Twilight of an energy era as supplier of rural co-ops turns back on coal plant
by Allen Best
This story is adapted from the Dec. 28, 2017, issue of Mountain Town News. Subscriptions are $45 per year.
In March 2017, a decade after it first applied, wholesale electrical supplier Tri-State Generation & Transmission and its Kansas-based utility partner received approval to build a major new coal-fired power plant at Holcomb, Kan. It will almost certainly never get built.
The energy world turned upside down in the 10 years between first application and final approval. Electrical demand, rising steadily at the turn of the century, flattened. Prices of other forms of generation, including natural gas and renewables, tumbled. Had the two plants originally proposed been built, they might have displaced older, less-efficient coal-fired power plants. But such plants are built to last 40 years or more.
If not immediately, the Holcomb plant would have quickly become a stranded asset. Think of the value of a computer purchased in 2007.
Tri-State still has not formally pulled the plug. A 10Q report to the Securities and Exchange Commission in September noted that the air permit granted by Kansas in March expires if construction does not begin in 18 months. “We have assessed the probability of us entering into construction … as remote,” said the filing.
The SEC filing reported $93.5 million had been invested in the Holcomb project through 2016, not including land and water. Those costs, said the filing, are “impaired and not recoverable.”
Ratepayers, most of them in rural areas of four states, will be apportioned the cost. Terms have not yet been defined.
The ambition to build a coal plant at Holcomb reflected the technology and mentality of an era that now seems past. An August 2017 analysis of the future of coal by the consulting firm MJ Bradley & Associates reported that at least 420 coal-burning units, mostly smaller and older, had been retired since 2010 in the United States. But the fall-off in coal production was far sharper than that. Analyzing Energy Information Administration data, the firm estimated that 80 percent of the decline in coal generation was the result of utilities choosing not to use their coal units.
If the era of big coal is ending, the future energy paradigms are not entirely clear for members of Tri-State and other co-operatives across rural America. Aside from amenity-laden places with ski areas nearby, rural American has generally not shared the
prosperity of urban America. That dissatisfaction was evident in the last presidential election. With some exceptions, the ski towns like Crested Butte or broad swathes of northern New Mexico, it was Trump country.
As a candidate, Donald Trump promised to bring back coal and turn back the environmental regulations of the Obama administration. Repealing regulations is one thing, turning back technology quite another. It’s a wonder he didn’t promise to restore flip-phones or, better yet, rotary phones.
That comparison is not an idle one. We are at the early stages of a transformation in how we produce and consume energy no less sweeping than those in telecommunications and computers during the last 30 years.
Only recently have we replaced the incandescent light bulb invented by Thomas Edison with new varieties that are cheaper and far more energy efficient. The business models for delivering electricity have changed very little in the last century.
This point was made recently by a member of an electrical co-operative in Western Colorado in response to doubts about the technological ability to integrate renewables.
“I find it hard to think of another industry that has had such a lack of innovation and change for the past 100 years,” said John Gavan, an elected director of Delta-Montrose Electric Association, a co-op serving west-center Colorado. “This sector is extremely ripe for innovation, and there is a huge amount of low-hanging fruit to go after.”
The question, said Gavan, is whether Tri-State will recognize this shift and react accordingly. If not, “they, too, will be left behind.”
That’s the question for rural America, too. Even if no plant is built at Holcomb, will the leaders of rural America realize the opportunities for innovation and how those changes can benefit their constituents? Or will they continue to plow money into technologies and business models that have had their day, as Tri-State did for a decade at Holcomb?
Coal, it kept the lights on
Tri-State Generation & Transmission is the result of New Deal legislation passed in 1935. Investor-owned utilities had shunned rural areas because of the high cost of transmission and distribution. George Norris, a senator from Nebraska, shepherded the legislation that delivered low-cost federal loans to electrical co-operatives that were created to generate and distribute power in rural areas.
That legislation still defines the nation’s electrical landscape: 864 electrical cooperatives together provide electricity to 70 percent of the land mass in America, delivering about 11 percent of the nation’s power.
By the 1950s, rural co-ops were unable to keep up with growing demand from their small towns, farms and ranches. Tri-State was formed by co-ops to transmit electricity from the giant new dams being constructed on major rivers of the West. It also built giant new coal-fired power plants of its own. In time, it became a vertically integrated wholesale provider, owning a coal mine and rail cars. It was in the coal business, not just the business of delivering power.
By 2006, when the plants at Holcomb were first proposed, Tri-State had grown to include 44 member co-operatives in New Mexico, Colorado, Wyoming, and Nebraska. Demand was growing at 6 percent a year. Even then, there were calls for energy efficiency as a way of reining in demand growth. Tri-State resisted, suggesting that this was better left to member co-operatives. The local distribution co-ops tended not to have the expertise for their own programs. What Tri-State did understand, though, was what had worked in the past: two 700-megawatt coal-fired power plants.
That squared with the narrative of the Bush administration. In 2001, a Dick Cheney-led energy task force called for a wave of new power plants lest the nation suffer the rolling blackouts that California had experienced in 2000. Utilities responded with proposals for 200 new coal plants.
For its new plants, Tri-State chose Holcomb, located along the Arkansas River in southwest Kansas, about 30 minutes from the Colorado border. It has a railroad, able to deliver coal from Wyoming’s Powder River Basin or, perhaps, from Tri-State’s own coal mines near Craig, Colo. It has water, and it had an existing power plant operated by Sunflower Electric, a smaller electrical wholesaler serving co-ops in Kansas. Estimated costs were $3.7 billion.
To ensure markets for the new power, Tri-State asked for 10-year extensions of the 40-year contracts. Only 2 of the 44 co-ops refused.
In western Colorado, directors of Delta-Montrose Electric remembered the fallout of another period of enthusiastic coal-plant building 1979 to 1982. An oil-shale boom that the plants anticipated failed to materialize and the utility that built them, Colorado-Ute, went into bankruptcy in 1991. When that happened, Tri-State picked up Delta-Montrose and other co-ops supplied by the bankrupt utility but also ownership stake in those coal plants at Craig, in northwest Colorado.
In Northern New Mexico, Taos-based Kit Carson Electric Cooperative also refused the extension. Almost a decade later, in 2016, it finally got a divorce from Tri-State. Another electrical provider, Guzman Energy, paid the $37 million severance fee and pledged to assemble a portfolio heavy in local renewables.
In Kansas, there was opposition, too. Why did Tri-State want to build its plant in Kansas? After all, Kansas is on a different grid than Colorado and other Rocky Mountain states. The two grids can be bridged, and they are in several places. But there’s additional cost. Given that additional cost, some environmentalists suspected that Tri-State chose Holcomb and Sunflower as its partner with the expectation that the regulatory bar would not be as high in Kansas.
They were wrong.
In October 2007, Roderick Bremby, secretary of the Kansas Department of Health and Environment, issued a denial that drew national attention. The grounds were believed to be unique at the time: carbon dioxide emissions.
“It would be irresponsible to ignore emerging information about the contribution of carbon dioxide and other greenhouse gases to climate change and the potential harm to our environment and health if we do nothing,” Bremby wrote in his decision. Carbon dioxide was not then regulated under the federal Clean Air Act.
Bremby’s ruling drew fierce response. “Without new coal-fueled plants in our state, experts predict that electric bills will skyrocket and Kansans will be more dependent than ever on hostile, foreign energy sources,” said an ad funded in part by Peabody Coal, a major operator of mines in Colorado, Wyoming and elsewhere.
Earl Watkins Jr. then the head of Sunflower Electric Power, insisted that two plants, not just one, had to be built, as just one plant was insufficient to meet the needs of Sunflower’s 400,000 customers.
This claim was made in response to an offer by Gov. Kathleen Sebelius, a Democrat, to allow one plant if the utility committed to developing wind farms and energy conservation programs.
It was a bruising battle in Kansas, one barely noticed in Colorado. Opponents of the plant remember threats. The split in Kansas was defined primarily by geography. Sebelius enjoyed her strongest support in eastern Kansas, where cities and university towns are located. Sunflower serves western Kansas, a place of wheat fields and oil derricks.
Three times, lawmakers in Kansas sent legislation to Sebelius that would have removed her administrator’s authority over the air-quality permit. Just as many times she vetoed the legislation. Once, legislators came within a single vote of overturning her veto.
In her third veto, Sebelius pointed out that Sunflower didn’t actually need as much power as it claimed.
“Kansas would be creating massive new emissions for power we don’t need,” she wrote. She also noted the recent election of President Barack Obama and his plans to regulate carbon dioxide.
“What was a bad idea last year is an even worse idea today,” she said. She instead urged legislators to look into new business models for producing power by Kansas wind and other renewables as well as improving energy efficiency.
One advocate who fought the Holcomb proposal says it was almost like the fight was never actually about energy. Instead, Tri-State’s vertical integration predisposed its solution. “It was like burning coal to make money, not burning coal to make electricity.”
Finally, in May 2009, Sunflower agreed to a compromise with Gov. Mark Parkinson, the successor to Sebelius. Instead of two plants generating 1,400 megawatts, Sunflower was left with a single, 895-megawatt plant with improved coal-burning technology. These changes pared greenhouse gas emissions from 11 million tons of carbon dioxide a year in the original proposal to 3.6 million tons. The compromise also included a provision for net-metering, allowing producers of wind and solar power to send energy over Sunflower’s lines.
A penny saved …
Even then, the energy world had shifted dramatically. Natural gas prices had also tumbled. In Colorado, lawmakers passed legislation outlining a shift from coal to natural gas by the state’s largest electrical provider, Xcel Energy. Underlying the legislation was strong confidence in the abundance of natural gas at low prices.
Prices of renewables had also started dropping. Utilities were learning to integrate intermittent sources into electrical supplies with greater ease than expected.
But demand growth had also stalled when the Great Recession arrived. When economic activity picked up, demand for electricity stayed flat.
This disconnect between economic growth and increased energy use has profound but diffuse consequences.
At a forum in Colorado during September, former Obama aide Brian Deese recalled informing the president that economic growth had returned without a concurrent increase in energy demand. For decades, economists had been confident that economic growth and energy demand came together, holding hands. When first told the news, Deese related, Obama refused to believe it. Deese rechecked his sources. Indeed, it was a new day in energy, and it still is.
This day had been foreseen decades earlier by Amory Lovins. Then a scholar at Cambridge who had been fond of loping along on hikes with David Brower of the Sierra Club, he wrote a profoundly influential essay in the October 1976 issue of Foreign Affairs called “Energy Strategy: The Road Not Taken.”
Lovins—who in 1982 built a passive-solar home at Old Snowmass, near Aspen—argued in that essay that the dominant energy paradigm was a costly mistake. He rejected the assumption embraced by both government and industry that economic growth correlated directly to increased consumption of energy.
In his essay, Lovins articulated the case for ramped-up energy efficiency, much greater pursuit of renewable energy, and of more local or distributed energy resources. In all this, he argued the case for profit as the driver.
In the 41 years since then, Lovins has never strayed from his core arguments. At long last, efficiency has begun to take hold. It’s just getting started, he said at a conference in October sponsored by the Center for the New Energy Economy.
All of this is pertinent to the role of Tri-State and its member co-ops going forward. They’ve been in the business of selling electrons. Lovins argued that it’s the wrong business model. You don’t care how much electricity it took to chill your beer, he said, only that your beer is cold. If utilities made their money on services, not bulk sales, they would operate very differently.
We’re still coming to grips with the distinction.
Renewables have continued to tumble. Lazard, which calls itself the world’s leading financial advisory and asset management firm, in early November issued a report about the levelized cost of energy. That is to say, energy costs without subsidies. The report was full of disclaimers. For example, direct comparisons must take into account issues such as location and dispatch characteristics.
Still, without subsidies, renewables stand on their own very well in this asterisk-ridden comparison sheet:
On-shore wind: $32 to $62
Gas combined cycle: $48 to $78
Coal: $60 to $143
Nuclear: $96 to $137.
Solar PV: $46 to $222.
In future years, solar prices are expected to continue to drop sharply.
Tri-State acknowledges a new order to its world, but only begrudgingly so. Telling was the response of Barbara Walz, Tri-State’s senior vice president for policy and compliance, during a panel discussion at the Western Power Summit, an energy conference in October. When Holcomb was proposed, she said, growth in electrical demand by Tri-State averaged 6 percent annually. Now, it has flattened.
In retrospect, did the Sebelius administration do ratepayers an economic favor by denying the Holcomb power plant on environmental grounds? I asked.
No, she said, Tri-State needs the ability to plan, she said.
That sort of dig-in-your-heels resistance plays well in places like Craig, Colo., where Tri-State still operates three coal plants. Early in his campaign, the reality television star Donald Trump spun out his easy message of bringing back coal by “getting rid of job-killing EPA regulations.”
Craig and Moffat County cast 81 percent of their votes for Trump, a proportion not all that different from the wheat- and corn-growing countries of other parts of co-op country in Colorado.
Tri-State’s distrust of change contrasts sharply with the strategy of investor-owned Xcel Energy, which operates across eight states, including Colorado, where it does business as Public Service Co. of Colorado. Early in the 21st century, it was also moving briskly forward with the old energy paradigm. In 2004, it reached agreement with environmental groups to push energy efficiency more actively while going forward with a major new coal-fired power plant at Pueblo, Colo. Holy Cross Energy, which serves Aspen and Vail, is a minority investor in that plant and its production. The plant began operations in 2010. It was the last coal plant in the United States to begin operations.
But in 2004, Xcel also suffered a defeat in Colorado. State voters approved the nation’s first state-wide renewable energy mandate. Xcel had opposed the mandate but then embraced rising levels of renewables with gusto. Many of the wind turbines erected to meet those mandates are located on land owned by members of Tri-State’s co-operatives.
In August, Xcel announced it was ready for more. Subject to approval by state regulators, Xcel will close down two aging coal-fired power plants at Pueblo and replace the lost generation with primarily wind and solar, but also natural gas. By 2025, this will push Xcel’s renewable portfolio to 55 percent.
In making the announcement, David Eves, chief executive of Public Service Co. of Colorado, said the fuel switching is expected to result in rates that will be no higher and could be lower than existing rates.
Several months later, at the Center for the New Energy Economy conference, Eves spoke to the rapid changes in the business of generating and delivering electricity. “It’s here, it’s happening faster and faster. We don’t know where it will go,” said Eves. “This is very different than even five years ago.”
Xcel has its critics. It’s like Tri-State in a fundamental way in that it wants to preserve its role as the energy provider. The difference is on the margins. It recognizes that a new day has arrived. It is experimenting with microgrids and increased use of demand-side management programs. In short, it is a ballroom dancer compared to the heel-heavy stance taken by most co-ops and their wholesale suppliers, including Tri-State.
Electrical co-ops have no oversight from state regulators and, if in the case of Tri-State, no oversight from federal regulators if federal loans have been paid. The sole oversight comes in cases that go before the Federal Energy Regulatory Policy.
Not all co-ops have been so devoted to coal and so resistant to change.
For the last decade, Holy Cross Energy has been carving a somewhat different path. Based in Glenwood Springs, the co-operative serves the Aspen and Vail areas but also the Grand Valley to Rifle and Battlement Mesa. It has its feet in both renewables and coal-fired generation at Pueblo.
Earlier this year, directors from the Vail, Aspen and Glenwood Springs areas plucked a new manager, Bryan Hannegan, from the National Renewable Energy Laboratory. Among his work there, he co-founded the Integration Laboratory, described as the place where all the technologies and business models are coming together.
At the annual conference of the Colorado Rural Electric Association on Oct. 30, Henegan—who has a doctorate—showed charts about cost and cumulative capacity for wind utility-scale and charts for LED adoption, expanding electric vehicle sales and declining battery costs and other manifestations of this evolving transformation in energy.
None of these models showed new coal-fired power plants.
Somewhat surprising, perhaps, Xcel, Tri-State and Holy Cross may start sharing electrical generation in the future. They have been operating their own electrical systems, in a somewhat Balkanized manner. This is true of most the West altogether. Elsewhere in the country power supplies are pooled into regional markets, to more efficiently match supplies of lowest-cost electricity with demands. Lately, power providers in the Rocky Mountains have been talking about joining the Southwest Power Pool, helping distribute electricity most efficiently and most economically. This is considered one way to move around low-cost renewable energy most efficiently.
Even in rural areas, change is coming.
Some foresee a reordering of the power around power. Instead of being passive consumers of power, farmers, ranchers and others can be producers, too. This is distributed generation but also it’s part of a broader concept called the democratization of energy.
This idea, not unique to rural areas, should perhaps also be overlaid with the concept of resilience. Both should play well to red-state, libertarian and conservative America.
This is a time of inflection, of change. It’s just not clear where this story about energy models will bend and what role it may play in our Grand Canyon-sized national political divisions.
Rhetoric and reality
Ultimately Holcomb should be seen as an early episode in what will be an extended last-gasp effort by fossil fuel interests to extend their future just a few decades longer. The presidency of Donald Trump is part of that.
Consider the Trump administration proposal in October to prop up failing coal and nuclear power producers with a $10.6 billion bailout through surcharges on the monthly energy bills of ratepayers. The presumed goal was to ensure security against power outages. But as analysts were quick to point out, only a tiny, minuscule percentage of shortages on the nation’s electric grid are due to fuel supply problems. Instead, power outages are almost entirely the result of distribution-level problems, like poles falling over.
Whether that plan goes forward is still to be determined. But note how contrary it is to the principle of competition and open markets that Trump and his supporters have heralded. However, it does coincide with Trump’s vow to bring back coal. The Associated Press reveals communication by coal-producer Robert Murray in which he made a desperate plea for just such help. Murray owns coal mines in Utah and elsewhere.
Rhetoric does not match reality. Republican leaders continue to recite messages taken from their talking-points of a decade ago. Perhaps some actually believe what they say. It seems more to be out of political expedience, a way of telling their followers want they want to hear, not what they need to hear.
The remarks last summer of U.S. Senator Cory Gardner come to mind. He still lives in the same town he grew up in, Yuma, located in Colorado’s northeastern corner, a region almost exclusively served by co-ops and also a region where counties gave up to 85 percent of their votes to Trump last year.
Gardner, at an oil-and-gas conference in downtown Denver, noted that he had supported wind energy in the past but then warned against over-reaching of renewables to the detriment of people on fixed incomes or of farmers irrigating corn and alfalfa fields.
“You don’t have to go so far as to cause economic collapse,” he said.
But is exactly the reverse the greater worry: That by failing to take advantage of new technologies and business models, will the poor and the giant irrigators be hurt?
In this, as in other things, have facts become useless, to be discarded if they don’t fit the narrative? Trump’s campaign illustrated how little facts actually mattered. Whether tax cuts for the wealthiest of Americans or health care, facts get run over by the bus of narrative. It’s a narrative that Trump rode to the White house by corralling the electoral votes of farm country allied with the rust-belt regions.
Gardner maintains a home in Yuma, the town of his origin. It’s along Highway 34, which crosses the Continental Divide in Rocky Mountain National Park 300 miles to the west. It’s also along the Republican River.
In McCook, Neb., two hours downstream along this same river and highway, is a memorial to the George Norris, the Senate sponsor of the legislation in 1935 that yielded the electrical co-ops. He was called the last of the progressive Republicans.
Rural America needs a George Norris or three today, politicians who can look forward, not pay mindless tribute to those things of the past that were never good or have outlived their usefulness. Greenhouse gas emissions pose a real economic and social risk. New technologies have come along to compete with those of old.
Co-ops were created to serve the interest of their members/customers. There’s a good question whether they still do. In an essay published circa 2008, U.S. Rep. Jim Cooper, a Democrat from Tennessee, made his skepticism large in his title: “Electrical Co-operatives: From New Deal to Bad Deal?”
Tri-State may have moved on from giant coal plants at Holcomb, but the larger question is whether it will help its member co-ops move briskly into the future of microgrids and other cutting-edge, decentralized technology.
As Gavan, the director at DMEA, the co-op long at odds with Tri-State said recently, Tri-State will have to change or cease to be relevant.