Article published Nov 11, 2007

City's pilot program modest, yet criticized

By RICHARD ECKE

Tribune Staff Writer

Plans by the city's electric utility arm to sell power from the proposed Highwood Generating Station remain high-profile.

Meanwhile, the city has quietly launched a pilot program in which Electric City Power provides electricity to 17 residential or small-business customers, mostly in Great Falls.

Coleen Balzarini, city fiscal officer, said Electric City Power began providing power to the 17 locations Oct. 1. The city wants to demonstrate its utility arm can successfully provide power to residential users, she said, although state government has effectively blocked the city from serving most residences in Great Falls. NorthWestern Energy provides power to those customers.

That's not to say the Legislature might not change its mind someday, Balzarini said at a Nov. 5 Electric City Power board meeting.

"Who knows whether future legislative changes will happen," she said.

Under rules laid down by the Montana Public Service Commission, the 17 hand-picked customers are allowed to receive electricity, but no new customers can be added, she said.

"As we all die off, it will go away," Balzarini said with a chuckle.

The launching of the pilot program was not prominently announced. Even so, with Electric City Power under a microscope these days, the issue has prompted some criticism.

For one thing, the city didn't pick its residential customers at random, but chose people in the know about energy matters, including several city officials.

In addition, the customers pay less for their power than NorthWestern Energy's default power supply rate.

Balzarini recently denied contentions by Great Falls blogger and attorney Gregg Smith that the city was selling power to this small group of customers at a loss.

"We are not subsidizing those rates," Balzarini said.

Smith cited a purchase of a seven-megawatt block of power from Southern Montana Electric Generation and Transmission Cooperative by the city, approved by city commissioners in November 2006, that cost $52.80 per megawatt hour. He said the favorable rates are going to "insiders," including SME General Manager Tim Gregori, the main promoter of the Highwood Generating Station, who lives in Billings. SME is the developer of the proposed coal-fired plant east of Great Falls.

"Tim Gregori's getting this deal," Smith said. An elderly woman living six blocks from the Civic Center is not getting the same price break, he added.

The $52.80 per megawatt is higher than either option available to the pilot program customers, who pay either $52.37 per megawatt hour for their electricity, or $47.21 per megawatt hour, depending on which plan they selected. Those figures do not include transmission costs or the city's 3 percent administrative fee it tacks onto the supply costs.

The city's explanation for the new contract in November 2006 cited the need for more power to serve additional customers, including those in the pilot program, as well as existing customers who needed more power.

Balzarini said it's not accurate to suggest the city is selling the power at a loss, explaining the pilot program customers "are probably taking a little bit of power from each one of these (power) blocks," not just the most recently negotiated one.

"Our average electricity rate with all of our blocks of power from Oct. 1, 2007, is $46.44 (per megawatt hour)," Balzarini said. That's less than either amount charged under the pilot program. Pilot program customers use .161 megawatt hours of power, which is "such a small piece" of Electric City Power's energy portfolio, Balzarini added.

"It's not like that seven megawatts is taking care of this group," she said, which is why the city doesn't have to subsidize the rates.

Smith said the city either is losing money on the pilot customers or making a very small amount of money from them. Either way, Smith said Electric City Power still lost more than $400,000 last year, which he believes might come back to bite local taxpayers. City officials say they will attempt to pay off any shortfalls by increasing prices for Electric City Power customers first, before considering asking city taxpayers to chip in.

The city got a more favorable rate on another block of power it also agreed to buy last fall. At the November meeting, the city agreed to buy a 12-megawatt block of power from SME for $47.45 per megawatt hour from January 2009 to March 2011.

People under the pilot program's optional service plan will pay a steadily increasing amount and end up paying $52.37 per megawatt hour by July 2010.

The 17 people and businesses signed up to receive the power under the pilot program are: City Manager John Lawton, city fiscal services operations supervisor Martha Cappis, Balzarini, the 10 Hundred Building, Bennett Motors, Source Giant Springs, Lacy & Ebeling Engineers, First Interstate Bank, accountant Randy Boysun, engineer Lee Ebeling, Gregori, Assistant City Manager Cheryl Patton, attorney John Stephenson-Love, rural co-op official Bob Walker and Electric City Power board members George Golie, Randy Gray and Bill Ryan.

Earlier, Lawton told the Electric City Power board that the city specifically wanted customers for this program who knew a lot about energy. He said the program was not aimed at "widows and orphans."

Smith said the city got away from its original purpose, which included serving residences, when state regulators and the Legislature wouldn't allow Electric City Power to serve homeowners. The pilot program emerged as a compromise between the city and the state Public Service Commission.

Balzarini said the city is pursuing the pilot program to demonstrate its ability to serve residences.

"What are we really learning, that Electric City Power has the ability to read meters and send bills out?" Smith asked.

Balzarini said NorthWestern Energy reads the meters and passes the information to the city. Bills to pilot program customers will be different, however.

So, how do the costs for the new program stack up against NorthWestern Energy's rates?

According to city figures, NorthWestern Energy's default power costs $65.36 per megawatt hour as of Oct. 1, including transmission costs. That is compared with a cost of $61.34 per megawatt hour for electricity under the city pilot program's Standard Service option, or $59.77 per megawatt hour under the city pilot program's optional service contract.

Either way, the city's price is less than NorthWestern's default rate. NorthWestern Energy charges its customers a blended rate that includes default power costs.

Balzarini said the city has "fixed-price contracts" with SME, but NorthWestern Energy doesn't have that luxury with its default power supply. She said the city twice tried to get the Legislature to agree to allow Great Falls residents the choice to buy Electric City Power, but legislators refused.

The pilot program, which is approved and overseen by the Public Service Commission, included a requirement for the city to put up a $100,000 cash bond to back the program.

Meanwhile, Balzarini said it is strange that some Highwood Generating Station critics lambast the proposed coal-fired plant, then complain local residents won't be able to buy electricity from Electric City Power. The coal plant, if it is built, would be expected to begin providing power to Electric City Power and rural electric co-ops in either 2011 or 2012.

Smith said he believes the city has gotten off track because Electric City Power sells electricity to the Barrett Minerals mine in Dillon and other out-of-city customers, as well as Great Falls businesses and public agencies. He argued the city should have re-evaluated its energy plans when the state blocked its efforts to serve homeowners, and when cost estimates to build the coal-fired power plant jumped by nearly half.

Instead, city officials "just sort of shrugged their shoulders," Smith said.

Great Falls city commissioners have firmly backed Electric City Power, and all but one has supported the coal-fired power plant. Commissioner John Rosenbaum has argued that the power plant will help provide reasonably priced power to Montanans.

City government would need to sell revenue bonds before it could claim an estimated 15 percent share of the power plant. So far, the city has signed up customers with energy needs of about 30 megawatts.

"We'll see what the financial markets do with that," Smith said.