Why it matters.

It occurred to me yesterday that some might view my requests for information from the City of Great Falls as remote from the relevant, arcane, or even nit-picky. I thought, then, that it might make sense to discuss a scenario under which the requested documents could prove very important to the citizens of this community.

Mind you, the following is all very speculative and, frankly, unfounded. Why? Because the City won't release the documents! When we are forced to guess what might actually be at the heart of these transactions, is it really fair to criticize the accuracy of our prognostication? Let's try one example.

One area I have inquired about is the legal, contractual relationship between Electric City Power, the City of Great Falls, SME, and the other cooperative members of SME. For example, I have sought:

All contracts or other documentation of the relationship between ECP and other utility members of SME.

Any and all agreements, memoranda, etc., between the City of Great Falls and ECP and SME, as well as between ECP and SME including, but not limited to, all documents evidencing any joint venture or other ownership interest between or in ECP and/or SME.

Why is that information important to us?

You will recall that City officials have assured us that this project is safe for taxpayers because it will be financed with revenue bonds. In other words, the folks that put up the $180,000,000.00 for the City's share of the power plant will be repaid from the revenue of the operation. They will not be legally able to look to taxpayers for payment. Thus, no risk!

But wait! There's more!

Lets assume (speculate) that Electric City Power issues those revenue bonds. If you're a high falutin' New York City financier, are you going to loan ECP $180,000,000.00 on the promise that it will be able to sell 3 times the power it currently sells? I'm thinking....no.

So, maybe those revenue bonds provide a little security for the bondholders, say a promise by SME that, if ECP can't pay them back, SME will pay them. And maybe those bonds will say that SME's assets, including a $720,000,000.00 coal plant, will also be security for repayment of the debt.

But, then again, running a coal plant can be a messy endeavor. And these guys are financiers, not coal plant..er...runners. So, while they'll take the hard assets as security, that's not what they really want as security, they want cash. Or at least the right to it in the future.

"Aha," someone says. What if there were someone who legally had to buy all of ECP's share of the electricity at rates set to cover the cost? Then we could guarantee that ECP would have the expected revenue to pay the bondholders. That's so crazy, it...just...might...work!

Who is there who might be willing to commit to such an obligation? Who might irrevocably promise to buy the power? Hmmm.

Wait! The City of Great Falls could make that promise. It's no big deal. The power will be cheap compared to the market price, so it will be easy to sell. That way ECP is guaranteed the revenue it needs to make the payments, and the bondholders will be happy.

Voila!

Hold on, though. R.W. Beck predicts that, in 2015, there will be a surplus of electricity in the Northwest grid. (P.14) That's before factoring in the new 550 MW plant North of town. What does surplus do to prices? It decreases them.

There's also the risk of some sort of tax or regulation that hits coal fired electricity harder than 'greener' forms. (P.7)

What if these two things combine to make the Highwood Generating Station relatively more expensive than power on the open market? Then the City of Great Falls is purchasing excess power at a price greater than market prices. Best case scenario is that this power gets sold at a loss; worst case scenario is that the surplus can't even absorb it. Who pays then?

Yup. The taxpayers.

Is this definitely the way things will play out? Is it even likely? We don't know. That is why the City needs to give us the documents and why City officials need to have a very, very frank discussion with the citizens about the risks. Soon.