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Power co-ops unwaveringly back coal plant

Robert Evans Jr. lives roughly 35 miles downwind of the proposed Highwood Generating Station outside Great Falls. But Evans, board president of Fergus Electric Cooperative, is less concerned about pollution - he's confident that has been addressed - than he is about securing a stable energy source for fellow co-op members.

"All I hear is 'Would you guys quit talking about it and get it built?' " he said. "Our members are very supportive. If they weren't, we wouldn't be going forward."

A similar refrain was voiced by presidents of the four co-ops financially invested in the project. The city of Great Falls and the four co-ops - Fergus Electric Co-op in Lewistown, Beartooth Electric Co-op in Red Lodge, Mid-Yellowstone Electric Co-op in Hysham and Tongue River Electric Co-op in Ashland - are united under the auspices of Southern Montana Electric Generation and Transmission for the purpose of building the 250-megawatt power plant.

Together, the co-ops represent roughly 18,300 meters that will pay for and receive power from the $800 million plant.

Despite skyrocketing construction costs - project estimates have jumped from $470 million to $800 million - and the tumultuous state of the current financial market, cooperative support for the project remains unwavering.

"Either way is scary," said John Prinkki, president of the board of the Red Lodge-based Beartooth Electric Cooperative, which has invested $2 million into the project. "But our evaluation is there is less risk in building our own power source (than being exposed to the open market)."

Promoters say it's something like buying a house versus renting one. Not only will cooperative members have a new source of electricity, but in the end they'll have something to show for their investment, they say.

But in light of today's current real estate market, that paradigm takes on a new twist. Until credit begins to thaw, Prinkki puts the likelihood of securing long-term funding for a coal-fired power plant at 85 percent.

To date, he said, Southern Montana Electric has arranged somewhere between $10 million to $15 million in interim funding. Although the money will come in the form of a variable-rate, no-cap loan, the current interest rate is only slightly over prime, he added. He said long-term financing will be locked in during the next 4-6 months, canceling the need for the short-term money.

Prinkki cites confidentiality reasons for declining to name the potential loan source. However, he's convinced the bankers with whom they are talking are sincere about financing.

Utility analyst Jim Bellessa of D.A. Davidson is less confident. He is not privy to Highwood's financing, but says the current credit crunch poses a major obstacle for utility financing in general and particularly for coal-fired generation.

"If it were a wind project or a gas-fired plant, there might be a higher probability," he said. "But financing for these types of projects has been put under the microscope lately. I've got to think it would be tough to even get anyone (bankers) out to Montana to look at projects like this. They're under siege themselves."

Unswayed

Even before the current financial crisis, the Huntley-based Yellowstone Valley Electric Co-operative grew wary of rising project costs and the unknown price tag for carbon capture and sequestration.

Until last April, Yellowstone Valley Electric was counted as one of the co-op members of SME and had invested more than $4 million into Highwood. But last spring, the co-op's role in building Highwood was terminated, although it may be locked into buying power from the plant. Yellowstone's departure resulted in roughly 14,000 fewer customers to shoulder the financial burden.

Seven months later, "Our feeling is still the same," said Terry Holzer, general manager of Yellowstone Valley. "They (other co-ops) have a different view of the future than we do."

Jack Knoblock, president of the Tongue River Electric Cooperative, said Yellowstone's concern gave him pause. But he still views Highwood as the best option for the next 25-30 years.

Evans of Fergus Electric remains unswayed by Yellowstone's concerns. Knowing that the co-ops would have only a few years to find a new source of energy - Highwood was proposed to fill an energy void created as current contracts phase out - he is eager to press on.

"We're not in control of our destiny," he said. "When we get this plant built, we will be."

Pushing deadline

Meanwhile, Wickens Construction of Lewistown began moving dirt on the Highwood site in mid-October, despite an unresolved zoning challenge.

In order to meet the air quality permit deadline, rebar and concrete work on the cooling tower must take shape by Nov. 30. If not, SME will need to reapply for a new air quality permit, something that promoters want to avoid.

A year ago, Prinkki said, Highwood was set to go and poised at the top of the queue for Rural Utilities Service funding before Washington D.C. got cold feet.

About the same time, Highwood's air quality permit was challenged by the Montana Environmental Information Center and Citizens for Clean Energy. Their appeal sought to tighten emission standards led to a ruling that SME must study technology to meet a stricter standard. The modified air quality permit was released in early October, with public comment accepted through Nov. 5.

Costly delays

Prinkki calculates that each month of delay has added $7 million to the cost of the power plant, or $27 per month per customer.

The wind energy portion of the project has also been hit by skyrocketing costs. Originally, $12 million had been earmarked to construct 6 megawatts of wind power in conjunction with the power plant. Today, however, that $12 million will build generators for only 3 megawatts, he said.

Cheryl Peters is one Beartooth Co-op customer who questions the wisdom of pursuing Highwood at all costs. During the co-op's annual meeting in September, the Columbus-area resident garnered a sizable share of the votes in her unsuccessful bid to unseat a long-term board member. While she admits she's no expert on Highwood, she believes the proposal bears closer scrutiny.

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"Substantial money has already been spent on the design and site," she said. "Does that make it OK to build? Sometimes you have to sit back, re-examine your decision and admit when you've made a mistake. We all make them. It's time to move on."

Due diligence

Peters advocates third-party oversight of the project, perhaps in the form of the Public Service Commission. In Montana, electric cooperatives are not regulated by the PSC, but that's not the case in Wyoming. In Wyoming, the state PSC has no authority over in-state co-ops but it does regulate out-of-state cooperatives that serve Wyoming customers. Because Beartooth provides electricity for 328 Wyoming customers, the Montana co-op falls under the latter classification.

But Daryl Zlomke, assistant administrator of Wyoming's PSC, said Highwood and the loans to pay for it are not likely to hit their radar. Since the facility will be built outside Wyoming and loans will be secured under the auspices of SME, the project is one step removed from PSC jurisdiction, he said.

In Knoblock's view, PSC involvement would merely add an extra layer of administration and unnecessary duplication.

He acknowledges that some might view rural co-ops as "backwoods," but with 16-17 years experience as a board member he has no doubts about the co-op's due diligence.

"I would put the co-ops up against any big corporation that tries to do something like this," he said. "There are impressive people involved."

Facing the future

More than a decade ago, when Montana's hydroelectric facilities hit the auction block, a group of cooperatives made a bid for them. The bid was way low, Evans said, but he doubts the dams would have gone to the co-ops even had they bid competitively. In the end, the hydro facilities were sold to PPL Montana for roughly $800 million - the current estimate for the Highwood plant, but they produce 10 times the electricity.

"It sounded awful expensive at the time," Evans said. "And we were in the middle of a great contract."

Since then, that "great contract" has begun to sunset. In July of this year, the co-ops lost a portion of their cheap Bonneville power and replaced it with electricity from PPL. At the same time, high fuel and material costs have translated into rate increases for co-op customers with more increases on the horizon.

According to Prinkki, the whole region faces a shrinking energy pool, sooner rather than later.

"We thought we would have adequate resources through 2013," he said. "But we'll be power-constrained a year from now."

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