
“We continue to see our rates go up. We see a need to have competitive energy prices for the sustainability of western Colorado,” said Jasen Bronec, CEO of the Delta-Montrose cooperative.
A 2018 report by the Rocky Mountain Institute said Tri-State could save more than $600 million through 2030 by cutting back on coal and increasing the use of renewable energy. Mark Dyson, the report’s co-author and a principal at the policy and advocacy organization, said a proposal like Guzman’s would allow a utility to take advantage of the dropping solar and wind costs.
“It’s exciting if proposals like this are successful across the county because they address many of the issues holding back a low-cost energy transition,” Dyson said.
Tri-State should explore every opportunity to retire its coal fleet to meet its members demands for lower rates and more renewable energy to support local economic development and protect the environment, said Anna McDevitt, a regional representative of the Sierra Club’s Beyond Coal Campaign.
At least 70 percent of the power Guzman would sell to Tri-State would be from renewable sources, Riley said. Guzman, which also has an office in Coral Gables, Fla., currently doesn’t have its own production facilities. If Tri-State agreed to the proposal, Guzman would analyze what makes economic sense, but likely would contract with others who would build wind and solar projects, said Kathleen Staks, the company’s director of external affairs.
Guzman raised $130 million of capital last year and is on pace to exceed that this year, Riley said. The company has 50 employees in Denver and serves more than 1 million megawatt hours of load, he added.
Guzman’s proposal includes significant, direct investments in communities that would be affected by shutting the coal plants, Staks said.
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