Electric City Weblog

An Unimpressive Report, Part 2 (…sort of.)

A few weeks ago, I wrote a post about the Burns & McDonnell consulting report discussing the ongoing viability of the City’s electric utility venture, Electric City Power (ECP). I’ve been meaning ever since to write Part 2 of that post, and I guess this will have to pass as same. The qualification (sort of) is necessary, though, because intervening events and information really expand the scope of the piece from an analysis of the support for the conclusions offered in the report to a more general analysis of the viability of ECP, as well as consideration not only of whether the conclusions are credible as a matter of substance, but also whether the work that went into this remotely justifies the expenditure of sixty thousand of our dollars.

For example, in a brief conversation with City Commissioner Jolley today, I learned that the Commission received some very interesting information in their Friday packets. Apparently, a private auditor reviewed the “confidential” SME minutes, and determined that the City of Great Falls never intended to purchase 25% of the Highwood Generating Station’s power (and, therefore, a 25% stake in the plant), but instead was obligated to purchase that much power in order to provide guaranteed revenues to support SME’s loan application with the Rural Utility Service (Caveat: I spoke with Commissioner Jolley on my cell phone while traveling to Missoula to watch the Griz annihilate Stephen F. Austin. I lost the connection and may have misunderstood exactly what the report says.) I will be getting ahold of the hard copy in the next few days, and will  post it online for you to read.

Likewise, Cataract City pointed out this editorial piece from some Beartooth Electric Co-operative customers who are slightly more than dissatisfied with their co-op’s involvement with SME and Tim Gregori. I strongly urge you to read the whole thing, but here’s a little taste:

Beartooth members have been given no information indicating a financial benefit from this plan or how it falls within the cooperative’s charter. The leaders who kept members in the dark about the failed Highwood coal plant need to meet with members, justify this project, and answer the following questions:

Why and how will a new loan absorb the old Highwood debt?

What is the Beartooth share of the $9.1 million write-off?

Where are the cost/benefit analyses for the buy versus build power strategies?

What are the anticipated operating costs for the plant?

What overhead will Southern and Beartooth pay to manage development and implementation of a power plant?

Sound familiar? Don’t you want to just reach out and give the Beartooth folks a little hug and reassure them that there’s “no risk?” I sure do.

Incidentally, and coincidentally, Beartooth Electric was the member cooperative utilized by Burns & McDonnell in Table 2.2 to demonstrate that SME’s electrical rates are less than those of Northwestern Energy. Compare that to the statements of Beartooth’s actual members, who state: “An October electric bill for a residential customer using 1000 kilowatts shows bundled supply and delivery costs (total electric bill) of 9.36 cents per kilowatt hour for NorthWestern and 13.50 cents per kilowatt hour for Beartooth, not including Beartooth’s monthly surcharge. Adding the surcharge, which covers the member’s share of approximately $40 million spent on the failed Highwood coal-fired generation plant, brings the Beartooth cost to14.38 cents per kilowatt hour.”

But I digress. Let’s return to the Burns & McDonnell report and pick up some miscellaneous loose ends:

• Gas Plant

We all know by now that SME has abandoned its plans to build a coal-fired generating station in favor of a natural gas plant. Interestingly enough, Northwestern Energy also plans to build a gas plant. According to Burns & McDonnell, p. 2-6, the gas plant will cost $250 million, and will produce 120 MW. (According to the Beartooth piece, it will cost $270 million). It is unclear whether this sum is in addition to the roughly $40 million SME has already spent.

Burns & McDonnell also tells us that Northwestern Energy will built a 200 MW plant for $206 million. Now I am no $60,000.00 power expert, but it seems fairly apparent that Northwestern Energy’s plant will be almost 18% cheaper than the SME plant, yet will produce 67% more power. Don’t worry, though, “[d]uring the next couple of years, Burns & McDonnell would expect SMEC to develop commodity risk management strategies to mitigate the increased risk of obtaining fuel supplies and operating the HGS plant.”

In other words, it might not look like it pencils, but they’ll figure it out going forward. Don’t worry, folks, you’re in good hands with Balzarini, Gregori & Co. The consultants they hired and paid $60,000.00 even say so.

• Right to Know Issues

Faced with the Montana Constitution’s stern admonition that “No person shall be deprived of the right to examine documents or to observe the deliberations of all public bodies or agencies of state government and its subdivisions, except in cases in which the demand of individual privacy clearly exceeds the merits of public disclosure,” Burns & McDonnell executed a $60,000.00 punt play.

See, the City has invested millions of your tax dollars into a private business that insists you don’t have any right to know what it is doing with your money. This is made even more problematic by the fact that people whose salaries are paid by your tax dollars get to know things about the private business, and it makes them really uncomfortable when the citizens to whom they are supposed to be accountable demand accountability. They would much rather keep all these private things private and help out their private friends because, well, the people who pay taxes are sort of obnoxious, harassing and often smell a little funny. So, what to do?

Burns & McDonnell to the rescue! Rather than tell the unwashed what the City and SME are doing with these tax dollars, just don’t go to the meetings. Then staff can plausibly deny that they know anything and there’s nothing to tell the public! (No, seriously. That’s what the report says.)

• Enabling Ordinance

Much has been made of the fact that the City ordinance that created ECP requires that it set its rates so as to “operate on a self-sufficient and self-sustaining basis and to produce revenues at all times sufficient to pay all operating, maintenance, debt service, repair and replacement costs of the Corporation and to provide reserves necessary or desirable for working capital, capital improvements and replacements and rate stabilization purposes.” ECP has never complied with this ordinance, and the City Attorney has even admitted that it’s failure to do so is illegal.

Coleen Balzarini Burns & McDonnell suggest that the ordinance is really, really hard to comply with because it “does not state any time period for its criteria of ‘reventues sufficient to pay all ECP expenses,’” so it is “basically an ineffective tool for examination and evaluation of ECP’s performance.”

First, as far as a time period, I have one. How about ever?  How about the fact that it has never complied with the statute? (Contrary to Burns & McDonnell’s claim, it is not fair to claim ECP is in compliance now; one little surplus does not erase years of deficits.)

Second, notice the slight of hand. Notice how they have converted a fiscal mandate into an evaluative tool.  The ordinance does not exist as a “tool for examination and evaluation,” the ordinance was designed to prevent what is happening now from happening. It’s not supposed to bleed money.

Also, who thinks of revenues and expenses as evaluative terms? Accountants, that’s who. Like…oh…our Fiscal Services Director. Think she had any input here?

The best part, though, is Burns & McDonnell’s recommendation to comply with the ordinance: change it to fit what we’re doing! Nary an idea for operating within the fiscal constraints. Nope. Eliminate them. (No, seriously. That’s what the report says.)

• Future Projections

Guess what? Burns & McDonnell thinks the City should stay the course on SME.

Why?

Because all of the rosy predictions we have been hearing since its inception will come true and then we can pay ourselves back for all the money we spent. See, this is right on the verge of being a really great business, so when we magically increase our revenues by 10%, the venture will be profitable and we’ll start seeing a return on investment. We’ll ignore the first five years of the venture in favor of the last three months; all upticks are permanent. Stick out, it’s only going up from here. (No, seriously. That’s what the report says.)

It’s quite late, and I’ve been up for over 20 hours. More to come…

Posted in Coal Plant, Great Falls City Government, Open Government | 7 Comments »