by Tracy Chamberlin
The two cut ties last year. On July 1, 2016, Kit Carson Electric Coop, based in Taos, bought out its contract with the region’s energy giant, Tri-State Generation and Transmission. It’s the same company that supplies power to La Plata Electric Coop as well as much of the Southwest.
It’s not that the two were fighting – Kit Carson just wanted a different future.
Kit Carson CEO Luis Reyes, along with the coop’s membership and governing board, wanted to move toward renewable energies. They wanted to use more solar power. But, their contract with Tri-State includes a 5 percent cap on renewable energy sources – which is the same for La Plata Electric Association – and, they felt they couldn’t make the most of solar.
“It seemed to be very, very punitive for coops who saw value in renewables,” Reyes explained. “We just wanted independence.”
So, Kit Carson decided to split from Tri-State and buy out the remainder of their contract for $37 million.
In an effort to learn more about the challenges and benefits of Kit Carson’s move and how it can be applied to other rural coops, the San Juan Citizen Alliance’s Green Business Roundtable is bringing in Reyes for its final event of the season next Wed., April 12.
“I want to share how Kit Carson got from Point A to Point B,” Reyes said. “If a community really wants to do this, they can.”
The monthly Green Business Roundtable, which run from September to April, aren’t money-makers for the local nonprofit, but a way to convene community members to learn about evolving trends, explained the SJCA’s outgoing executive director, Dan Olson.
In this case, the trend is trading in power.
The new power brokers
Much like the brokers on Wall Street, who famously buy and sell shares of Fortune 500 companies, energy brokers are buying and selling electricity. They’re called RTOs, or regional transmission organizations.
RTOs became a part of the energy landscape at the end of the 1990s, making them a product for the new millennium.
Mike Dreyspring, CEO for LPEA, said they’re like clearing houses, settling transactions between buyers and sellers. Those transactions are between those who have excess energy and those who want to use it.
For about a decade and a half, communities up and down the East Coast have turned to this new kind of power broker in an effort to get the lowest rates. What’s new is that the practice is heading West.
Kit Carson partnered with Guzman Energy, a Florida-based energy broker, after parting ways with Tri-State. Guzman helps the coop find the best prices for its needs.
Reyes described Guzman as a boutique investment banker, not another corporate behemoth. Pointing out the difference between Tri-State and Guzman, he said Tri-State would typically visit Taos once a year – maybe. Guzman, on the other hand, visits once a month.
He said it’s a different structure, even a different culture. “They’re the perfect size for a coop,” he added.
As an energy broker, Guzman is looking to help Kit Carson today, as it builds up its renewable energy infrastructure, and in the future, when it will need to buy energy on the open market for nighttime use.
Kit Carson has been working with solar power since 2009. It knows how to make it work and, according to Reyes, the Taos coop plans to be 100 percent solar during daytime hours by 2022.
“We could have never gotten that opportunity if we stayed with Tri-State,” he added.
Of course, being the first out of the gate has its challenges.
Reyes said first, the coop needed to learn more about how the business and entire energy grid worked. The board has to be more engaged with the wholesale energy market, distribution and its membership. But, he thinks, it’s actually made it a better company.
“I’d rather be in the front and trip and fall, than be the person in the back of the line criticizing the guy who fell – and being afraid to take a step,” Reyes said.
Reyes does credit Tri-State and other energy providers like them for filling the void of serving rural communities for the past several decades. But the rural electric coop model is changing.
“Over time, coops have become so risk adverse,” he said. “We’re letting all these opportunities pass us by.”
Two of a kind
Kit Carson and LPEA have several things in common, according to Reyes. They both cover the same type of community – ones with urban centers surrounded by rural areas. They both service tribal lands, mining industries and tourist populations.
And, they are both perceived as green-minded. They have memberships who want renewables, which, Reyes said, includes those members who are willing to pay a little more to have it and those who simply can’t afford it.
One of the differences between the two, though, is that Kit Carson’s membership is very active. “I don’t know how active the membership in La Plata is,” Reyes said.
He explained engagement, from both the membership and the board, is key to making this new model work. Especially in the face of the evolving energy market.
Kit Carson has a 10-year contract with Guzman, which means it will be looking for a new power supplier around 2024. Reyes said there’s no way of knowing if power will even be delivered the same way by then.
The energy industry used to be something that had a 20- or 30-year outlook, according to Dreyspring, but today, the rapidly evolving energy landscape means future planning is just three to five years out.
With that in mind, Dreyspring said he plans to talk about LPEA’s power supply and what a buyout would mean during upcoming board meetings on April 17 and 19. The meeting at 9 a.m. Wed., April 19, at LPEA’s headquarters in Bodo Park is open to the public and members are welcome to attend.
Dreyspring said he plans to recommend that LPEA not buy out its contract with Tri-State – the cost of which would need to be negotiated with the energy provider.
The current energy market for LPEA is volatile, and Dreyspring feels the risk outweighs the reward. “There’s some huge financial risk,” he added.
Dreyspring said for some coops, the bulk power markets are the place to go, but it doesn’t always work. Each coop is different and, in the end, his goal is to reduce costs for LPEA’s members.
“Buying out Tri-State is a nuclear option,” Ron Meier, manager of engineering and member relations at LPEA, explained. “It’s a little premature.”
So, Dreyspring and LPEA plan to pursue an expansion of their 5 percent cap on renewables with Tri-State.
That doesn’t mean there isn’t plenty to learn from Reyes’ and Kit Carson’s journey.
Several LPEA board members and employees are attending the roundtable; and the coop plans to meet separately with Reyes during his visit to Durango.
Delta-Montrose Electric Association is also on the guest list for the event. Last year, DMEA had its own bout with Tri-State when it came to the coop’s desire to use renewables. But, a ruling from the Federal Energy Regulatory Commission on the issue has since opened the door for DMEA to purchase additional energy from renewable resources like solar and hydropower.
Olson said with questions about Tri-State’s ability to limit renewables and an evolving energy market, power customers don’t have to rely on coal-fired power plants. They don’t have to accept the environmental and health-related consequences.
“The old utility model is starting to show its cracks,” Olson said.
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