Electricity co-op's exit from coal is a sign of the times
After losing some of its member co-ops, Colorado-based Tri-State Generation and Transmission Association is accelerating retirement of coal-fired power plants and replacing them with renewable energy sources.
“We’re not just changing direction, we’re emerging as the leader of the energy transition,” said Duane Highley, Tri-State’s chief executive officer. “Membership in Tri-State will provide the best option for cooperatives seeking a clean, flexible and competitively-priced power supply, while still receiving the benefits of being a part of a financially strong, not-for-profit, full-service cooperative.”
The move comes amid a rapid decline in coal-fired power nationally and a Kansas utility’s decision to abandon the only new U.S. coal plant on the drawing boards. Sunflower Electric Power Corp., based in Hays, Kansas, announced last week that it would let its air permit for a proposed $2.2 billion plant in Holcomb expire in March. Tri-State was the plant’s largest partner with $93.7 million invested. No new coal plant has opened in the United States since 2015.
“With the retirements of all coal facilities we operate, a commitment to not pursue coal in the future, and a significant increase in renewables, Tri-State is making a long-term and meaningful commitment to permanently reduce our greenhouse gas emissions,” said Highley.
The U.S. Energy Information Administration reckons the share of renewables in the utility-scale U.S. power generation mix will rise to 22% in 2021, up from 17% in 2019, as coal continues to fall.
All of Tri-State’s coal-fired power plants and mines in New Mexico and Colorado will close by 2030, the association announced.
Escalante Power Plant in Prewitt, New Mexico, is expected to close by the end of 2020. Craig Station Units 2 and 3, and the Colowyo Mine in Northwest Colorado are marked for closure by 2030.
The closures will mean the loss of about 600 jobs, and Tri-State has announced programs to ease the economic impact in a region that has long relied on coal.
Tri-State previously retired its coal ownership capacity in Unit 3 of San Juan Generation Station in northwest New Mexico in 2017. Public Service Co. of New Mexico plans to close the plant in 2022 and is involved in hearings to identify replacement power. The nearby Navajo Generating Station in Page, Arizona, one of the nation’s largest coal-fired plants, closed last year.
Tri-State previously retired its coal capacity at Nucla Station in Western Colorado in 2019.
Tri-State is a not-for-profit power supply cooperative of 46 members, including 43 electric distribution cooperatives and public power districts in four states serving more than a million consumers.
Its $3.1 billion debt structure includes $46 million of Series 2009 tax-exempt pollution control revenue bonds issued through Moffat County, Colorado, and remarketed in 2017, according to the Municipal Securities Rulemaking Board's EMMA disclosure website and Tri-State's most recent 10-k filing with the Securities and Exchange Commission.
Some 13,703 megawatts of coal-fired power went offline in 2019, the highest level of annual coal capacity retirements in the U.S. since 2015, an S&P Global Market Intelligence analysis of federal data shows. The amount of coal capacity planned for retirement in 2020 is expected to exceed the amount retired in each of 2014, 2016 and 2017, according to S&P.
Coal could make up as little as 11% of U.S. power generation by 2030 based on scheduled and likely coal retirements alone, according to Moody’s Investors Service. Morgan Stanley projected under a base-case scenario that coal-fired electricity will decline from 27% of the total U.S. power mix in 2018 to just 8% by 2030.
In November, S&P downgraded Tri-State to A-minus from A and retained a negative outlook after two member co-ops sought to exit the association through the Colorado Public Utility Commission.
“Over more than a decade, three general managers have struggled to placate members,” S&P analyst David Bodek wrote.
“The negative outlook reflects our view that the cooperative's debt reamortization, modest rate increases, and rate restructuring are not achieving customer harmony, thereby exposing the utility to constraints on ratemaking and strategic planning,” Bodek added. “We believe the imminent departure of one member and applications by two other members to the Colorado commission to establish an exit fee, expose the utility to the potential loss of 25% of its members' energy sales, which could erode the revenue stream.”
Fitch Ratings dropped its outlook on Tri-State's A rating to negative from stable in October.
Fitch cited the withdrawal of Delta-Montrose Electric Association and the Kit Carson Electric Association in Taos, New Mexico, as factors. Kit Carson paid $37 million in 2016 to break its contract with Tri-State.
Colorado electric cooperatives United Power and La Plata Electric Association have asked the Colorado PUC to allow them to change their procurement contracts with Tri-State so that they can buy from other suppliers.
Tri-State challenged the PUC’s jurisdiction in the matter, saying that it should be left to the Federal Energy Regulatory Commission.
“Tri-State remains committed to complying with all state requirements for resource planning, carbon reduction and meeting renewable energy standards," Highley said. "We believe the issue at hand, however, is a matter of federal jurisdiction and is not within the purview of the Colorado Public Utilities Commission.”
Moody’s rated Tri-State A3 with a stable outlook in July, noting its heavy reliance on coal.
“Tri-State is reasonably well situated at its current rating level while undertaking new strategies, so a downgrade is unlikely in the next 12-18 months,” Moody’s analyst Kevin Rose wrote.
On Jan. 15, Tri-State announced six renewable energy projects in Colorado and New Mexico, which along with two projects previously announced and yet to be built will add a gigawatt of emission-free power by 2024.
Four solar projects will be built on the west side of Tri-State’s system, including near Escalante Station and Colowyo Mine, which are scheduled to close by the end of 2020 and by 2030, respectively.
“By 2024, 50% of the energy consumed within our cooperative family will be renewable,” Highley said. “Accelerating our renewable procurements as technology improved and prices dropped results in the lowest possible renewable energy cost today for our members, and likely of any regional utility.”