Coal Report II

City Manager, John Lawton, completed his Energy Report on Tuesday, January 16, 2007, while he was awaiting the arrival of his paid expert, Kenneth Reich. He used the opportunity to address questions raised by the community, as well as "a local weblog that has taken up this issue." Presumably, the latter is me, since some of the questions are those I have raised.

I mention this not as any particular form of self-aggrandizement. Instead, I think it demonstrates that if we keep asking questions, we can force the powers that be to at least address them. Answering them completely might be a little much to hope for, but addressing them is a start.

One question I had raised, and that Mr. Lawton addressed the other night, involves the ownership of this operation. You will recall that in literature, the City has consistently claimed that it will own 25% of this 'entity,' but in its financial statements, it is shown to only owe 17%.

Well, according to Mr. Lawton, there is "no particular issue there." You see, the 25% ownership is "projected." The 17% reflects the City's "initial equity investment in SME," according to the City Manager. He went on to say that we can "bet there will be firm agreements in place" once the bonds are issued. [Emphasis mine]

Well, with all due respect to Mr. Lawton, his 'answer' raises more questions than it resolves.

According to the audited financial statements (p. 2), the City has entered into a "joint venture" with Southern Montana Electric. On the other hand the City has also claimed that it is a "partner" in SME. These are two different things.

A joint venture is like a one shot partnership. It is an "enterprise undertaken by several persons jointly, and more particularly, as an association of two or more persons to carry on a single business enterprise for profit. It has also been defined, somewhat variantly, as a special combination of persons undertaking jointly some specific adventure for profit." It strikes me as somewhat unusual, then, to suggest that one entity (the City) is going to be in a "joint venture" with another entity (SME) of which it is also a significant owner. Not legally impossible, but typically if I am going to enter a joint venture with you, I don't buy half of you. You and I contract or agree on the terms of our joint venture.

Which brings me to the next concern. If you and I are going to have a joint venture, there must be an agreement containing the terms of our joint venture. I do not know that it needs to be in writing, but in a deal worth several hundred million dollars, I would suggest there had better be a written agreement.

Ok, so where is it? If 25% is our "projected" ownership, that necessarily implies that there is some ongoing right or obligation to contribute additional capital. This is not really unusual, but I would sure like to see the written terms upon which we can be required to contribute more money. Is there a cap at 25%? If not, is there any cap? How much could we be required to contribute? Where are the agreements?

One more point for now. At the end of his talk, Mr. Lawton assured us that the Tribune is going to do an in depth series on this whole transaction. Will the Tribune reporter go into the depth required? Is the reporter going to demand the joint venture agreement and read it? Will the Tribune reporter even know that such an agreement necessarily exists?

Or will the report ask the City Manager, and then ask an opponent, and then just print their responses?