Big Pivots: How might Tri-State use $970 million?
Assuming the upcoming elections of 2024 don’t upend the federal climate and infrastructure legislation in 2021 and 2022, billions of dollars may flow into Colorado and surrounding states to accelerate the energy transition.
Looking narrowly at Tri-State Generation and Transmission, what might that mean?
I can only speculate, but one line of thought is that Tri-State could use at least part of the $970 million in federal grants and low-cost loans for which it has applied to accelerate the closing of the 400-megawatt coal-burning unit it owns at Springerville, Arizona.
Tri-State lobbied hard for provision of federal funding in the Inflation Reduction Act through a program called New ERA (for Empowering Rural America). That program was allotted $9.7 billion for renewable energy and energy efficiency projects.
Much was made of this at Tri-State’s annual meeting in April, and justifiably so. This federal funding was designed to allow Tri-State and other G&Ts as well as individual cooperative members to get money to conduct their own very big pivots.
Jeff Wadsworth, chief executive of Fort Collins-based Poudre Valley Electric, one of the larger members of Tri-State, calls the federal funding the biggest news in the cooperative world since the Rural Electrification Act of 1936.
“This is the single biggest investment for electric cooperatives since the New Deal, since FDR (President Franklin Roosevelt) stood on the banks of the Columbia River to announce the electrification of rural America.”
As best I can tell, without the federal aid, Tri-State is painted into a tight corner by debt on stranded assets. With federal aid, it has more room to maneuver.
Tri-State, in a statement posted Sept. 14, announced it had submitted a letter of interest for the federal funds that, if awarded, “would achieve significant greenhouse gas reductions, clean energy additions and stranded asset relief, while preserving affordable wholesale rates and maintaining reliable and resilient power” for its members.
In that announcement, Tri-State did not reveal details of how exactly it would use the money. It did say that its modeling indicates “that a New ERA award would support a geographically diverse resource portfolio that preserves reliability and enhances resiliency, meeting industry-accepted and heightened extreme weather reliable metrics.”
This money could fund local clean energy development by Tri-State and its members. But it can also be used to refinance existing debt of the G&T.
According to its December 2022 10-K filing with the Security and Exchange Commission, Tri-State has $2.9 billion in long-term debt. Most of this debt, it can be assumed, is because of investments in its fleet of coal-burning power plants in Arizona, Colorado and Wyoming.
That same document revealed that Tri-State still owed $248.76 million on its loans for the coal-burning unit in Arizona, with interest rates on that debt of 7.14% through 2033. See page 22 of the SEC filing.
From 2020 through 2022, according to that SEC filing, Tri-State paid $59.9 million in interest.
As one source for this story said, it’s a no-brainer that Tri-State, if it receives low-interest loans, will refinance that debt.
Might Tri-State go ahead and close that unit? That’s far less clear than refinancing the debt.
One reason to think it could be a consideration is that Tri-State’s contracts for coal supplies (from Wyoming’s Powder River Basin mines) to Springerville expire in 2024.
Another reason is that the replacement power could be built in the service territory of its members in New Mexico, Colorado, Wyoming and Nebraska. The coal plant is not in an area served by its members.
Also relevant is the much, much cheaper cost of renewable generation. But one estimate, the cost of the coal-generated power is a third more than it would cost to build solar-plus-battery storage.
Also potentially material to the decision are contracts by Tri-State to sell 100 megawatts of power from its Springerville plant to Salt River Project, the Arizona utility, and another $100 megawatts to PNM, the New Mexico utility. That leaves it with 200 megawatts.
A February 2022 story in the Los Angeles Times reported that Tucson Electric Power had said it would crease operating its two coal units at Springerville by 2032 but phase down their use substantially before then. Salt River Project, which supplies the Phoenix area, had at that time no plans to shut down its unit.
Conceivably, the funding could also be used to soften the landing for Tri-State as it closes the three coal plants it operates at Craig from 2025 to 2030. It owns one outright but has partners in the other two units at Craig. It has not set a date for retirement of Springerville, the Arizona plant, although in a 2020 filing with Colorado regulators it noted the plant has a life to 2066. (Comanche 3, the Pueblo coal plant, had a projected life to 2070; it is now scheduled to close by 2031).
Tri-State also has a unit at Laramie River, near Wheatland, Wyo. A 2019 analysis by Rocky Mountain Institute found that alone of Tri-State’s coal plants, that unit was economical for Tri-State to operate owing to its close proximity to the Powder River mines. Tri-State’s debt on these other coal plants is more difficult to discern.
The takeaway of this story is that the federal money will — if not interrupted by a new congress and president determined to upend the Biden administration’s climate and energy transition program – rapidly reshuffle the energy landscape in Colorado and beyond.
“Tri-State deserves a huge amount of credit for its leadership on chasing down Inflation Reduction Act funding,” said Eric Frankowski, director of the nonprofit Western Clean Energy Campaign.
“Between the package of clean energy projects it submitted applications for under the New ERA program and things like direct-pay tax credits, along with the projects we know its member cooperatives have requested funding for, that could easily inject more than a billion dollars into rural Colorado communities over the 5-10 years. That’s not chump change. It would be transformational, and Tri-State was a big part of making it possible.”
Incidentally, Tri-State rounded up a letter of support from Colorado Gov. Jared Polis for the federal funds. He said that Colorado is “pleased that Tri-State’s proposal will not only continue to align with state and federal policies, but will also deliver significant emission reductions and prudent investment in new renewable resources while maintaining and prioritizing reliability and affordability for Tri-State members.
Another letter — this one from 64 elected officials in Colorado, including state legislators, county commissioners and town council and town board members, sought to encourage “all of Colorado’s Tri-State member co-ops to take full advantage of this once-in-a-lifetime opportunity to transition our rural communities to a clean, affordable energy future.”
Allen Best is a Colorado-based journalist who publishes an e-magazine called Big Pivots. For more, go to BigPivots.com.
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