Coal

I know that I am late to the party on this whole Highwood Generating Station issue. Others have already discussed the science and environmental side of this and, frankly, I have not yet had time to do the research on it.

First things first.

I am much more concerned, at least at this early point, with the financial and structural side of things. Who is paying for the plant? Who will own it? Since the City has spent money on the project already, where did that money go? Was it a loan, or an equity contribution? If the latter, are all of the SME members contributing equal sums? I'm trying to look into all of this.

But first, I note that there was a very good guest editorial in the Tribune on Saturday. I cannot find it linked online, so I will reprint it here in its entirety:

Questions raised about city’s coal-plant obligation

By LAWRENCE C. REZENTES

This column is intended to correct the misinformation serv­ing as the basis for the Nov. 26, article “Great Falls has already invested $1 Million in proposed plant.”

First, the city of Great Falls, as of June 30, had invested the amount of $3,088,000, not the $1 million represented in the arti­cle’s headline. That is the amount of total liabilities for which the city is obligated if the coal plant program fizzles — this according to the June 30 financial statement of the city of Great Falls Electric Utility. The amount of this liability is esti­mated to have increased by approximately $200,000 since then.

Second, the statements cited in the article of the city not pay­ing the full price for the electric­ity it is selling and that it is obtaining credits against the purchase price from SME, are incorrect and misleading. What is happening is the city is incur­ring debt to SME, secured by a pledge of water to be provided by the city in the future in payment for these “credits.”

As of June 30, the city had incurred debt of $718,016 to SME as a consequence of these “credits and deferrals.”

Since then, the amount of this debt owed to SME is estimated to have increased to approximately $918,000. The city is incurring additional debt each month to the extent of additional “cred­its” obtained each month.

This debt is in fact financing the losses incurred by the city electric utility ($425,000 in fiscal year 2006 and an additional $200,000 in losses since then) resulting from underpricing of the electricity, representing sub­sidies it is providing to its cus­tomers relative to its cost from SME.

The reference in the article to a “deferral of startup costs” fur­ther misleads the public as to the level of financial obligation being incurred each month by the city to SME.

This mischaracterization mis­leads those currently obtaining and in prospect of obtaining electricity from the city of Great Falls as to the cost the city is paying for its electricity from SME now, and what that cost will be in the future from the proposed coal-fired plant.

It is an enticement, based on current low-priced electricity sustained by nonexistent “cred­its” that must be repaid, to con­vince the public of questionable economic benefits supposedly to be provided by the plant in the form of lower bills for electrici­ty.

What is needful is for the city manager and fiscal officer to provide the citizenry with the business plan, and the assump­tions supporting the plan that are the basis for the decision to embark on the construction of this plant, to allow review and discussion by the public before any additional commitments are made. I would encourage the Tribune to request this plan for publication in the Tribune in summary, and to be made avail­able in full to those requesting it, in the public interest of pro­tecting the community from a fiscal boondoggle.

What has been said in the past in response to this question is that the city is not at risk at all because the plant will be financed by revenue bonds whose payment is solely financed by the economic results of the plant and without the backing of the city.

But where is the underwriter who has committed to under­write the financing on this basis? In the meantime, as addi­tional costs and debt are incurred month by month, what will the city do in the event that such financing is not secured on a basis not requiring a backing of the bonds by the city?

If the offering is not being underwritten, but being offered for sale on a “best efforts” basis, what becomes of the plant if the offering does not sell?

In either case, if the city then abandons plans for the construc­tion of the plant, what then becomes of the $3.3 million and growing debt that the city has incurred in support of this pro­gram?

The issues represented here are too important to be decided behind closed doors and without access to the general public the information underlying the issues and the decisions that are being and have been made. If, as the article indicates, a city com­missioner was not aware of the amount having been spent in pursuit of the coal fired power plant, clearly the public knows even less.

To date there has only been superficial consideration of the financial risks to the city in embarking on the financing and construction of this plant. State­ments being made by the city are misleading the citizens of Great Falls into a complacency and luring them by a representa­tion of economic advantage in the price of their current and future purchases of electricity that have yet to be analyzed and that may in fact be spurious.

Lawrence Rezentes is a Certified Public Accountant with experience as CFO in public, private, venture-capital and private equity financed compa­nies. At present he is employed in the public sector by the U.S. Department of Justice, Office of the United States Trustee, in Great Falls.

I am not an expert on high finance, but I do have some accounting background. I think what Mr. Rezentes is saying is this: The City, through its utility, Electric City Power, is currently purchasing electricity for resale from SME. As a sort of public relations move gone awry, the Electric City Power is selling this electricity to its customers at a loss, in order to lead them to believe that everything is hunky-dory, and support the whole Highwood Plant/public utility venture.

It's not hunky-dory, though, because if Electric City Power is selling at a loss, those losses need to be funded from somewhere. According to Mr. Rezentes, Electric City Power is simply subsidizing these losses (and therefore the reduced prices) by incurring debt to SME. If true, that sounds pretty damn sneaky to me.

Further, according to a Guest Editorial signed by the City Commission, there will be a feasibility study soon:

To demonstrate that the economics work and are favorable, and to sell its revenue bonds to provide financing, the city will have to hire an independent, third party, nationally recognized engineering firm to review and opine on plant technological and economic feasibility and practicality.

If they find that economic projections for the project are valid, then the advantages to purchasing its electricity will be self-evident. This study will be done over the next six weeks.So, let me get this straight.

So, let me get this straight. We've spent $3,000,000.00 of your tax money, and we're still waiting to receive a feasibility study? Can you say "Ready, shoot....AIM!"

And, before I get busy on some real work, I have one more small point. If an entity were going to go off and spend millions of your dollars on a project, wouldn't you want that entity to really have it's sh*t together? At least together enough to keep track of the various deadlines?

For, you see, Electric City Power, our local utility, really doesn't even exist right now. It has been involuntarily dissolved by the Montana Secretary of State's office for failing to file its annual report.