Power Marketer to Tri-State: We’ll Buy and Close Your Coal Plants

A wholesale power provider in Colorado wants to supply the state's largest electric cooperative with power from mostly renewable sources, saying it will pay Tri-State Generation and Transmission Association to retire its coal-fired plants in Colorado and New Mexico. Tri-State, at least for now, said it will not consider the offer.

Denver-based Guzman Energy on May 28 announced it wants to buy three coal units primarily owned by Tri-State, close those units, and replace 800 MW of generation with solar and wind resources along with gas-fired generation. Guzman, which calls itself an energy marketing, trading, and investment company, has said the cheaper cost of renewables would provide Tri-State's member cooperatives with savings under the plan. Guzman said its plan would cost about $500 million.

"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 in a news release. "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 said retirement of the coal assets could help Tri-State comply with new rules in Colorado and New Mexico concerning energy development and emissions. Tri-State in a statement Tuesday said the proposal appears to call for exclusive negotiations between the parties prior to development of those rules, and before Tri-State has the opportunity to explore other options for generation. About half of Tri-State's generation comes from coal.

Colorado lawmakers have passed legislation requiring utilities operating in the state to reduce carbon emissions 80% by 2030 compared to 2005 levels, with several other rules in the works to reduce pollutant emissions from the energy industry. Gov. Jared Polis could sign those bills as soon as this week.

New Mexico lawmakers have set a renewable energy standard for utilities and electric cooperatives of 50% by 2030, with a goal of 80% by 2040, and zero-carbon requirements by 2050.

'Not in the Best Interests of Tri-State Members'

Tri-State CEO Duane Highley, who took over as chief executive in February, in the company's statement Tuesday said, "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 [to] the press."

Tri-State in a statement said, "Signing [an] exclusive agreement with a for-profit entity prior to development of state rules is not in the best interests of Tri-State members."

Leopoldo Guzman, chairman of Guzman Energy, said, "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. 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."

Savings from Renewables

A Rocky Mountain Institute report last year said Tri-State's 1 million customers could save more than $600 million in energy costs through 2030 if Tri-State replaced some of its coal-fired generation with renewables.

Tri-State supplies power to 43 rural electric cooperatives. Some of those co-ops have publicly stated they want less expensive and cleaner electricity. Legislation in Colorado would increase state oversight of Tri-State's integrated resource plan.

Guzman offered to buy two units at the 1,303-MW Craig Generating Station-which won a POWER Top Plant award in 2018-in Moffat County, Colorado, and a third coal unit at the Escalante plant near Prewitt, New Mexico. Guzman said it would provide Tri-State with a "substantial direct cash infusion" to finance the early retirement of about half the utility's coal generation not already scheduled for closure.

Guzman Energy also said its proposal would provide "substantial financial support to communities and workers negatively affected by the transition." The company said Tri-State members would see cost savings "even before the portfolio transition was complete."

Tri-State in recent years has contracted to buy power from solar, wind, and hydro sources. It plans to close the 427-MW Unit 1 at Craig by year-end 2025, and has said it will retire the 100-MW Nucla Station in Nucla, in southwest Colorado, in 2022. The company closed the nearby New Horizon Mine, which supplied coal for the Nucla plant, in 2017.

"We may well want to discuss these issues with Guzman Energy and others, but at this point, it is not in our best interests to be locked into a single option," Tri-State said.

Tri-State earlier this year in a news release said, "Nearly a third of the energy consumed by Tri-State's members comes from emissions-free renewable energy." The utility said it has 85 MW of solar power in place, and has added more than 475 MW of utility-scale solar, wind, and renewable projects to its generation profile since 2008.

Proposal May Go Directly to Co-ops

Guzman Energy provides wholesale power to Kit Carson Electric Cooperative in New Mexico, a former Tri-State member. Delta-Montrose Electric Association (DMEA) is trying to end its relationship with Tri-State and buy power from Guzman. The Colorado Public Utilities Commission has said it will consider DMEA's request for a determination on a fair exit fee from Tri-State.

Guzman Energy said it will take its proposal directly to Tri-State's member co-ops and communities. It said Tri-State has agreed to look at the proposal, but will not consider it until new energy rules are implemented in Colorado and New Mexico.

Highley in a statement said Tri-State has signed a nondisclosure agreement with Guzman should the parties begin discussion of the proposal. He said, "We would evaluate any proposal on its merits. We welcome Guzman to provide us with a more detailed written explanation of their proposal."

Highley also said, "Rather than entering into an exclusive agreement with a for-profit energy trader like Guzman Energy that drives financial returns for their hedge fund investors, we can likely accomplish our goals at a lower cost to our members by working within our not-for-profit cooperative business model."

The Guzman Energy proposal to close the two remaining coal units at Craig would impact the nearby Colowyo mine and Trapper mines, which supply coal to the Craig plant. Tri-State owns Colowyo and is a part-owner of Trapper.

Guzman Energy said the $500 million figure is the company's estimate of the costs of the early retirement of the coal assets, according to their book value, along with associated site remediation costs. It said the cost could differ based on financial help to affected communities or "other negotiating parts of the deal," including a proposal by Guzman to compensate Tri-State for increasing the cap on its members in terms of the local, at time renewable energy members generate. At present, Tri-State's members can generate up to 5% of their own power, with the rest coming from Tri-State. Members, including DMEA, have argued the cap should be increased.

Guzman Energy at present does not own power generation assets. In this proposal, the company said it likely would ask for requests for proposals from developers who would build and own generation assets. Guzman would then enter power purchase agreements with those developers.

Eric Frankowski, executive director of the Western Clean Energy Campaign, in an email to POWER said the Guzman proposal "is already being welcomed as a breath of fresh air in rural electric cooperative territories throughout Tri-State's service area because of the potential benefits it suggests."

Mark Pearson, executive director of the San Juan Citizens Alliance and a member-owner of La Plata Electric Association, a Tri-State member, said, "We are encouraged by the invitation for Tri-State to take leadership in the inevitable transition to clean energy and to partner with its member co-ops. Rural areas deserve the opportunity to take advantage of all the benefits of affordable, reliable clean energy, and proposals like Guzman's that put more options on the table for developing wind and solar projects in our backyards is the kind of thing we need to see more of."

-Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine).

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