Coal Plant Discussion

One of the difficult things we've encountered in trying to analyze the coal plant transaction is the fact that information is often found or generated in bits and pieces. Further, when City Staff are asked about various components of the deal, it is rarely within a context that allows meaningful discussion. Instead, it is usually within the context of a meeting where the ability to prod and question is very limited, if not absent.

So, with the help and suggestion of a City Commission candidate, Mary Jolley (and a teenaged videographer) we're going to try something new. I obtained a DVD copy of last week's City Commission Meeting (6/12/07). With this copy, we can take a little more time to address Staff's statements.

First, let's consider the "water credit." This is the arrangement whereby Electric City Power offered to sell its power for less than it pays for it, the difference being made up by a payable to SME that is secured by the City's water.

Here is what the Electric City Power Executive Director has to say about the water credit:




According to Ms. Balzarini, since the City was inexperienced when it decided to get into the power business, the water credit was created as a "buffer" or "safety net" for the utility.

See, this has never made sense to me. If you're new to a business, why would it be a "safety net" to deliberately price your product below your cost? Why would you intentionally agree to subsidize your customers while growing a huge debt to your supplier? That's not a safety net, it's a leash to your supplier.

Plus, we knew the locked in price when we agreed to give the water credit discount to our customers. SME went out, bought the power from PPL Montana, and we knew that. We just intentionally discounted it and made up the difference with water.

The only "safety net" we have seen is the City's touting its subsidized price as providing a great deal for its customers.

According to Ms. Balzarini, the water credit is a $5.50 per megawatt hour credit:




That's not quite right either. It's a $5.70 credit. That's not a huge inaccuracy on her part, but you need to remember this is not some mystical, moving number. SME went out and bought its power from PPL for $41.70 per megawatt hour and sold it to the City for resale at $36.00. The difference is $5.70, and that is the extent to which ECP's rates are subsidized.

Ms. Balzarini then goes on to compare rates between Electric City Power customers and Northwest Energy (NWE) customers:




For example, she states that in March 2005, when ECP customers were paying $36.00, NWE customers were paying $44.15. Fair enough, but remember that we were actually paying $41.70 for our power with the water credit. Further, had those same NWE customers purchased their power at the same time we did (and SME did), they too would have been paying $41.70 instead of $44.15. It's called locking in your rates. Most homeowners have done it. It's a real smart play in times of rising rates.

She then notes that in March 2006, Electric City Power customers were paying $40.00 and NWE customers were paying about $45.65. Add the water credit to what the ECP customers were paying. Was that a great deal?

Next we have Mary Jolley asking about the water credit:




Mary makes a couple points. First she says that the accrued water credit debt needs to be repaid to SME within 60 days if the coal plant is not built. She then comments that the citizens have about a million dollars worth of exposure to SME for this water credit debt.

Ms. Balzarini responds that the million dollar debt to SME is "down to" $800,000.00 because we "have actually made money on the surplus that we had." I'm not really sure how the water credit is being paid down. It's not contemplated by the agreement that it will be repaid until 2009. There's really no 'mechanism' for it to float up and down, so something must be happening in the accounting that is not contained in original transaction.

Finally, our City Manager responds:




First, he says taxpayers don't owe the money to SME, the electricity fund owes it. First of all, aside from being smoke and mirrors (who do you think is responsible for the fund's debts?) it is demonstrably false. The CITY OF GREAT FALLS contracted with SME to incur this debt. If you can find where SME agreed to only accept repayment to the extent there is money in the electricity fund, please point that out to me!

Second, he asserts there there is no 60 day repayment provision. False. We might argue semantics and point out that the agreement only provides that the City will "commence" making payments in 60 days, but aside from the misleading nature of the statements let's talk about the real issue.

We're talking about a debt that is anticipated to be in excess of $1,000,000.00, and the City Manager rubs a citizen's face in the fact that "we have never negotiated the repayment terms in the event it actually had to be repaid." Well, that's ok, right? SME is a nice bunch of folks. I'm sure if the coal plant isn't built, they'll be happy to wait, oh, ten, twenty years to get their money. And really, that will be the best time to negotiate the repayment terms, won't it? After we already owe them the money?

City Manager Lawton claims that this sum is "due to be amortized over several years." Oh really? Show me that in the contract, please. (Hint: It's not there.)

This is good utility company management? Kind of like spending millions of dollars without a contract?

I have been harping all along that our Staff refuses to take a hard look at the potential downside to this project. This type of statement just clarifies that. Why do we need to negotiate arrangements in case the plant isn't built? That can never happen, right? Nothing ever goes wrong, right? "There's no risk."

Doesn't it seem like many of the statements offered to our City Commission sound good, sound right, but maybe are not borne out by...oh...say, the facts?