Thus Spake the Consultants
Burns & McDonnell, the consulting firm the outgoing city commission paid ~$60,000 to tell them what they wanted to hear, have told them what they wanted to hear. (“This is the consultant’s metier,” remarks a consultant friend of mine, via G-chat.)
The full report on Electric City Power is here. The bottom-line recommendation is that the City stay married to SME at least through 2011 and more than likely through 2019.
I wrote out some notes while reading the report — just quick thoughts, since I am sure this report will be the subject of discussion, on the blog and at the city commission, during some later time. Read my CliffNotes to the Consultants Report (with my thoughts in italics) after the jump.
-Rather bland title pages…I guess this is what’s to be expected from an energy consultancy.
- Hmm. A personal pet peeve: Misuse of the “be” verb on pg. 8. Same paragraph: a bizarre use of future tense to reference an act that should already have happened (the price-reduction as a result of the “blended rate”).
- “Information provided by the City, ECP, and all parties was used by Burns & McDonnell to make certain assumptions with respect to conditions which may exist in the future. While Burns & McDonnell believes the assumptions made are reasonable for the purposes of this Report, it makes no representation that the conditions assumed will, in fact, occur.” A good caveat to keep in mind while reading this report.
- “It is the opinion of Burns & McDonnell that this agreement will guarantee SMEC member systems it serves a competitively priced product that will protect the member systems and the customers they serve from market volatility until mid 2019.” — That’s sure not what Standard & Poor’s forecasted, which was “above-average retail rates”, the same thing YVEC has complained about. Burns & McDonnell cites “price certainty” (really?) and “protective provisions contained in the Power Purchase Agreement [with PPL] are favorable to SMEC”
- cites SME’s “continued success” and status as a “viable player”… strange…
- contains no reference to the mention in the RW Beck study that a natural-gas plant would not be “viable” in the current site, which was brought up in Dept of Interior correspondence recently; indeed, contains no mention of any obstacles to current SME building project
- dismisses right-to-know as not a major issue since City is not joining SMEC’s development arm
- mentions but does not give forecast on effects of litigation between YVEC & SME if the former’s contract is dissolved (YVEC’s executive director seems rather confident of the co-op’s chances of prevailing)
- Concludes that ECP is not charging enough for electricity at present (i.e., corporate consumers are getting a sweet deal). Would need to have a 32% rate hike to make the company “on balance” by 2011
- B&M makes a style error, calls the piece of legislation “Bill 25″ on p 32. Don’t they work with this stuff all the time? It should be “HB 25”
- ECP customers save money compared to the rates they would be paying if they were NWE customers, or so it is claimed.
- “We expect SMEC rates to increase by 2012, as the new gas-fired unit replaces lower-cost resources, particularly the BPA [Bonneville Power Admin] contract. However, SMEC’s relative competitive position will not necessarily decline, as the utility industry in general is facing rising costs.” I really do not see any justification by the numbers for this sweeping conclusion; again S&P has forecasted just the opposite based on the same SME-supplied numbers. One way or another, there really is a tremendous risk with running a power company with a single power plant, which is what SME is proposing to do; that’s an investor’s and consumer’s risk which a municipal government like the City of Great Falls should think twice about before getting too deep into the tar-pit of risk.
- “ECP is currently making money and reducing its indebtedness”; acknowledges a “core group of … customers who are completely satisfied with ECP service”
- The City “has a right to cost-based power from HGS based on its investment in the cost to develop HGS”… So does that not mean we retain this right as an investor even without ECP as we, not ECP (which as the consultants point out cannot issue credit), have offered SME a credit line?
- “Given the greater than 5 MW requirement for new ECP customers, it is not clear as to how many, if any, new customers ECP will be able to attract in the future.” Emphasis on the “if any” part; considering that our biggest customer (the refinery) consumes about half of that mark at the moment, I’d say anyone signing up for 5 MW is pretty darn unlikely.
- “Over the long term, if SMEC is unable to provide competitive rates for electricity relative to other competitors, ECP could once again be in a deficit situation without further rate increases.” Uh, yeah, that’s pretty much what we’ve been saying with the whole ‘volatility of the power industry’ thing.
The report’s recommendations
-Stick with SME through 2019, the expiry of SME’s subcontract of power supply with PPL
- 32% price hike would be required to bring ECP into the black, but might make customers flee. 10% increases are recommended, and could be incorporated probably without a flight risk [though on what reasoning this number is arrived at is not stated]
- hire a staff accountant for $60,000
- maintain our current level of ownership in the Highwood Generating Station, 3.5-5%
- ECP should stop attending SMEC board meetings. “This limited contact approach will enable SMEC to keep any proprietary or intellectual data confidential and will eliminate the possibility of the City or ECP personnel from having to deal with possible right-to-know issues.” So, in other words, ignorance is bliss. Keep yourself in the dark, and you won’t have to deal with nagging freedom-of-information questions. This is probably the most absurd recommendation.
- Report notes that ECP has not operated in keeping with Ordinance 2925 which says that ECP shall “produce revenues at all times” to keep ECP afloat (in reality, ECP has constantly robbed other City funds). This is something which ECP critics have constantly claimed, but which has never been officially acknowledged until now. Burns & McDonnell deserve a little credit for cutting through the BS. Consultants recommend updating ordinance to cope with a loss, build a reserve fund, and provide recommendations for “debt retirement” — a subtle poke at the propensity of ECP to make up rules, funds, etc. etc. on the spur of the moment.
- ECP be reduced to three board members on two-year-terms (rather than five on six-year terms); bimonthly rather than monthly meetings. I have no idea where this recommendation comes from.
When I lose my job will the city revise my taxes, service fees and provide debt reductions? Seems fair if they do it for ECP.
A real ‘turkey’ chock full of errors and will still cost their community MORE, in both dollars and integrity.
Come January there will be a (perceived) majority on the Commission. We’ll see if they have the stones to pull the switch.
Well did anyone expect anything different? Even the city manager admitted that the report failed to answer certain questions, if these questions were spelled out in the contract then they should not be paid until those answers are provided in a respectable report. Bet the city wrote the check even before the report was done.
I expected the report to tell the City to pull out immediately.
MarkJ: “Well did anyone expect anything different?
Yes. I expected a reccomendation to drop the whole mess.
Even the city manager admitted that the report failed to answer certain questions, if these questions were spelled out in the contract then they should not be paid until those answers are provided in a respectable report.
agreed.
Bet the city wrote the check even before the report was done.
Doubtful.
The Commission is bound to nothing in this report and cn choose to do what it thinks is best for the City. It will be interesting to see how this plays out in January.
The only commission candidate that was 100% opposed to ECP & HGP was Donna Zook who came up just a little short. I would not be surprised to see Bronson, Winters and Jones use the report as cover for maintaining the city involvment in ECP & HGP. I think Burow will join Jolley opposing continued involvement in ECP……….that is assuming the consultant’s report hasn’t swayed Jolley to join the pro-ECP forces (ONLY JOKING!).
Our city has wasted another $60,000 of our taxpayer funds. I see nothing in this report that our city manager could not have dug up himself. What are we paying staff to do, hire consultants to figure out the things staff should be doing? All the data and more was/is available at city hall for our city manager and staff to come to a conclusion on this ECP question (even the secret box). What is wrong with this picture? Answer: Incopentance!
E.J. I did not expect the report to tell the city to get out of SME because there is a signed and legal contract in place. The big question that needs to be answered is “how much would it cost the city to fold on the contract?” If the city gets out of SME before the contract expires, SME could collect damages against the city. What costs more; to stay until the contract ends or to get out now? These are things that need to be looked at. This is why I expected the report to state to stay.
GGG, “I see nothing in this report that our city manager could not have dug up himself.”
Yeah, if he wasnt running the City full time. According to articles in the daily, the City Manager begged the Commission for guidance on what they wanted him to do. They refused to do their job which is set policy for him to carry out.
I am not sure the problem is “Incopentance,” Great Falls Guy, but I am about halfway through the report right now and so far just about everything I have read is a recap of facts that anyone who has followed the story closely could recite from memory.
Right GeeGuy, including the head man. Everyone can draw there own conclusions, I cvertainly have! A nice man, but a poor leader inmy book.
EJL, I disagree that our leader has been running this city. Define running (leadership) please…..
Just wondering what economic column the ECP will put the 60,000.00 dollar expense in?
I also wonder if (based) on the past years of ECP moneys lost, has any one come up with a number thru 2019 how much more we will loose or make?
I f past experience is worth anything then according to Ms Balzarini’s form of accounting that $60,000 will appear on ECP’s books as a CREDIT.
GGG: EJL, “I disagree that our leader has been running this city. Define running (leadership) please…..”
Quite simply, the role of the City Manager is to manage the City on a daily basis. His role is not to make policy (despite what other City Managers have done). The City Commission’s role is to make policy (despite previous sitting Commission’s delegating this authority by default to previous City Managers). The City Manager does provide leadership to the various City Departments, he does not lead the Commission.
EJL, so I guess that his leadership over the city departments has been just peachy-dandy with you. In your mind he would promote Ms. Balzarin to the soon to be vacant assistant manager position as a good leadership decision!
Actually there is a very strong possibility that Balzarini will in fact become the Assistant Manager. EJL, you are 100% correct – the City Manager is directly responsible for the overall opeation of city government and it is the duty and responsibility of the City Commission to set policy and provide dirction/perameters for the City Manager. I find it interesting the same people who complained about John Lawton directing the City Commission and not taking any direction from the Four Stooges (excepting Mary) now complain that our City Manager is not doing what Lawton did. You canot have it both ways.
It is really silly to allege that most of the report came from city “staff” and then complain the same city staff should have done the report. Had the city staff actually compiled a report very few would have believed the report and many would be yelling for a private consultant to give a fair & balanced report. Damned if you do and damned if you don’t.
I hope I’m wrong, but I don’t see much change with the City Commission with exception there will be more 3-2 votes.
It is ironic that Gregg’s first comment was complaining that content of the report seemed to come from City Staff. Where was he expecting information to come from? West Law? Consultants usually require extensive input from clients.
Anonymous Says at 5:52 pm
EJL, so I guess that his leadership over the city departments has been just peachy-dandy with you.
I haven’t heard of anything negative. Perhaps you could provide some examples?
Judd, my first comment you’re referring to actually wasn’t my first, it was on a follow up piece by Travis.
You’re right, though, in that I am guilty of sloppy writing. Instead of saying that the information “looks like it came from ’staff,’” I should have said it looks like it was written by staff. I agree that much of the information given to Burns & McDonnell necessarily came from City staff. I think, though, they were paid to apply some independence and shake off the spin. It doesn’t seem to me that they have done that.