Financing for the first stage of the proposed Highwood Generation Station is drawing ever closer, says Southern Montana Electric’s CEO Tim Gregori.

Though the statement echoes earlier assessments, Gregori now says he expects to seal the deal in the “near future.”

“We’re doing everything we possibly can to keep the project advancing,” he said. “It’s one of those things, when it’s done, it’s done.”

Managers of several of Southern’s member cooperatives agree.

At Beartooth Electric in Red Lodge, Ron Roodell said it appears the financing is within reach.

Scott Sweeney, manager of Fergus Electric Cooperative in Lewistown, says the deal seems “as promising as it’s ever been.” He also believes the switch from coal to natural gas, which required the co-ops to write off more than $10 million, has quieted most of Highwood’s critics.

“With the coal plant, there was a lot of opposition,” he said. “But building a natural gas plant, that pretty much seems to have gone away.”

Whether or not public outcry has lessened, Yellowstone Valley Electric Cooperative and Public Service Commission Chair Greg Jergeson cite problems with decisions made by Southern and its spinoff, SME.

To better understand the relationship between the two entities, Gregori describes Southern as a tax-exempt, not-for-profit cooperative consisting of YVEC and four other electric cooperatives in south-central Montana, along with Electric City Power of Great Falls. SME, on the other hand, is a taxable, not-for-profit cooperative that includes only the four rural co-ops that continue to support the Highwood Project. SME does not count YVEC nor ECP as members. In fact, YVEC, which represents one-third of Southern’s load, has filed suit in an effort to divorce itself from the “cooperative of cooperatives.” The trial is scheduled for April.

Terry Holzer, manager at YVEC, said the line dividing Southern and SME is blurry at best.

Holzer claims the two entities are involved in financial transactions, the details of which have been kept from YVEC.

“The nondisclosure, the lack of transparency, that’s not how Montana co-ops should be governed,” he said. “In all my years dealing with G-and-Ts (generation and transmission cooperatives) in Montana, I’ve never seen one governed like this.”

Public or private?

Last month, Jergeson also targeted Southern for not divulging information that Southern claimed was confidential. He pointed out that the information is posted on the FERC (Federal Energy Regulatory Commission) Web site and should not be considered a trade secret. 

“Since any competitors in the industry would already have this information, and know what to do with it, the only persons left in the dark … are the members/customers of (Southern’s) member cooperatives and the taxpayers of Great Falls,” he wrote in a report.

Members thirsting for information from Southern or SME are not likely to hear much any time soon. The two entities have tentatively scheduled their annual meeting for March, and there’s little chance the public will be on the invitation list. Technically, Gregori pointed out, the members of the cooperatives that make up Southern and SME are not considered members of Southern and SME. That designation is reserved for the handful of board members representing the member cooperatives. Despite discussion about opening the meeting to members of the rural cooperatives, Gregori said he did not anticipate that would happen.

“That’s a decision made by the board,” he said. “If we do have an annual meeting, it will be greatly abbreviated — probably just discussion of the audit.”

Blending rates

Beyond disclosure issues, Holzer and Jergeson charge Southern with creating a situation whereby the member co-ops are subsidizing Great Falls’ utility arm, ECP. Last year, as rates escalated for the member co-ops, ECP saw its rate trend downward.

“The city gets financial breaks at the cost of the other co-ops,” Holzer said. “That’s wrong. I don’t think the members should subsidize the city to pay industrial members.”

Jergeson referred to the situation as “entirely untenable.” The ratepayers in rural central Montana effectively pay a share of ECP’s electricity bill, he wrote in his analysis of a report prepared for ECP.

Gregori flatly denies their charges, saying the relationship among the member co-ops is based upon the cooperative principle, whereby members pool their resources to the best advantage overall.

“There are no direct subsidies going to the city of Great Falls at the expense of the member” cooperatives, he said.

While ECP shares the benefit of the co-ops’ remaining cheap hydro power, the co-ops benefit from the expanded customer base that allows Southern to contract for power and transmission in bulk, he said.

It was the intent all along, Gregori added, for the entities to eventually pay the same blended rate.

History of hikes

Meanwhile, Southern’s member cooperatives hope to see fewer rate increases this year than last. During 2009, Southern implemented four rate increases — for a cumulative impact of roughly 20 percent — followed by another 3 percent this January. (Between February 2009 and now, the average bill for a Northwestern Energy customer has dropped by 3 percent.)

A portion of Southern’s wholesale rate increases were passed along in the form of higher retail rates for customers. And those customers could see higher bills this year, too.

 “Until we have a better understanding of February and March market prices, we never know whether or not there will be a need,” Gregori said. “But if there are, they will be relatively minor.”

Roodell at Beartooth pointed out that the surcharge implemented last year to cover costs associated with Highwood was discontinued in November.

“My hope is not to see it on there again,” he said of the bill.

Sweeney at Fergus Electric, where rates rose by 15 percent last year, said the cooperative has made some cuts — it has deferred equipment replacement and changed out fewer poles — in an effort to keep rates stable.

Customers, too, seem to be finding ways to shave their energy bills, he said.

“That’s a double-edged sword for us,” Sweeney said. “It’s good for the revenue for Fergus when they use more power, but it’s tough for them to come up with the money to pay their bills.”

Ted Church is manager at the Hysham-based Mid-Yellowstone Electric Cooperative, where retail rates rose by 19 percent in the past 13 months. With the co-ops’ hydro contracts expiring in 2011, he foresees higher rates on the horizon.

“Nobody’s come out and said it,” he said. “Nobody knows for sure.”

Rationale and risk

Faced with escalating rates, the member cooperatives of Southern — except for YVEC — continue to support the Highwood project. They have contracted with PPL Montana for power through 2019, but they see the natural gas plant as a way to cover the variability in their power needs.

“We may be, for a short time, selling power,” Gregori said. “But it is not a merchant facility, and it is not being built to sell power into the commercial market.”

But Jergeson sees holes in the rationale for a gas-fired plant. In his analysis, he cites the extreme volatility in the price of natural gas.

Among other issues, he also raises the risk posed by YVEC’s pending lawsuit.

Gregori denies that there’s any risk for Highwood because, he said, the business structure was framed in such a way that the outcome of the lawsuit would not impact SME’s plan for the facility. But Jergeson sees YVEC’s suit as a factor that should not be ignored.

If YVEC wins, he suggests that Southern would have neither the customers nor the load to assure the financial markets that it can execute its business plan.

 “On the other hand, if YVEC loses,” he wrote, “SMEC (Southern) will have on its hands a hostile and uncooperative business associate, again not terribly reassuring to the financial markets.”

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