KCEC and Guzman


For years now, we have heard a consistent narrative: First, Tri-State is a big, greedy, and dirty power company only concerned with profits. Next, the LPEA could, and should, exit from their long term contract with Tri-State in order to purchase cleaner, cheaper electricity. And finally, Kit Carson Electric Cooperative (KCEC) and their deal with Guzman Energy, provides a blueprint to how the LPEA can achieve these goals.

So what do we actually know?

If we listen to Luis Reyes, CEO of KCEC, he would have us believe their agreement with Guzman brought more renewable energy to their members, at a low fixed rate. Sounds great right? Well, the truth may be a bit more complicated than what Mr. Reyes has let on.

Guzman (founded by  hedge-fund investment bankers and employing former Enron executives) is an energy broker, they own no physical assets. Instead they purchase power on the open market, which inevitably makes their rates subject to market instability. And although they promised KCEC a fixed rate, members have had to endure multiple rate increases in the last two years. What’s more, KCEC members are charged a fuel surcharge, which fluctuates with the market- making their rates anything but fixed.

HERE is a copy of a portion of the rate structure agreement for members of Kit Carson. As you can clearly see, KCEC has the ability to pass on any fluctuations of the wholesale purchased power to their members. (It is also notable that when this version of the agreement was created in 2016- just after their break from Tri-State-members had already endured one rate increase, the year prior they were still buying from Tri-State at 7 cents)

HERE is a cropped view of two consecutive bills from a KCEC member.  Notice the “fuel adjustment” fluctuation. In just the first couple of months of dealing with Guzman, KCEC members were forced to deal with that spike. Over the last two years, this added charge has increased an additional 220%. This deception is how Reyes and his partners at Guzman can say their rates are “fixed”

So why are KCEC members being forced to pay a higher blended rate, via these added charges?

The answer is simple, despite the fact Guzman promised savings, Kit Carson has paid over $10 million more for their wholesale power than if they would have stayed with Tri-State. According to filings KCEC made with the New Mexico PRC (seen HERE) their cost of wholesale power increased substantially, despite remaining flat in the number of customers.

But what exactly does this mean for KCEC customers?

HERE is view of the increase in the average rate KCEC members paid for their electricity. This graphic also shows the increase of the average customer’s bill in that time. It is important to remember their yearly PRC filings for 2018 have not been posted on the PRC website, but the increase of purchased power and the corresponding spike in customer’s bills was even more in 2018 than the previous years.

Forecasts based on public information provided by Guzman Energy to FERC through Electric Quarterly Reports (EQR) show KCEC will end up paying over $16 million more for their energy from 2016-2026 compared to what they would have paid as members of Tri-State.  Guzman ensured KCEC would save $50-$70 million  over this time period as a result of leaving Tri-State, but their regulatory filings with FERC and the PRC tell a very different story.

Also, when you compare KCEC to the LPEA, they are more of a mom and pop cooperative, and we are one of the largest in Colorado. Their buyout from Tri-State was $37 million, ours will likely be $400-$600 million. The interest alone on such an expenditure could force the LPEA into default, just like KCEC is now.

That’s right, Kit Carson is now in default with their financial lending institutions due to their buyout from their Tri-State contract.

But wait, isn’t Guzman saving them money by purchasing renewable energy? Well, yes and no.

Guzman expects their energy resource mix to “at times consist of up to 60% renewables” this ambiguous terminology is purposefully just vague enough to allow people to think the power coming from Guzman is in fact comprised of a majority of renewables. but lets break it down and see…

So if KCEC uses about 67mw at peak usage and their off-peak usage is the typical 25%, that makes their off-peak power usage around 17mw. Since off-peak is during the day, this is when the majority of their renewables are generating power. If we follow what Guzman says and use their own language of “at times up to 60%” this would mean around 10mw of renewable energy is being consumed by KCEC members at off-peak times. Once you include the full 24 hour total usages into the equation, the percentage of renewables shrinks even more.

KCEC’s own 2019 Media Kit indicates that their solar generation was 7.8% (7.62% daytime) of their power supply in 2018. Based on KCEC’s monthly regulatory filings to the PRC in 2018, their reported renewable percentage is between 3-5% depending on the purchased power reports and data used in the calculations. The methodology they are using or why they claim one percentage on their website, another percentage in public testimony, and yet another in their regulatory filings with the PRC, remains unclear.

What is clear is that KCEC’s energy supply is less than 5% renewable whereas Tri-State’s members have a comparable percentage of over 33%.

Although Guzman is seeking to buy more wind and solar power, they have also agreed to buy energy from the Commanche coal-fired generating station. Guzman says this is to help Holy Cross Energy (servicing Vail, Aspen, and Glenwood Springs) increase their renewable mix. In reality, Guzman needs more reliable baseload generation for their own mix.

Amazingly, we have Directors on the current LPEA Board who are in fact lobbying Tri-State on behalf of Guzman, so that Guzman can purchase coal-fired assets from Tri-State. By any reasonable definition, this is entirely improper. The question then arises as to why these Directors would pursue this action, but that is another rabbit-hole to follow on a different day…

So what about Tri-State?

Tri-State G&T is a member owned cooperative, just like the LPEA. With Tri-State we have a voice, and we can help steer the 42 other members in the right direction. With 43 member cooperatives, there comes tremndous buying power and ability to build and own large scale renewable projects to create downward pressure on rates. With Guzman you are simply their customer under contract, and at the slightest bit of market instability they will raise your rates.

Mark Pearson of the San Juan Citizen’s Alliance,  in one breath admits that Tri-State is a member owned cooperative (just like the LPEA) but in the next he tries to paint them as reckless and uncaring as Springfield Power- complete with Monty Burns drumming his fingers together, saying “Excellent” as he counts his riches.

The truth is, Tri-State does carry a portion of coal and natural gas assets in their portfolio, because they are still some of the most affordable and reliable forms of energy available. However, Tri-State provides more kilowatts of solar to its members than any other cooperative in the nation.

Further, with the announcement of a new 100mw solar array at Spanish Peaks, Tri-State will more than double the solar portion of their renewable mix. Also, Tri-State recently announced a new 104mw Crossing Trails wind farm. These two projects will make Tri-State the number Cooperative G&T producer of renewables in the country.

So while Guzman is buying more coal, Tri-State is building more solar.

This year, Tri-State’s energy mix will include 33% renewables from solar, wind, and hydro. Each year this percentage increases, and with the planned decommission of several coal-fired power plants, it seems Tri-State is working in the right direction.

Along with all of that, Tri-State recently voted to amend their by-laws in order to permit different classes of cooperative membership. This would most likely allow for more local generation of renewables and render a buyout from our Tri-State contract unnecessary.

That’s all fine and good, but what about the cost?

When you hear quotes for insanely low renewable energy, it is important to compare apples to apples. Recently, Xcel received bids for new wind (1.8₵/kWh) and solar energy (2₵/kWh) that undercut Tri-State pricing (7.4₵/kWh). But, this was dynamic pricing for new, extremely large, utility scale projects- 700mw or greater. LPEA’s peak is around 150mw in the winter. Scale does matter.

Also, the 7.4₵ from Tri-State is a blended cost. When you calculate transmission, ancillary services, and the wheeling expenses associated with using the lines Tri-State owns in this area, the costs of these hypothetical renewables is closer to 6₵- in a perfect world where the sun always shines and the wind always blows. And as we’ve seen above, just because a company says they can sell you more renewable energy at a decreased cost, doesn’t always mean that is true.

Bottom line, the technology is still not caught up to make renewables a viable full-time replacement for dependable, affordable power. So in the near future we will most likely continue to hear more of: “All we need to do is just…” But in the energy industry, nothing is as simple as it sounds.