March 16, 2009

City, accountant debate energy figures

By RICHARD ECKE
Tribune Staff Writer

Great Falls accountant Larry Rezentes does not believe the public is aware how much money the city has sunk into its electrical energy ventures.

"This is a total of $6 million in taxpayers' money that has been lost in this money-losing proposition," Rezentes said.

Coleen Balzarini, director of the city's Fiscal Services Department, disputes Rezentes' conclusion.

"He's double-counting somewhere," she said. "You can't just look at the liabilities and not look at the assets."

But Rezentes questions the city's listing of assets.

"The money's been spent and Highwood (the Highwood Generating Station) is not going to be built," Rezentes said.

Balzarini said she recently did the math and discovered that if Electric City Power — the city's utility arm — suddenly was liquidated, the city would lose about $4.75 million on paper.

However, Balzarini said the city hopes to improve Electric City Power's financial picture through stable rates from its power supplier and increasing revenues from power contracts with its customers.

Getting the city's power business in the black also would help repay other city departments that are owed $1.5 million by the energy venture.

"That's money that's not going to be available to other city programs because it's been spent on Electric City Power," Rezentes said.

The city also has granted Southern Montana Electric Generation & Transmission Cooperative, the developer of the Highwood power plant, nearly $1.2 million worth of water credits in return for lower-cost power. Those credits could be redeemed by the power plant, which was originally slated to coal but recently SME said natural gas is an option. If a coal- or natural-gas-fired plant is not built, Electric City Power might owe SME that money as well.

While city officials hope Electric City Power's financial picture improves in the coming months, Rezentes wants the city's energy operation shut down immediately because it is losing money.

Electric City Power Board member John Gilbert said that shutting down Electric City Power could backfire if the city then has to cancel its power contracts with customers. That could leave the city liable for fulfilling those contracts.

"I don't think that's prudent fiscally," Gilbert said.

"You don't just shut the thing down," Rezentes said. "Customers of ECP should be given a transitional period, perhaps six months, to transition to another source of power, presumably NorthWestern Energy."

Rezentes acknowledged the city probably is not inclined to close Electric City Power, but he still wants the public to be aware of the negative numbers. He said the city's electric utility has run up $1.8 million in losses since its existence. The City Commission voted to formally create Electric City Power on Nov. 1, 2005.

Rezentes and Gilbert are both certified public accountants.

Gilbert has encouraged the city to hire a consultant to advise officials on whether it's a good idea to stay in the power business. He also believes it may not be a bad idea for the city to create an exit strategy.

"I guess what the taxpayer needs to be concerned about is what the future obligations of the city may be," Gilbert said. "I think the costs are all borne, as long as ECP starts at least breaking even."

Additional Facts

Water box:

An issue of water rose to the surface after developers said last month that they might build a natural gas-fired power plant east of Great Falls, rather than a coal-fired plant.

The city and the power plant developer have an arrangement over the future use of city water. Southern Montana Electric sold electricity to the city of Great Falls for several years at less than full price, in return for city credits, which can be redeemed for raw water for the plant.

The water credit plan ended in December, with a final tally of $1,186,062 worth of credits owed to SME. If the gas plant is built, the water credits would be satisfied slower than if a coal plant had been built. If the plant is not built, the city would appear to owe that money to SME.

Figures

Here are figures for Electric City Power through December 2008:

The total spent on coal-fired power plant development is $2.3 million, including a $1.5 million First Interstate Bank loan, $273,897 in interest on the loan, and $514,997 in city cash spent.

Advances from other city funds: $1.5 million

ECP changes in net assets (losses): $1.8 million*

Water credit: $1.2 million

Total liabilities: $5.7 million

Total assets: $4.4 million

Cost to city if ECP immediately liquidated: $4.75 million

Sources: City of Great Falls Fiscal Services; *Larry Rezentes' figure based on city data through Nov. 30; liquidation estimate by Coleen Balzarini