Two months after passing a rate hike, the Southern Montana Electric Transmission and Generation Cooperative on Friday approved another increase in wholesale rates to its members.
This time, the rate Southern charges its members for power will increase 4.2 percent starting with the June billing.
The latest rate increase is Southern's third since December, when it approved a 4.5 percent increase. In April, Southern passed a controversial 4.5 percent rate increase to cover losses from having to sell excess off-peak power into a depressed market.
Tim Gregori, Southern's general manager, said the increase was needed to cover an estimated $1.2 million to $1.9 million in revenue from June to December that will be lost when two Great Falls customers leave Electric City Power. ECP is Great Falls' utility arm, and the city is a Southern member.
The Great Falls school district and Benefis Health System recently decided to buy power from PPL when their contracts with ECP expire on June 30, Gregori said.
Southern, the Billings-based power supplier cooperative, and another company associated with Southern, Independent Electricity Supply Service, were unsuccessful in getting or keeping the school district or Benefis as customers, Gregori said.
Southern's members reluctantly approved the 4.2 percent increase. Members representing the Tongue River, Mid Yellowstone, Beartooth and Fergus co-operatives voted yes, while the Yellowstone Valley co-op representative voted no and the Great Falls representative abstained.
"I don't see that we have any choice," said John Prinkki, Beartooth's representative to Southern.
Dave Kelsey, Yellowstone's representative, questioned the increase, saying the contracts had not yet expired. Southern should recover the revenue first from ECP, which contracted with customers that have the ability to choose their power supplier, before going to all of its members.
"I'm having a hard time justifying these rate increases to our customers," Kelsey said. "Man, this is getting tough. I'm not being melodramatic. This is putting our members through a lot of pain."
Many of Yellowstone's customers are on fixed incomes, he noted.
Southern's rate increases not only hurt Yellowstone's customers but also "each and every member of Southern," Kelsey said.
Yellowstone's representatives and other Southern members did not know yet how they would deal with this latest increase. Wholesale increases typically get passed to customers through retail rate increases or are absorbed by reserves or are a combination of both.
Gregori said that if Southern gets the money from ECP or if ECP brings in new customers, the money could be credited to members.
Losing the two Great Falls customers is a big hit to Southern. Benefis represented about 5 megawatts of power, which is about the equivalent of the Mid Yellowstone co-op or the West End of Billings, Gregori said.
The exit by the two Great Falls customers created losses for Southern because Southern buys power from PPL based on power agreements that included ECP and its customers.
In other business, Southern tabled a recommendation by Gregori to increase the financing limit for the Highwood Generating Station after Prinkki, of Beartooth, said his cooperative needed time to review the issue.
"This is a very large decision with huge ramifications either way," Prinkki said.
In 2009, Southern's board approved financing of up to $150 million for the 120 megawatt gas-fired Highwood station, which is under construction near Great Falls. The first phase is a 40-megawatt plant with the second phase to be added later. The $150 million covered phase one and the start of phase two.
Jon Doak, Southern's attorney, recommended that the board double its borrowing limit to $300 million to complete the project.
Phase two was originally estimated to cost $171 million, but now is estimated at $167 million, because bids on major equipment, like gas and steam turbines, came in less than expected, he said. The bid prices are good for a limited time.
While Beartooth supports the Highwood station, Prinkki said he needed to review the issue with his board before voting. At Prinkki's request, the Southern board had a lengthy discussion of the pros and cons.