Highwood plant closes in on loan contract

Revelation comes out during hearing over co-op dispute
2010-02-18T23:41:00Z Highwood plant closes in on loan contractJAN FALSTAD Of The Gazette Staff The Billings Gazette
February 18, 2010 11:41 pm  • 

Backers of the Highwood Generating Plant near Great Falls expect to land $85 million in financing next Thursday. If all goes well, the gas-fired power plant could be producing electricity by May or June of next year.

The disclosures came at a hearing Thursday afternoon before Yellowstone District Judge G. Todd Baugh, who denied a request by Yellowstone Valley Electric Cooperative of Huntley to postpone a vote today to approve a corporate restructuring required by the lenders.

Tim Gregori, CEO of Southern Montana Electric and Southern Montana Electrical Generation and Transmission Cooperative, the parent cooperative formed in 2004 by five smaller ones in southern Montana to build a power plant, applauded the ruling. SME was formed four years later, and the new entity had virtually the same name as Southern.

“I thought the ruling was fair. I thought it was appropriate,” Gregori said. “Engineering would start immediately. Construction would take a 16- to 18-month period.”

SME has been in charge of building the power plant. But the lenders want to lend money to Southern instead.

So today, selected co-op members and Electric City Power of Great Falls will meet privately in Billings at 10 a.m. at 3521 Gabel Road to approve the transfer of $14.4 million in assets from SME to Southern. SME will continue to exist in some form, but Southern would be responsible for financing and building the plant.

The complex corporate arrangement dates to a deep rift between Southern and Yellowstone Valley Electric.

In 2004, five electric cooperatives based in southern Montana, plus the city of Great Falls, joined to build a power plant to keep rates lower for their members because cheap hydropower contracts were ending.

The co-ops formed a parent group, Southern, and tried to build a coal-fired plant near Great Falls.

Due to delays and lawsuits, the costs eventually doubled to $950 million. Yellowstone Valley Electric then sued Southern to recoup its costs and to leave the parent cooperative. This dispute is scheduled to go to trial before Baugh in April.

But the other four co-ops still supporting the project — Beartooth Electric of Red Lodge, Fergus Electric of Lewistown, Mid-Yellowstone Electric of Hysham, Tongue River Electric Cooperative of Ashland, plus Electric City Power — formed a second parent cooperative called SME, from which Yellowstone Valley Electric now is excluded. Yellowstone Valley represents one-third of the members in this venture, so it’s the largest co-op.

Electric rates with the co-ops rose an average of 27 percent in 2009 plus 3 percent effective this January, said Yellowstone Valley Electric manager Terry Holzer.

Last January, SME switched from building a coal plant to a more economical and environmentally acceptable natural-gas-fired plant. The first phase of 40 megawatts would costs $85 million, Gregori said. If a second phase is built, the total cost of the plant was estimated at $210 million. The plant, if built, could produce 120 megawatts of power.

Prudential Financial is one of two lenders putting up the $85 million, according to statements from the hearing. The other lender has not been named publicly.

Today, selected members are expected to approve the transfer of $14.4 million of SME assets to Southern. About $7 million of that money would be used to pay off debt incurred so far to plan the gas plant. Another vote is expected to authorize the board to accept the $85 million loan package on Feb. 25 and first contemplated last June.

After losing the attempt to delay the vote, Holzer said the first he heard of any loan contract was in court. He’ll be asking to see the documents today to make sure his co-op is not responsible for any costs of building the plant.

“While we are disappointed in the judge’s decision, we thank him for taking this case on, given his busy schedule,” Holzer said. “We want to review the contract to make certain that Yellowstone Valley’s 14,000 members are protected.”

Baugh said repeatedly in court that he’s been so busy with a triple-murder trial that he didn’t have time to read any of the thick briefs, mostly sealed, in this complex case. Gregori’s team also tried to keep Thursday’s hearing closed to the public and media, but Baugh kept the hearing open.

John Crist of Billings, an attorney for Yellowstone Valley, argued that because four out of six members of the boards of SME and Southern are the same people, the vote must be postponed.

“The same entities that are the sellers are the buyers. That’s the definition of a conflict of interest,” Crist said.

The bad blood runs so deep that Crist said Yellowstone Valley Electric officers believe SME will stick the Huntley co-op with higher power rates at every opportunity and favor the four co-ops that support the plant.

“If they don’t need us to make their deal work, they should just let us go,” he said.

SME attorney Gary Zadick of Great Falls said that isn’t the case.

Southern has a contract to provide electricity to Yellowstone Valley Electric until 2030, and the costs of that contract have to be covered. In addition, Zadick said the bylaws clearly allow Yellowstone Valley Electric to get a refund if it is overcharged.

The judge also urged both sides to negotiate an exit strategy for Yellowstone Valley Electric.

Gregori said Southern board members will try to work out some way to let Yellowstone Valley Electric leave the generating and transmitting group under reasonable terms and conditions not harmful to either party.

When asked why this team effort by cooperatives to build a power plant has created such deep distrust, Gregori said, “I can’t tell you.”

Contact Jan Falstad at jfalstad@billingsgazette.com or 657-1306.

 

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