The Southern Montana Electric Generation and Transmission Cooperative on Friday approved a wholesale rate increase for its co-op members.

The board approved a 4.5 percent increase, effective this month. The increase comes four months after a 4.5 percent increase in December.

"It's unfortunate but necessary," said John Prinkki, a Southern board member and president of the Beartooth Electric Cooperative based in Columbus.

Voting for the increase were board members representing Mid-Yellowstone Electric Cooperative in Hysham, Fergus Electric Cooperative in Lewistown, Tongue River Electric Cooperative in Ashland and Beartooth.

Southern member representatives from the Yellowstone Valley Electric Cooperative and from Electric City Power of Great Falls, which is that city's electric utility, voted against the increase.

Yellowstone Valley Electric and Great Falls are suing Southern to leave the Billings-based organization, which is a private corporation created by its members and funded by wholesale electricity sales to provide power to members. Southern is building the Highwood Generation Station, a natural-gas-fired power plant near Great Falls.

Tim Gregori, Southern's general manager, said the increase is necessary because of volatility in the short-term rates for power.

Spring runoff is happening a little sooner than usual, producing more hydropower in the Columbia Basin, there is more wind power in the market and the demand for power is flat, he said. All of which is driving down the short-term price of electricity, he said.

The wholesale price increase is needed for Southern to balance its revenues with expenses in a fluctuating market, Gregori said.

Southern had contemplated a 4.5 percent increase in 2011 and had hoped it would be in December, Gregori said, "but we had to accelerate it."

Gregori said that if member co-ops pass on the increase to their customers, it would amount to $2.50 for a typical customer using 1,000 kilowatt hours.

Arleen Boyd, a Beartooth board member who attended Southern's meeting, said Beartooth customers are just now seeing December's rate increase reflected in their bills because the co-op did not immediately pass it on. Retail rates typically reflect about half of the wholesale increase.

The discussion about a rate increase occurred during Southern's regular meeting and in a closed session of most board members that lasted about 50 minutes.

Prinkki initially requested a caucus for individual co-ops to discuss Gregori's recommendation. The Southern board then went into a closed session to further discuss the issue before returning to vote in a regular session.

Contact Clair Johnson at cjohnson@billingsgazette.com or 657-1282.

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