It IS Considered Spot Zoning

The Montana Supreme court ruled in favor (page 31) for the plaintiffs and appellants.

According to this ruling, Cascade County illegally spot-zoned the property for the coal plant when they changed the zoning from agricultural to heavy industrial.

Not surprisingly, Tim Gregori says that SME will ask the court to reconsider their decision, because it was based on "outdated and erroneous facts".

ECP Debt

H/T: A.D.

Here you will find the ongoing debt calculations of ECP. The final tally includes the infusion (page 21) of $1.4 million of monies that was "borrowed" in 2007 from other city funds as a "security deposit" to SME. On page 37, the security deposit was supposedly released, but ECP has yet to pay back the city for the initial loan.

Posted debt as of May 2010 SME billing: ($2,018,250)

Actual debt, which includes the initial $1.4 million loan from various city funds that is still outstanding: ($3,418,250)

SME's 990s from 2004-2009

Here is a link to SME's 990 reports from 2004-2009. Interesting reading. Enjoy.

SME Board Minutes

Here are the SME board minutes from April 2008 through April 2010.

City Attorney's Opinion

Our new city attorney, James Santoro, issued an opinion to the City Commission with regard to open meeting laws and SME.

According to this document, SME meetings should be open to the public. Of course, Tim Gregori thinks otherwise; unfortunately, the Tribune thought it more important that his picture and quote grace the front page of the Montana Section of Tuesday's (4/20) paper.

The Tribune should think it more important that we finally have a city attorney who is more concerned about the rights of the city and its citizens than with SME.

Many thanks to Mr. Santoro for defending those rights.

Annual Meeting Not Open To The Public

Today, Southern is holding their annual meeting in Billings, but will not allow the public to attend.

The following is an article from the Billings Gazette. There is however, one correction to be made. The City of Great Falls did not appeal Judge Phillips ruling as the last line indicates.

Co-op to keep its meeting closed

By: Linda Halstead-Acharya of the Billings Gazette:

Late last week, Southern Montana Electric Cooperative announced that its annual meeting would be closed to the public, just days before a judge ruled that thousands of co-op documents must be opened to the public.

John Prinkki, a member of Southern’s board of directors, confirmed that the annual meeting this Friday would not be open to members of the distribution cooperatives that make up Southern, the “umbrella co-op.”

Tim Gregori, CEO of Southern, said the majority of board members favor regional meetings as the best way to answer questions. If Southern’s board approves the idea, Gregori foresees a “very aggressive” schedule with meetings in Billings, Great Falls and Forsyth and Lewistown.

“After speaking with other member systems, they believe that it would be far better to use the regional meeting approach than simply opening the annual meeting because it would allow for wider participation and a better forum,” he said.

If necessary, regional meetings could be held more often in those areas where there is a higher level of interest, he said.

Before the 2009 annual meeting, members of the co-ops that make up Southern had requested an open meeting and more transparency. During an earlier interview, Gregori explained that the only members of Southern are the handful of board members who represent Southern’s five co-op members.

Prinkki said “it didn’t make sense” to open the meeting, noting that the annual meeting was expected to run 30 minutes and that most other agenda items dealt with confidential contractual matters.

Arleen Boyd of Fishtail, a member of the Beartooth Electric Cooperative who has long pressed Southern for more information, said the informational meetings are a step in the right direction, particularly regarding information dissemination and opportunities for discussion. She argues, however, that the meetings do not address the issue of transparency.

“Transparency is the timely access to information,” she said. “Transparency is achieved when members know what the current issues are and how business is being conducted — what decisions are made and by whom. This requires access to meetings, especially annual meetings, and timely access to financial and other information.”

Boyd is not alone in targeting Southern over transparency issues. District Court Judge E. Wayne Phillips of Lewistown ruled last week the cooperative must release three boxes of information that had long been withheld from the public.

Southern and the city of Great Falls filed an appeal.

Judge Says No To SME

Good news.

Today, Judge Phillips denied SME's appeal to keep citizens from seeing the documents in the "black box".

Several city advocates visited City Hall today to start the process of reviewing the items.

Thanks to Gregg for posting the order.

We'll Find Out Monday

As we learned a few days ago, SME asked Judge Phillips to stay his decision to open the city's black box. Evidently, SME has also filed a notice to appeal the judge's ruling with the Montana Supreme Court.

Yesterday, folks interested in looking at the documents released by the court order, were not allowed to look at them. (The city is waiting to hear from the judge, who is supposed to rule Monday, as to whether the city can open the records or not).

There must be some juicy tidbits in that box to continue to spend taxpayer and cooperative members' monies to keep the damn things secret.

Sunshine Finally Prevails!

On March 8, 2010, Judge E. Wayne Phillips ruled in favor of sunshine.

Citizens will now be able to see the vast majority of documents contained within the so-called black box at city hall.

Clearly, Judge Phillips was not amused by the antics employed by SME and the City to keep citizens from seeing information that has been their constitutional right to do so from the very beginning of this boondoggle.

Resignation Called For

Beartooth Electric Cooperative is calling for the resignation of their president, John Prinkki:


FEBRUARY 15, 2010
OPEN LETTER TO ALL CONCERNED
TO: John Prinkki, Beartooth Electric Cooperative Board President
Subject: Resignation Request, for cause

At our Joliet Town Hall Meeting on January 16, 2010 and a meeting held for Beartooth Electric Cooperative (BEC) members in Clark, Wyoming, a consensus was reached to ask for your resignation. I volunteered to write the request. The BEC members can no longer tolerate or afford the actions of yourself and Tim Gregori of Southern Montana Electric (SME).

It was reported that SME wrote off $9.1 million dollars in 2009. The 2008 income tax report of SME showed that the $9.1 million was written off in 2008. For you to keep this a secret until after the annual BEC meeting and your re-election to the board is intolerable. It constitutes fraud, if not criminally, it was morally wrong. This withholding of the $9.1 million write-off rendered the BEC financial statement presented at the 2009 BEC annual meeting invalid. The members who re-elected you at that meeting did so under false pretenses.

For BEC members to be paying for electricity for Northwestern Energy customers, Southern Montana Electric members and Electric City Power members is ludicrous.

I will remind you that The Beartooth Vigilance Committee presently has over 300 signed petitions for revision of the BEC Bylaws. That is more than the membership present at the 2009 BEC annual meeting. BEC has over 4000 members and there was less than 200 members who voted at the annual meeting. There is something wrong with that.
　
Larry Luloff
Beartooth Vigilance Committee
208 Stormitt Butte Road
Roberts, MT 59070
406-962-3815


c.c. Ron Roodell
Beartooth Electric Board Members

PART IV - Beartooth Member Editorial

This is the final installment in a four-part opinion series written by Arlene Boyd, a member of the Beartooth Vigilance Committee. Parts I, II and III are here, here and here.

Part IV: Can BEC members get their co-op to live up to cooperative principles, improve business practices, and deliver affordable power?

It’s been nearly a year since Beartooth Electric Co-operative members were hit with a steep rate hike, and some members still question the decision-making that led to the increase. This is the final installment a four part opinion series exploring concerns about electricity rates, power generation, and the future of rural electric cooperatives.

By Arleen Boyd

Beartooth Vigilance Committee

Approximately 4500 Stillwater and Carbon county residents own the business that provides their electricity, Beartooth Electric Cooperative (Beartooth).

Beartooth members share ownership of Southern Montana Electric Generation and Transmission Cooperative, Inc. (Southern) that provides wholesale power. Soon, if financing comes through, Beartooth members will help carry well over half a billion dollars in debt to build a power plant for a profit-making corporation, SME Electric Generation and Transmission Cooperative, Inc. (SME).

With electricity bills that may be the highest in Montana and plans to add financing for a power plant to their monthly charges, responsible Beartooth members are going to have to step up and exercise the democratic control that a successful co-op depends on. They have to demand transparency and sound business practices from Beartooth, Southern, and SME.

Owning a power plant without an investment evaluation?

If SME’s power plant receives financing, Beartooth members will pay for it for at least 30 years. With no prospectus, no return-on-investment calculation, and no vote members will make a huge investment in a highly volatile, capital intensive industry.

Members do not know why they are investing in a for-profit corporation, SME. There is no evidence that they will even use the new plant’s power.

Beartooth members must demand that SME provide all members standard investment information including:

A prospectus for the proposed plant.

Withheld information including bylaws, financial documents, annual reports, and board minutes.

All contracts and agreements between the co-ops and SME.

A detailed cost analysis of the projected project including likely increases in natural gas prices, full gas and electricity transmission rate analysis, and estimates for complying with CO2 regulation which the Montana Board of Environmental Review is preparing for projects emitting as little as one tenth of that expected from this plant.

Information and transparency: standard business practice, a co-op obligation

Electric non-profit cooperatives are a hybrid form of business that, unchecked, is subject to manipulation and secrecy. Transparency allows members to track board and staff activities and protects the co-op from conflict-of-interest and other business irregularities.

Information about the co-ops that are spending Beartooth money has been hard to get. Southern will not release its bylaws or annual reports and SME operates in complete secrecy.

Members can insist on improved transparency and tell Beartooth to:

Provide access to all corporate documents and financial reports.

Release financial audits and prospectus information on affiliate investments, land investments, and, if allowed at all, for-profit investments.

Give members up-to-date information including board agendas and minutes through mailings and a regularly updated website.

Inform members before major board decisions are made.

Respond openly to member inquiries.

Continue to survey members and hold informational meetings.

Provide monthly reports from Beartooth’s representative on the Southern and SME boards.

Creating a culture of transparency and democracy

A co-op fails as a democracy if it accepts elected board members as the only source for decision-making and the board releases information to justify their decisions rather than to improve them with input. Beartooth members can create a democratic, member-driven co-op starting with the bylaws and the annual meeting.

Bylaws
Bylaws establish the rules and contract between the cooperative and its members. A committee of members at large and board members is rewriting the Beartooth bylaws and will submit their revisions at the 2010 annual meeting. Members should read the current bylaws, call their representatives on the bylaw committee, and ask them to:

Make greater transparency and member involvement the primary mission for bylaw revision.

Review legal issues like conflict-of-interest in light of the unusual three-tiered co-op structure Beartooth currently supports.

Distribute proposed bylaw revisions to all members before the annual meeting, ask for input, and weigh suggestions before completing a final draft.

Distribute the final draft before discussing and amending it at the annual meeting.

Annual meeting and elections
Beartooth Board members and management call the annual meeting the opportunity for members to exercise democratic control. Democracy with informed voting will happen when:

Annual meeting agendas are circulated to members before the meeting with a request for additions and amendments.

Motions by members at large are accommodated, on the floor of the meeting or through prior submissions.

Information on all aspects and from all sides of important issues is circulated in advance and given equal time at the meeting.

Members are encouraged to ask questions and comment on issues.

Voting for board members at Beartooth annual meetings is controlled by management and the board. To ensure fairness the co-op must:

Provide incumbents and challengers equal time at the meeting and equal opportunity to present their qualifications at the meeting and in mailings.

Allow all members to vote, with mail-in ballots counted along with those cast at the annual meeting. Encourage nominations from the floor according to bylaw stipulations.

Engage an independent election consultant to evaluate Beartooth procedures.

Get the information, check the facts

The financial risk associated with the planned SME venture in power generation and the fact that it is being carried out in secrecy make it the most vivid example of what happens when cooperative principles and transparency are ignored.

There are many other examples of misleading statements that have caused Beartooth members to ignore important issues, accept poor decision-making, and cast uninformed votes.

Statements calling the current BBB bond rating for the new plant “investment grade” and “very favorable with a very positive impact on the interest rate that will be realized” are not accurate, but imply that plans for a new plant are financially sound.

To justify the original over-scaled and badly planned Highwood venture members have been told repeatedly that the RUS (Rural Utility Service) lied – they “reneged” on a “letter of commitment” because of environmentalists. There was no letter of commitment. The rejection letter listed four reasons for denial including the fact that 40% of the plant’s capacity was not needed by members. RUS finances plants to serve members, not to market electricity.

With real transparency and information, members who pay attention can challenge inaccurate statements. More importantly, they can work together to make Beartooth a co-op that lives by the cooperative principles, employs sound business practices, and delivers affordable power.

Sources of information and copies of reports cited in the series are available from the author or Beartooth Vigilance, 962-3815.

SME's 2009 Annual Report

We have a copy of SME's 2009 annual report, which up to this time, we've been told is secret, confidential or whatever you want to call it. (The copy is not very good, but you can get the gist of it).

Well, according to Montana Code Annotated 2009, it's not:

2-3-203. Meetings of public agencies and certain associations of public agencies to be open to public -- exceptions. (1) All meetings of public or governmental bodies, boards, bureaus, commissions, agencies of the state, or any political subdivision of the state or organizations or agencies supported in whole or in part by public funds or expending public funds, including the supreme court, must be open to the public. [emphasis added].

SME's 2008 Form 990 Is Here

Many thanks to Rich Liebert who doggedly pursued the city manager with a FOIA request for SME's 2008 form 990:

Dear Greg,
I wish to formally request a copy of the 2008 IRS Form 990 filed by Southern. I do not have the time or inclination to register with guidestar.org (as Ms. Balzini suggested) and expose personal information to them and also be subject to fees and marketing schemes. This 990 document is also essential for Burns and McDonnell to scrutinize as well as we the general public.

As a citizen of the state of Montana, I make this request under the Montana Public Records Act and MCA 2009. Frankly, I'm tired of the sophistry and intend to ask for any documentation, records and notes produced or obtained by any public official attending a Southern meeting as allowed under MCA and the Public Records Act. The routine response that 'it's all under litigation and forbidden' is quite inadequate. If we citizens cannot attend Southern meetings, then we certainly have a right to PUBLIC records, as Southern is an entity that benefits from the public funds of the City of Great Falls.

I fully understand the complexity of trade secrets and such, but certainly records can be redacted. I don't care about what Southern might pay for a turbine part, but citizens do care about what's impacting our city, especially fiscal obligations and our equity. Feel free to have the city attorney consider this request along with the city clerk and I await your advice and response. I am proud of our federal and state constitutions and expect them to be honored and complied with please.

Respectfully,
Richard D. Liebert

Within a day, the document was mailed to the city. City clerk, Lisa Kunz, did a great job of notifying Rich and getting the information into his hands ASAP.

Could this be a sign the city manager is waking up? If he isn't, he better. As I understand it, he has a job review coming up in three months.

PART III - Beartooth Member Editorial

See Parts I and II here and here.

This is Part III in a four part editoral series written by Arleen Boyd, a member of the Beartooth Vigilance Committee:

**************

Rights and responsibilities go hand-in-hand for electric cooperatives
It’s been nearly a year since Beartooth Electric Co-operative members were hit with a steep rate hike, and some members still question the decision-making that led to the increase. This is the third in a four part opinion series exploring concerns about electricity rates, power generation, and the future of rural electric cooperatives. The final installment will run the last week of December.

By Arleen Boyd

Beartooth Vigilance Committee

Electric cooperatives have done a good job for rural America. They accomplished their original mission by bringing electricity to rural areas that were almost entirely without power before 1936 when the Rural Electrification Administration provided $100 million for rural power development (approximately $1.3 billion in today’s dollars).

Today, electric co-ops provide electricity to 42 million people in 47 states. Despite serving fewer customers per mile of line than other utilities, nonprofit electric cooperatives, for the most part, supply electricity at rates comparable to or lower than investor owned utilities.

Programs help electric cooperatives succeed

Cooperatives are owned and controlled by the people using their services. Unlike for-profit utilities whose mission demands a return for stockholders, nonprofit electric cooperatives receive government support because their sole purpose is to supply affordable, reliable power for members. Electric cooperatives are given legal advantages like:

•Nonprofit tax status that removes the obligation to pay federal or state income taxes.
•Low interest loans, loan guarantees, grants and program assistance from the Department of Agriculture’s Rural Utility Service (RUS)
•Very low cost (at cost) power from government supported providers like the Western Area Power Administration and Bonneville Power.
•Exemption from regulation by the Public Service Commission in Montana

Requirements for gaining the co-op advantage: Cooperative Principles

In return for these advantages and what amounts to an unregulated monopoly on rural electricity business in co-op areas like Montana, nonprofit electric cooperatives are expected to focus exclusively on their members’ need for affordable, reliable electricity; meet nonprofit business standards; and observe the cooperative principles.

The cooperative principles, universally acknowledged by co-op organizations across the country, are the criteria for nonprofit electric cooperative status.

•Voluntary and open membership
•Democratic member control – Cooperatives are democratic organizations controlled by their members, who actively participate in setting their policies and making decisions.
•Member economic participation – Members contribute equally to, and democratically control, the capital of their cooperative.
•Autonomy and independence -- Cooperatives are autonomous, self-help organizations controlled by their members.
•Education, training and information -- Cooperatives provide education and training for their members, elected representatives, managers, and employees so they can contribute effectively to the development of their cooperatives.
•Cooperation among cooperatives

Concern for community

How does Beartooth Electric Cooperative measure up?

Cooperative Principles – In recent testimony before the U.S. House of Representatives’ Agriculture Committee, Glenn English, CEO of the National Electric Cooperatives Association, emphasized that cooperatives are “closely regulated by their consumers” as they are owned and controlled by the consumers they serve.

In contrast, John Prinkki, Beartooth board president, says that the “control and regulation” belong to board members, that elected board members have the authority to make decisions, and that there is no obligation to consult with members or share information about board decisions.

Democratic control by members can only happen when members cast informed votes about issues they understand and for candidates who have made their positions and qualifications clear. Until Beartooth pays attention to principles numbered two through five, it will not meet the requirements for democratic control.

Beartooth policy requiring signed, witnessed requests for financial statements, which are by law public documents, is only one example of the co-op’s poor understanding of what democratic control is all about. Procedures for attending a board meeting or knowing what is on a board agenda are difficult. The Beartooth website provides no links to documents like bylaws or financial statements.

Members need information about issues facing the board, especially when major investments in a for-profit venture like SME’s proposed power plant are being made. Members can “actively participate in setting their policies and making decisions” only when the board provides opportunities for all members to review and comment on important issues like the bylaw revisions that currently are underway.

Affordable, reliable electricity? Beartooth Electric Cooperative charges may be the highest in Montana. Beartooth members pay 50 percent more per kilowatt hour than local NorthWestern customers.

Nonprofit cooperative business standards? Like for-profit corporations nonprofit organizations must meet business practice and ethical standards. Beartooth management says it is updating business practices and improving responsiveness to members.

Legal requirements for transparency and conflict-of-interest policies are crucial. Transparency is limited at Beartooth, so we do not know how issues like conflicts of interest are handled by the board. There is a potential for serious conflict-of-interest violation when the Beartooth board president who represents the retail consumer also is an officer on the Southern wholesale co-op board, and on the board of SME, the for-profit electricity supplier to the co-ops. Objectives conflict when SME needs to get the best possible price for its product; Southern needs a price that will maintain its operational margins; and the Beartooth retail co-op needs the lowest possible price for members.

The next article will answer these questions:

How do we improve cooperative democracy and business standards at Beartooth?

What sources of information can Beartooth members use to better understand their co-op and the issues facing the board?

Do members have any rights to information about decisions being made at Southern and SME?

PART II - Editoral From Beartooth Co-op Member

Here, I posted Part I of an editorial by Arlene Boyd, a member of the Beartooth Vigilance Committee.

Here is Part II:

Supporting three co-ops, Beartooth members lack information
It’s been nearly a year since Beartooth Electric Co-operative members were hit with a steep rate hike, and some members still question the decision-making that led to the increase. This is the second in a four part opinion series exploring concerns about electricity rates, power generation, and the future of rural electric cooperatives.

By Arleen BoydBeartooth Vigilance Committee

Members of Beartooth Electric Cooperative (Beartooth) finance three cooperatives: Beartooth, Southern Montana Electric Generation and Transmission Cooperative, Inc. (Southern), and SME Electric Transmission and Generation, Inc (SME).

Most members do not understand the need for two G&T cooperatives. Some see a hierarchy with SME at the top, planning to generate electricity that Southern will buy and then sell to Beartooth, which has contracted to buy all of its power from Southern through 2048.

The farther up this electricity supply chain members go, the less information they find about their co-ops.

Tim Gregori, General Manager of Southern and Director/Registered Agent of SME says Beartooth members actually are not members of his two cooperatives and, therefore, are not entitled to information. Their lawyer agrees.

After Gregori denied Beartooth members permission to attend Southern’s annual meeting last March attorney Brian Holland listed the co-ops belonging to Southern and SME and wrote, “Each of these cooperatives has its own members, but being a member of one of these cooperatives does not make one a member of either Southern or SME.” He added that Southern’s bylaws “are not available to the public.” Holland’s promised response to requests for clarification of Southern versus SME responsibilities and a Highwood financial report has never arrived.

There is much about these three co-ops that members have been denied access to or simply cannot reconcile. This is an uneasy position for co-op members who are being asked to take on hundreds of millions of dollars in debt to build a power plant, without information about its justification or how the bills will be paid.

This opinion piece looks at Southern and SME. Next week’s piece will examine the structure and advantages of cooperative organization and look at how Beartooth Cooperative measures up.

What do and don’t we know about our generation and transmission co-ops?

Many cooperatives have excellent websites with access to financials, bylaws, plans, and staff. Southern has a one-page site listing its members and sources of power. SME has no website.

Southern and SME share an address.

Southern: our sole source of energy, not much information

Southern was formed when Tim Gregori and five co-ops (Beartooth, Fergus, Mid-Yellowstone, Tongue River and Yellowstone Valley) left Central Montana Electric Cooperative in 2003. Gregori and Prinkki cite unfair rates as the reason for leaving. Central Montana members also recall disagreement with Gregori’s wish to build a power plant.

Southern buys power from Western Area Power Administration, Bonneville Power Administration, and PPL to supply wholesale electricity to its member cooperatives. Southern plans to build a gas-fired generation plant. No business plan or financial justification for Southern’s proposal has been presented to Beartooth members.

Tim Gregori says that Southern has only six official members, so Beartooth members are not entitled to attend its annual meetings, even though other non-members routinely attend. John Prinkki, Beartooth board president and one of Southern’s six members has not reported on Southern’s meetings or financials to Beartooth members.

Southern will not supply its 2007 tax return to Beartooth members, but it appears on guidestar.org which provides information on nonprofit organizations. Southern’s accountant reports that its 2008 Form 990 should be available on that site soon.

Southern will not provide its bylaws. They are filed with Yellowstone Valley Electric Cooperative’s lawsuit against Southern which is available at the County Courthouse in Billings from the Clerk of District Court.

Beartooth policies require written, witnessed requests for information. Requests sent to Beartooth on November 18 asking for Southern’s Form 990 and the tax return for SME have not been answered.

SME: follow the money, if you can

In April, 2008 SME was incorporated in Montana as a nonprofit cooperative, excluding YVEC from membership after YVEC filed suit to leave Southern.

John Prinkki says that SME is responsible for building the Highwood Generating Station while Southern will fund it. He says that SME pays no salaries and does not compensate its board members. Southern pays Tim Gregori more than $200,000 per year and reports board member fees and expenses of $123,316 in 2007 and $53,570 in 2008.

It appears that SME has no bylaws, no financial reports and no tax documents available to the public. It is not clear how money goes from Southern to SME or how decisions are made between the co-ops.

SME is the registered owner of the Highwood plant land in Cascade County and has paid for services at the site. The Electric City Power executive director has said that SME spent approximately $20 million of the $40 million spent on the failed Highwood coal-fired plant.

Economic control by members and democratic decision-making are guiding principles for co-ops. By defining this cooperative narrowly (four members) SME withholds the right to information from Beartooth members while holding them financially responsible for its business.

SME filed with the Montana Attorney General’s office as a nonprofit cooperative. Asked about finding SME’s federal nonprofit tax return on guidestar.org, however, SME’s accountant reported that “SME, unlike Southern, does not need to file a 990 – the way it is incorporated does not require it.” This may mean that SME recorded less than $25,000 in revenue, allowing it to file a 990 short form or that it filed a corporate 1120 tax return, which would be harder to understand. Either way, the return will not be seen by the public.

Conflict of interest The triple co-op structure creates many conflicts of interest. One example is support for conservation programs. As board president, John Prinkki is responsible for conservation efforts at Beartooth. As Southern’s board vice-president, he suffers when Southern sells power back to PPL at a loss because of Beartooth’s reduced consumption. As vice-president of SME, Prinkki’s mission is to build a power plant and sell its electricity. If SME is a co-op, 85 percent of that power must be sold to its members. Prinkki’s three responsibilities conflict.

With Beartooth members seeking information and circulating a petition to require member approval for major spending, Gregori and Prinkki need to answer these questions:

Why do we need two generation and transmission cooperatives?

Why do we need a power plant?

Why is information about Southern and SME being kept from Beartooth members?

How will you increase transparency at the co-ops?

Beartooth Vigilance Committee Weighs In

The following editorial was recently written by Arleen Boyd, a member of the Beartooth (cooperative) Vigilance Committee. Hat tip: C.B.

Part I: BEC members face high priced power, debt
It’s been nearly a year since Beartooth Electric Co-operative members were hit with a steep rate hike, and some members still question the decision-making that led to the increase. This is the first in a four part opinion series exploring concerns about electricity rates, power generation, and the future of rural electric cooperatives.

Beartooth Electric Cooperative electricity charges may be the highest in Montana. Beartooth members’ residential rates dramatically exceed those of their close neighbors who receive electricity from NorthWestern Energy, even though Department of Energy records show co-op rates running below those of investor owned utilities like NorthWestern for the past 30 years.

An October electric bill for a residential customer using 1000 kilowatts shows bundled supply and delivery costs (total electric bill) of 9.36 cents per kilowatt hour for NorthWestern and 13.50 cents per kilowatt hour for Beartooth, not including Beartooth’s monthly surcharge. Adding the surcharge, which covers the member’s share of approximately $40 million spent on the failed Highwood coal-fired generation plant, brings the Beartooth cost to14.38 cents per kilowatt hour.

For Beartooth: one source of wholesale power, recurrent price increases

Beartooth Electric Cooperative is a member of Southern Montana Electric Generation and Transmission Cooperative (Southern) which sells wholesale power to five member cooperatives and Electric City Power in Great Falls. Beartooth recently signed a contract to buy power from Southern through 2048.

A statewide survey conducted last year reported that Southern, Beartooth’s sole electricity supplier, charged its member cooperatives the highest power rates of any generation and transmission cooperative in Montana. In 2009 Southern raised the rate it charges member cooperatives five times. Members have been told to expect another increase in January 2010.

Southern buys power from Western Area Power Administration, Bonneville Power Administration, and PPL Montana. With the BPA contract expiring in 2011, Southern signed a contract in March to buy additional electricity from PPL Montana. Southern and Beartooth have not shared the terms of that contract with co-op members, but PPL reports that a majority of the electricity it generates is sold through fixed-priced, long-term competitive contracts. PPL says, “That means that our prices do not change during the term of the contract — no matter what the market does.” NorthWestern Energy also buys power from PPL.

Southern buys inexpensive power from WAPA and Bonneville and predictably priced power from PPL. Beartooth and Southern have not explained why the recurring increases in electricity rates have apparently been unanticipated.

A risky and expensive strategy

Tim Gregori, General Manager of Southern, has announced plans to build a 120-megawatt gas-fired power plant. He projects a cost of $100 million for phase-one of this project, calling that low compared to the $1 billion price tag for Southern’s failed coal-fired plant.

A revealing Standard and Poor’s credit report evaluates the proposal: a $270-million project with three phases of 40 megawatts of power each. The first two phases come online in 2011 and the third in 2012. Delivering a BBB rating, S&P notes management’s lack of experience in plant operation, execution risk in the power supply strategy, and above average retail rates. Favorable factors include a stable customer base and lack of regulation in Montana, allowing the company to set rates as it wishes.

Interest costs for the project are not yet known, but the spread between the best A-level ratings and BBB, one of the worst, suggests a double digit rate which would nearly triple the amount required to repay a 30-year, $270-million loan.

If $270 million was borrowed through a 30-year loan using the S&P analysis ($270 M) at a 10 percent interest rate, the monthly payment would be $2,370,000, racking up $583,289,000 in interest, for a total cost of $853,289,000 over 30 years.

Using a $250 million estimate with lower interest rate of 8 percent, the monthly payment would be $1,835,020, generating $410,607,432 in interest, for a total of $660,607,432 over the lifetime of the loan.

Last week one more concern for members and potential investors arose when an audit ruled that $9.1 million of what Southern had booked as assets related to the original Highwood plant were impaired. The $9.1 million must be written off by the member cooperatives.

A good idea for Beartooth members?

Gregori says building this plant will secure members’ power supply. Beartooth President John Prinkki says that financing the new plant will absorb Beartooth’s short-term debt for the failed Highwood plant, eliminating the current surcharges by stretching the payments over a long-term loan. Prinkki cites the NorthWestern Energy plan to build a similar plant as evidence that building a plant is a good idea.

NorthWestern plans to build a 200-megawatt gas-fired plant at Mill Creek for regulation services and firming. Regulation service and firming plants keep the transmission grid in balance by matching electric generation with electric load on the system on a moment-by-moment basis.

Since Southern does not generate baseload power, it needs neither regulation services nor firming capacity, the standard uses in our area for gas-fired plants. If Southern wants to build a gas-fired baseload plant, Gregori and Prinkki should explain that unusual strategy to Beartooth members. NorthWestern’s 332,000 Montana customers will share the costs for its plant. Assessments for Southern’s plant will go to fewer than 50,000 ratepayers.

More power than needed?

Gregori and Prinkki assert that the PPL contract will meet members’ needs through 2019. Currently Southern does not use all the power it buys from PPL and is selling it back to PPL at 85% of the market rate, which is lower than Southern’s contracted rate.

Co-op members are about to become sellers of electricity – indebted sellers of electricity. With the new Highwood project co-op members will pay for construction and operation of a plant in addition to paying for their electricity. They will pay that extra cost to generate power they do not need in order sell it into an uncertain market.

Beartooth members have been given no information indicating a financial benefit from this plan or how it falls within the cooperative’s charter. The leaders who kept members in the dark about the failed Highwood coal plant need to meet with members, justify this project, and answer the following questions:

Why and how will a new loan absorb the old Highwood debt?

What is the Beartooth share of the $9.1 million write-off?

Where are the cost/benefit analyses for the buy versus build power strategies?

What are the anticipated operating costs for the plant?

What overhead will Southern and Beartooth pay to manage development and implementation of a power plant?

ECP And SME Write-Off Announced

According to this inter-office memo, ECP will be writing off $1,144,504; $905,019 in historical costs and $239,485 of capitalized interest.

SME will be writing off $9.1 million.

MT Supreme Court Spot Zoning Hearing

The Montana Supreme Court heard arguments yesterday over the issue of spot zoning for the coal plant.

According to this article, SME/Cascade County are now arguing that the issue is legally dead and the case moot, because the county issued new zoning regulations in August.


November 19, 2009
High court hears Highwood zoning suit
By KARL PUCKETT
Tribune Staff Writer

HELENA — Attorneys for Cascade County and a group of landowners locked horns once more Wednesday over a 2-1 vote last year by the County Commission, which allowed construction of a power plant east of Great Falls. This time the clash came before the Montana Supreme Court.

In a surprise twist, Gary Zadick, an attorney for developer Southern Montana Electric Generation and Transmission Cooperative, and attorney Alan McCormick, hired to represent Cascade County, told justices the disputed rezoning case is legally dead because the commission passed new countywide zoning regulations in August.

As a result, McCormick said, a Supreme Court decision would be "academic" because the lawsuit is challenging old regulations, under which the land rezoning for Highwood Generating Station was processed.

"This case is now moot," McCormick said.

The new argument, which was never raised during state District Court hearings last year because the new regulations had yet to pass, prompted immediate questions from justices.

Justice James Nelson asked that if the updated regulations render the current challenge moot, couldn't local governments always keep ahead of people who challenge rezoning requests by simply changing the zoning rules?

Justice Brian Morris questioned McCormick on why the court wasn't informed sooner about the new zoning regulations argument if it renders the case moot. McCormick said he had just learned last week that the new regulations had taken effect.

McCormick cited a Flathead County zoning case as precedent in making the argument.

The argument was flatly rejected by Roger Sullivan, the attorney for the plaintiffs — 60 landowners and the Montana Environmental Information Center.

"This controversy is still very much alive," Sullivan said.

Additionally, SME has replaced its original plans for a coal-fired power plant with a smaller, cleaner-burning natural gas facility, but Sullivan said that doesn't change the arguments. The county still erred in allowing an industrial facility — gas or coal — amidst farmland, with the decision amounting to spot zoning and special legislation for SME, he said.

MEIC and the landowners living in the vicinity of the proposed plant are asking the Supreme Court to reverse District Judge Wayne Phillips' decision upholding the county's action. Such a decision would declare the rezoning unlawful.

Landowners say their quality of life and agricultural operations are at stake in the case.

After the hearing, Kent Holtz, a plaintiff and farmer who listened from the second row, said he didn't understand all of the technical arguments, but wants farmland protected from the power plant.

"There are so many other places in the state it could be put that would not destroy productive land," Holtz said.

SME officials say a reliable source of electricity for its customers is at stake in the case.

SME, which has sunk $40 million into the power plant, purchased the property on which the plant would sit for $3 million, said Zadick. SME intervened in the case on the side of the county.

Located in a rural setting, with just seven homes within 3 miles, the site is ideal for a power plant, Zadick said, with the electricity benefiting the general public.

"Where do generating plants get built?" he asked.

SME, which provides power to five rural electric cooperatives and the city of Great Falls' utility arm, is proposing to construct a 120-megawatt, $210 million facility powered by natural gas to replace electricity it's losing as a result of canceled power contracts.

If the court overturns the county's decision to rezone, the Highwood project could be returned to county commissioners or the District Court, said Brian Hopkins, an attorney with Cascade County.

At the conclusion of Wednesday's hearing, the seven justices quickly exited without comment. A decision could take months, Hopkins said, noting the court could still ask for additional written briefs.

The courtroom was packed Wednesday with residents from Great Falls and SME representatives, who sat on opposite sides of the courtroom.

The case stems back to March 2008, when Cascade County commissioners Joe Briggs and Peggy Beltrone and then-commissioner Lance Olson voted 2-1 to rezone 668 acres of land east of Great Falls from farmland to heavy industrial. Beltrone was the sole no vote.

MEIC and the landowners later sued, with Phillips siding with the county in a decision handed down in November 2008, prompting the appeal to the Supreme Court.

In the liveliest moment of a hearing fraught with zoning jargon, Sullivan, the attorney for the landowners and MEIC, left the designated podium and moved closer to the justices, pacing before them and theatrically holding up thick binders of technical zoning information and sometimes pointing to his clients in the audience.

"This is a classic case of the county making up its regulations on the fly," he said, his voice rising.

Sullivan took aim at the way in which 11 conditions proposed by SME were added to the rezoning approval. The conditions themselves are not the issue, he said, but he is concerned that they were submitted to the county two days before a public hearing in the rezoning request, not affording the public a chance to comment.

SME's Zadick countered that the 11 conditions actually benefit the general public, dding they were based on public feedback. For example, one of the conditions is that roads be maintained.

Sullivan also charged that SME submitted hundreds of pages of technical information in the 11th hour. In addition, Sullivan said, no guarantees exist in the zoning regulations, ensuring enforcement of the attached conditions.

That amounts to illegal "special legislation" for SME, Sullivan said.

Wondering aloud whether such conditions aren't just "part and parcel" of any rezoning proceeding, District Judge Jeffrey Sherlock, sitting in for the retiring Justice John Warner, who recused himself from the case, questioned the special legislation assertion.

Sullivan also said Judge Phillips erroneously concluded that a coal-fired power plant already is permitted in an agriculturally zoned area if a special use permit is granted.

Sullivan said a special use permit, while allowing wind farms and electrical generation facilities, would prohibit a coal-fired power plant.

Zadick disagreed, saying special use permits allow a broad range of uses from garbage dumps to hospitals to generation facilities.

But if that were the case, a justice asked Zadick, why didn't SME just ask for a special use permit in the first place instead of seeking rezoning. Zadick said that rezoning was preferred because of the type of financing the developer sought at the time.

Facing the seven justices and a digital time clock that allowed each side 30 minutes to make its case, the attorneys raised many of the same arguments Wednesday that they did at the District Court level.

"We'll just have to wait and see how the court decides," SME General Manager Tim Gregori said after the hearing. "At this time, the property we purchased is zoned appropriately for what we have planned."

Spot Zoning Case Going To State Supreme Court

According to an article in today's Tribune, the landowners spot zoning case against Cascade County and SME is scheduled for a state Supreme Court hearing on November 18.

A year ago, District Judge Wayne Phillips ruled in favor of the county and SME when he ruled that rezoning the land for the HGS was not considered spot zoning. Opponents indicated they would appeal to the state Supreme Court.

What Happened to $1.25 Million?

Gregg has a good post up about the $1.25 million (page 13) that Southern/SME borrowed from 1st Interstate Bank. According to Yellowstone Valley Electric, the co-ops paid it back, but the monies weren't used to pay off the loan.

Don't forget when reading this, that 1st Interstate Bank is a member of the pilot program.