Guzman Announces Large Scale Proposal to Tri-State Designed to Facilitate Renewable Transition and Lower Member Rates
Guzman Energy today announced that it has made a large-scale, transformative, economic proposal to Tri-State Generation & Transmission Association. The proposal consists of a substantial cash infusion into Tri-State designed to finance the accelerated retirement of nearly 50% of Tri-State’s coal capacity not already slated for early closure, putting it in quick compliance with recent legislation while maintaining reliability and simultaneously lowering costs to members. Guzman would replace the retired coal generation with a new portfolio that is in excess of 70% renewable. If implemented, this proposal would lower Tri-State’s costs immediately, enabling Tri-State to provide significant savings to members without sacrificing reliability or Tri-State’s system control.
Additionally, the Guzman proposal provides substantial financial assistance to communities negatively impacted by the early retirement of coal plants, to be driven by engagement directly with those communities and other local partners. The proposal also contains flexibility for Tri-State to increase the renewable energy self-generation cap, allowing members to make more energy investments into their own communities.
Advancing the proposal further will require collaboration between Guzman Energy and Tri-State over the coming months, working in parallel with upcoming rulemakings associated with recently passed legislation in Colorado. Guzman presented the proposal to senior Tri-State staff, who agreed to evaluate the structure but postponed consideration until after implementation of the New Mexico laws and the completion of the Colorado rulemakings, sometime late next year at the soonest.
With this announcement, Guzman kicks off an effort to engage directly with Tri-State members and communities to identify and explore opportunities to further the goals of this proposal.
“Rapidly changing economics, combined with new carbon reduction goals in states that include the majority of Tri-State’s members, mean there’s a lot at stake for those who own and are served by Tri-State.” said Guzman Energy President Chris Riley. “We’ve put a proposal on the table that would help Tri-State and its members lower costs right now while simultaneously reaching compliance with new laws. We look forward to taking the proposal directly to Tri-State’s owners and facilitating an open and transparent dialogue.”
“Guzman believes strongly in the bottom-up ownership model of the cooperative system and that it is best served by openness and transparency. Tri-State was created by its owner-members to provide for the needs of the rural communities they serve, not the other way around. There’s a lot at stake for those who are ultimately on the hook for paying the bills,” said Guzman Energy Chairman Leopoldo Guzman. “No matter what ultimately happens, the cooperative system will be better off having had an open dialogue about a matter that will affect their members and communities for decades to come.”
About Guzman Energy
Guzman Energy is a wholesale power provider that supplies and trades power across North America. Guzman Energy created a new type of energy model, one designed specifically to help transition an outdated energy economy into the renewable age. We enable customers — principally rural electric cooperatives and municipal power companies — to achieve lower rates and price-stability from renewable, sustainable energy. Headquartered in Denver, Colo., Guzman Energy has unique expertise in serving customers in the bilateral power markets of the Western United States. To learn more, visit www.GuzmanEnergy.com.
Fact Sheet and Background
New Mexico legislation:
- New Mexico passed comprehensive energy legislation that sets statewide renewable energy standards and creates mechanisms that enable a low-carbon energy transition away from coal while providing workforce training and transition assistance to impacted communities.
- The Energy Transition Act set a renewable energy standard for both investor owned utilities and rural electric cooperatives of 50% by 2030, with a goal of 80% by 2040. It also sets zero-carbon resources standards for investor owned utilities by 2045 and rural electric cooperatives by 2050. New Mexico will likely begin regulatory and other rule-making procedures this summer.
- Colorado also passed wide-reaching energy legislation this year that establishes emission reduction goals, expands regulatory authority over generation and transmission utilities, and creates requirements and benefits to help communities and workers that will be negatively impacted by the transition away from coal.
- The Climate Action Plan to Reduce Pollution set statewide goals to reduce greenhouse gas emissions from 2005 levels by 26% by 2025, 50% by 2030, and 90% by 2050 and directs the Air Quality Control Commission to adopt rules and policies to implement those goals.
- The Sunset Public Utilities Commission (PUC) bill, among other things, requires distribution planning for investor owned utilities, directs the PUC to establish and review a base cost for carbon dioxide emissions in energy resource plans, directs the PUC to adopt rules requiring generation and transmission utilities (including Tri-State) to submit resource plans to the PUC, and directs the PUC to open a docket to evaluate the costs and benefits of requiring utilities to join a regional transmission organization or energy imbalance market. The bill also requires “qualifying retail utilities” (utilities that serve over 500,000 customers in Colorado, excluding municipalities) to file a Clean Energy Plan to reduce carbon dioxide emissions by 80% of 2005 levels by 2030 and provide electricity from 100% clean energy resources by 2050. Other utilities may opt into this requirement.
- The legislature also created the Just Transition Office that provides benefits and training for workers and their families as well as grants for impacted communities and reporting requirements for utilities.
- Several Tri-State member cooperatives have already successfully exited Tri-State or are in various phases of pursuing or exploring an exit.
- Kit Carson Electric Cooperative (KCEC) exited in 2016, choosing Guzman as its new wholesale provider. The contract is for ten years and has no cap on self-generation. An independent report by Institute for Energy Economics and Financial Analysis (IEEFA) explains how KCEC’s new contract will generate between $50M to $70M in savings for the cooperative.
- Delta Montrose Electric Association (DMEA) filed a proceeding with the Colorado Public Utilities Commission in December 2018, asking the PUC to determine a fair and reasonable exit charge. Expert testimony has already been filed from both sides and the case will be heard in June 2019.
- La Plata Electric Association (LPEA) hired an outside consultant to do an analysis of options and potential savings for LPEA members if it were to exit Tri-State and buy wholesale power from a third party. The report demonstrated significant savings and LPEA has released a Request for Indicative Pricing for wholesale power.
- According to its 2018 10K SEC filing, Tri-State Generation & Transmission owns 1,884 MWs of coal capacity. In addition, it contracts for approximately 14% of its generation portfolio from Basin Electric, whose generation mix is approximately 60% coal.
- Of Tri-State’s 42 member cooperatives, thirteen in Colorado and New Mexico have either met or are close to meeting the 5% self-generation cap. This includes 7 of the 15 largest members and combined, provide electricity to over half of the co-op members served by the entire membership. Since Tri-State includes storage in the self-generation calculation, members cannot expand the benefits of wind and solar projects and would instead be further limited in the amount of new renewable energy generation they can develop if they have or plan to integrate storage
- Solar Investment Tax Credits (ITC) are in year one of a three-year roll-off period. The ITC drops from 30% currently to 10% in 2024.
- Wind Production Tax Credits (PTC) begin a four-year roll-off period at the end of 2020. Each year of delay results in an increase in costs from today’s prices of 20%-25%, which translates to about $1.5M to $1.8M per year for a 100MW wind project.
- Guzman engaged extensively with energy, finance, and environmental experts over the course of nearly a year in the development of this proposal.
- Guzman will provide a substantial direct cash infusion to Tri-State in order to finance the early retirement of nearly 50% of Tri-State’s coal generation not already slated for early closure without negatively impairing Tri-State’s balance sheet and while simultaneously lowering costs to members.
- The proposal is designed to replace coal generation with a highly renewable portfolio at a materially lower cost through a long-term fixed price agreement.
- The proposal would also provide substantial financial support to communities and workers negatively affected by the transition. Guzman would work with Tri-State, state and local leaders, NGOs, foundations, and elected officials to maximize the benefits of the investment and address community needs.
- The proposal would allow for Tri-State members to begin seeing savings immediately, even before the portfolio transition was complete.
- There is an option to allow for a funded increase in the self-generation renewable energy cap, allowing cooperatives the flexibility to make additional investments in their own community.
- Tri-State could set a path towards compliance with carbon legislation recently passed in New Mexico and Colorado and provide input to the implementation and rulemaking processes based on actual progress and experience without raising costs on members.
- Tri-State would retain full control over their system in order to ensure continued system reliability.
- The proposal addresses concerns from Tri-State members and their customers about rate increases and limits on renewable energy development.
- This partnership would facilitate a first-of-its-kind energy transition in the West and create a model for cooperatives and utilities across the country.
- Tri-State leadership informed Guzman it did not intend to explore this proposal further at this time, but may reconsider once the legislative rulemaking process was complete, which could go well into 2020 or beyond.
- Guzman proposed that this offer be explored in parallel with the rulemaking process, because delay will materially increase cost to members due to ITC/PTC expiration, as well as forestall potential immediate member savings and self-generation flexibility.
Holly Shrewsbury, Fitzgerald Petersen for Guzman Energy