BIG PIVOTS: Electric Cooperatives and the Big Bad Wolf

PHOTO: Resilience and a house of bricks were dominant themes at this year’s annual meeting of Tri-State Generation and Transmission on April 5.

Whether the proper metaphor is of a flock, herd, or litter, Duane Highley has his work cut out for him, in his position as chief executive of Tri-State Generation and Transmission.

Tri-State has 42 member electrical cooperatives and public power providers, and Highley must persuade them that Tri-State as their wholesale provider has the core competency that will prevent many more of them from hopping the fence, in search of greener pastures created by plunging prices of renewable resources.

Two members have already left since 2016; three more — including United Power, alone responsible for more than 20% of demand for Tri-State power — have declared their intentions to leave. Still others have opted for partial requirements contracts. Discussions are under way among yet other cooperatives whether to stay or go.

Highley, at the annual meeting of Tri-State on April 5, tried to persuade his remaining members that the grass isn’t necessarily greener. To make his point, he employed the childhood story about a litter of pigs and the big bad wolf.

“Today we have a big bad wolf that’s coming in the utility industry in the West,” he said during his 21-minute speech. “The big bad wolf is ‘resource adequacy’ — or maybe the lack of that. And it’s good that Tri-State has a plan, because a big bad wolf is coming in.”

Duane Highley, Tri-State chief executive, employed a childhood story to discourage the remaining cooperatives and public power districts from being enticed by potentially lower cost energy supplies. Photo/Allen Best

Highley then proceeded to cite warnings from the Electric Power Research Institute, North American Electric Reliability Corporation, and others.

“And this particular quote is from the Western Energy Coordinating Council,” he said. “What they said in their report that was issued in December 2022 is that if nothing is done to mitigate the long-term risks within the Western Interconnection by 2025, we anticipate severe risks to the reliability and security of the interconnection. They’re not the only ones saying this. It is just one representative quote.”

Tri-State, he declared, has the necessary and diverse resources to ensure reliability. The new suitors pitching to the electrical cooperative? Some own bits and piece of generation but not enough to insulate them from risk of high prices such as occurred in 2021. Others, none at all.

He teased out the example of Winter Storm Uri. Xcel Energy was vulnerable to skyrocketing prices of natural gas at a cost to consumers of $500 million, he pointed out.

As for Tri-State, it has nearly 6,000 miles of transmission that involve six different balancing areas with eight dispatchable power plants independent of the weather, six wind and three solar projects, with six more utility-scale solar projects coming on line by 2025.

(It also has whole or partial ownership in five coal-burning units, several of which are to be closed.)

“We also sit in a very enviable position, bridging the Eastern and the Western Connection with a DC (direct current) tie that could be expanded to help us arbitrage those market opportunities between the East and the West grids. “We have a plan,” he declared.

Highley’s carefully crafted warning seems unlikely to dissuade directors of United Power. At the annual meeting of United seven days later, chief executive Mark Gabriel offered not a hint of suggestion that staying with Tri-State is an option.

Elizabeth Martin, the chair of United’s board of directors, said the decision to exit Tri-State was unanimous with the exception of the board member who represents United on the Tri-State board and hence excuses himself from discussions.

“We have genuinely sought other solutions for at least the last 10 years—without any success. We feel we have no other recourse and are acting on behalf of our members,” she said in an e-mail to Big Pivots.

Both Brighton-based United and Northwest Rural Public Power District of Hay Springs, Nebraska, submitted unconditional notices of intent to withdraw from Tri-State on April 29, 2022. That puts United out the door on May 1, 2024.

First, however, the Federal Energy Regulatory Commission must rule about what constitutes a fair and just fee that the cooperatives must pay in order to leave remaining members whole. The FERC decision is expected this summer. An administrative law judge recommendation heavily favors the approach advocated by United.

Granby-Colorado-based Mountain Parks Electric submitted its notice of withdrawal on January 23, 2023. That begins a two-year ticking of the clock before its exit. In their annual report, new chief executive Virginia Harman — formerly of Delta-Montrose Electric — mentions that Mountain Parks expects to see price increases from Tri-State.

Several other cooperatives — Durango-based La Plata Electric, Ridgway-based San Miguel Energy and Windsor-based Poudre Valley Electric — want to have partial requirements fulfilled by Tri-State, allowing them to obtain lower-priced power from other sources. A FERC administrative law judge is scheduled to hear that case in October and then issue a recommendation to the FERC commissioners, according to Jay Sturhahn of Tri-State.

Highley wants them to be wary of turbulence ahead. The theme of the two-day gathering was “resiliency.” And, of course, Tri-State is resilient.

A 40-year veteran of the electric industry, Highley sketched a history of ebbs and flows for electric utilities since the 1970s, a time of shortages and a binge of new coal plants that lasted into the early 1980s. After a time of relative stability came a push for new natural gas plants. From 2010 to 2022, he said, fuel costs were low, low-cost renewables came on, inflation held steady, and supply chains were stable.

“Some would say, ‘Why should I pay any more for power? What’s the benefit of being part of a G&T when there are these low market prices?'”

Volatility has returned, and for evidence he pointed to rate increases: New Mexico Public Service has announced a 9.7% rate increase. “Which they’ve tried to convince their members, their customers, is really a 0.9% rate increase, but it’s really a 9.7% base rate increase.”

In Wyoming, he said, Rocky Mountain Power has announced a 21.6% increase.

Colorado’s Xcel Energy has announced three rate increases. “They say it this way: 24.9%, so they don’t have to say 25, right?”

And the four Colorado cooperatives “that have contracts to purchase power from Xcel have announced their intent to cancel those contracts at the earliest possible date.” (Holy Cross Energy, one of those four, says it has no intention of doing so.)

Tri-State, he said, has not had a rate increase since 2017. “In fact, because of the financial strength that Tri-State has built, we’ve not only weathered these storms, we’ve been able to deliver two consecutive rate decreases. And I would ask you, are you aware of any other utility that has announced rate decreases in the last decade? Has your cell phone provider decreased rates? Has your DISH Network reduced rates? Has your Sirius XM radio reduced rates?”

Tri-State weathered Storm Uri in 2021, he said, because it has dual-fuel gas units that can burn oil when natural gas prices are extremely high.

“We weathered Storm Elliot in December 2022. Similar situation; no rate impact to members. And most recently we weathered this banking crisis when some people could not issue debt and Tri-State was able to continue to successfully issue short-term debt throughout that banking crisis.

“We may all look alike when the sun is shining, but it’s when times are tough that you’ll see the differentiation between a full service, fully hedged power supplier and maybe somebody who has less of a hedge and less of a system. Another way to say it is this, when the tide goes out you can tell who was swimming naked, and that’s the difference.”

Tri-State’s strength, he argued, lies in the diversity of its members: large and small, urban and rural.

“By all of us combining together and bringing all those differences to the table, we end up with a system that’s stronger collectively than any of us could do on our own. And that covers risk better than any of us could on our own.”

Plus, Tri-State has “incredibly valuable contracts” with Basin Electric and with the Western Area Power Administration and, as of April 1, was in the Southwest Power Pool’s day-ahead market. (So are Guzman Energy and Xcel Energy, among others).

“And looking forward to 2026, we hope to have a full-blown RTO operating in the West that will bring day-ahead markets for even greater efficiency and greater savings altogether. What you own at Tri-State is $5 billion in assets but most importantly, what you own is a very talented and diverse workforce.”

Tri-State has a plan, said Highley – and also dispatchable resources. “We have to have that dispatchable resource on top of all the renewables we’re adding. We’re going from a majority fossil portfolio to a majority renewables, with a dispatchable base load.”

And Tri-State will expand its transmission in eastern Colorado to allow more electricity to move from north to south, the better to balance loads in New Mexico and Wyoming and integrate the renewables. He said Tri-state is “aggressively” seeking opportunities in the $9.6 billion in federal funding available through the Inflation Reduction Act for electrical cooperatives, with requests pending for $100 million.

Then it was onto the pigs, beginning with the house of straw. “In my mind, the first little pig represents the coop that might say, or our public power district that might say, let’s just play the market. Let’s just go out and see what energy we can get short term.”

The wolf, of course, blew the house of straw down. “Because if you’re in a house of straw, just on the short-term market prices, what happens when we have that market price spike and instead of $60 or $70 power, even $40 power, at times we find ourselves with $900 a megawatt-hour. That’s $9 a kilowatt-hour. You can lose a lot of money fast.”

The house-of-sticks pig? This one has the short-term market power supplemented with actual physical resources “to some limited extent,” he said, in what may have been a reference to United.

“We’ve heard a co-op recently announce that they intend to go into a market but they intend to have a gas plant, a solar project, a wind farm, and a battery. So that’s diversified. But that still leaves that cooperative vulnerable, on the day when the one gas plant trips. They’re right back in the market just like anybody else. And I can promise you that this trip will happen on one of the worst, coldest days of the year when the power prices are the highest.”

The third pig? The one with the house of bricks? Well, that’s Tri-State, of course… with its “17 different generating resources.”

“A coop working together, we have built this house of bricks together that can weather the storm. Can’t say nothing will ever happen, but I can say a lot of bad things have already happened. And look at how well we’ve fared, we’re hedging risks together.”