Story available at http://billingsgazette.net/articles/2008/12/16/news/state/26-coop.txt
Published on Tuesday, December 16, 2008. Last modified on 12/16/2008 at 12:36 am
Electricity co-ops' feud sparks lawsuit
By JAN FALSTAD Of The Gazette Staff
A family feud among Montana rural electrical cooperatives trying to build a power plant near Great Falls has evolved into a lawsuit.
Yellowstone Valley Electric Cooperative of Huntley has filed a lawsuit against Southern Montana Electric Generation and Transmission Cooperative and others, which are trying to build a coal-fired electricity generating facility near Great Falls.
The lawsuit filed Friday claims that the proposed cost of the 250-megawatt Highwood Generating Station has doubled from $456 million to nearly $900 million and that Yellowstone Valley Electric has been shut out of decisions since its officials started complaining about the rising costs and secretive management.
Yellowstone Valley Electric General Manager Terry Holzer said that last year he started negotiating a settlement with Southern Montana and regretted having to file a lawsuit.
"They have refused to negotiate," he said. "We feel we have to seek this action to add stability and predictability to our future."
However, John Prinkki of Red Lodge, who represents Beartooth Electric as vice president of Southern Montana's board, said he was disappointed by the lawsuit.
"They said they worked to get this resolved. I didn't see that effort," said Prinkki, who is also a Carbon County commissioner. "They have a long-term contract, and I'm really disappointed that they chose this course."
The lawsuit names other defendants, including Southern Montana's sister company, which has the almost identical name of SME Electric Generation and Transmission Cooperative, and the other four Montana rural co-ops: Fergus Electric, Mid-Yellowstone Electric, Tongue River Electric and Beartooth Electric. Electric City Power Inc., which represents the city of Great Falls, also joined Southern Montana and is a defendant.
After repeated complaints by Yellowstone Valley Electric, Southern Montana Chief Executive Tim Gregori and the board responded and set up another company, SME, to build Highwood. SME only represents the five parties supporting Highwood and excludes Yellowstone Valley Electric.
In Gregori's view, Highwood's future isn't threatened by this lawsuit.
"We see it as a related action, but an independent action," he said. "Highwood has been advancing without the direct participation of Yellowstone Valley since April."
Holzer said his co-op was basically kicked out of Southern Montana last April, without notice, and has no say in decisions made by the sister company. He also suggested that the new company was formed without legal distribution of the assets and liabilities of Southern Montana. Gregori disputes that, saying co-op officials knew of the vote to end its membership. The contract between the two runs another 22 years.
After the April fallout, Gregori said Yellowstone Valley Electric may never receive power from Highwood because there may not be enough to go around. Now, he said the source of electricity to feed the Huntley co-op still hasn't been determined.
"It could come from a variety of sources, and it could include the Highwood Station," he said.
Gregori said he isn't certain yet how much money has been spent on the Highwood project.
"We're closing our financial records for the month. I'd prefer not to comment on that," he said.
The five co-ops have 65,000 members, and Yellowstone Valley Electric is the largest with 16,500 members. It has spent $7 million to $8 million supporting Southern Montana.
The lawsuit filed by Billings attorney John Crist asked that Southern Montana allow Yellowstone Valley to quit the cooperative, that it produce a financial accounting of millions spent so far and that it pay Yellowstone Valley an undetermined amount of damages, including punitive damages.
The lawsuit also asked that Southern Montana return the electricity that Yellowstone Valley Electric was receiving from the Western Area Power Administration and the Bonneville Power Administration. Contracts for relatively cheap hydroelectric power produced in the Pacific Northwest are ending, and that loss spurred the Montana cooperatives to join forces five years ago to try to find less expensive electricity for their customers.
The Great Falls project was counting on low-cost and long-term financing from the Rural Utilities Service, but in February, the federal agency refused to fund more U.S. coal-fired plants. RUS cited environmental concerns over carbon dioxide emissions and regulatory risks.
Gregori then sought more expensive private-industry funding. The lawsuit said SME has negotiated a $1.3 million line of credit with First Interstate Bank in Great Falls and a $5 million loan from Stockman Bank.
Yellowstone Valley Electric's lawsuit claims that SME has incurred $2.4 million in debt to Southern Montana with no apparent means to repay the money.
Site preparation got under way this fall, and concrete has been poured on six of nine cooling towers. Highwood had to start construction by Nov. 30 to beat a Montana Department of Environmental Quality deadline. Gregori said he is waiting for state confirmation that those requirements have been met.
Two environmental groups have filed lawsuits against Highwood. And earlier this month, the U.S. Army Corps of Engineers suspended one of the project's building permits.
Contact Jan Falstad at jfalstad@billingsgazette.com or 657-1306.
TIMELINE
Yellowstone Valley Electric Co-ops' lawsuit
¥ 2003 - Yellowstone Valley Electric Cooperative of Huntley; Fergus Electric Cooperative of Lewistown; Mid-Yellowstone Electric Cooperative of Hysham; Tongue River Electric Cooperative of Ashland; and Beartooth Electric Cooperative of Red Lodge together to find affordable power for the coming decades by forming Southern Montana Electric Generation & Transition Cooperative, Inc., of Billings. Electric City Power, Inc., which represents the city of Great Falls, joined in September.
¥ 2003 - Building a power plant was not in the original commitment. Later, Southern Montana members decided to build a 250-megawat coal-fired generating facility near Great Falls, called the Highwood Generating Station.
The plant was expected to be generating electricity by August 2011 and be built and owned by Southern Montana.
Original costs were estimated at $456 million, but have ballooned to nearly $900 million.
¥ April 27, 2004 - Yellowstone Valley signs a wholesale power contract assigning its rights to buy relatively low-cost power from the Western Area Power Administration and the Bonneville Power Administration to Southern Montana.
¥ Early 2007 - Yellowstone Valley officials start to question the viability of Highwood and claimed its inquiries were dismissed by officials of the other four co-ops, plus Tim Gregori, chief executive of Southern Montana.
¥ March 2007 - Despite the lingering questions about Highwood, Yellowstone Valley (and the other four co-operatives supporting the plant) vote to extend contracts with Southern Montana from 2030 to 2048.
¥ November 2007 - Yellowstone Valley asked Southern Montana to let it leave. The lawsuit claimed Southern Montana refused.
¥ Early 2008 - Over Yellowstone Valley objections, Southern Montana started adopting policies benefiting the other four co-ops at the expense of YVEC. Also, the Rural Utilities Service, an agency of the U.S. Government, refused to fund more coal plants, including Highwood. The co-ops were counting on this expected low-cost and long-term funding.
¥ April 17, 2008 - Southern Montana kicked Yellowstone Valley out of the cooperative without notice, according to this lawsuit. However, Southern Montana General Manager and Chief Executive Tim Gregori said co-op officials were notified.
¥ June 25, 2008 - Southern Montana formed a sister company with a nearly identical name: SME Electrical Generation and Transmission Cooperative, Inc. or SME to build Highwood. SME is owned by four of the cooperatives, but excludes Yellowstone Valley.
¥ Yellowstone Valley claimed Gregori uses staff and resources of Southern Montana for SME and keeps financial details of Highwood secret.
¥ SME canceled an equipment order with Toshiba, which demanded financial penalties, a decision Yellowstone Valley claimed it was not a party, but may be liable.
¥ July 2008 - Gregori and SME trustees negotiate a $1.25 million line of credit from First Interstate Bank in Great Falls to help finance Highwood.
¥ October 2008 - Southern Montana and SME secure a $5 million loan from Stockman Bank. Yellowstone Valley claimed the Stockman Bank loan could not have been obtained by SME without Southern Montana's assets and credit.
¥ Oct. 31, 2008 - Yellowstone Valley claimed SME owes Southern Montana more than $2.4 million and has no way of paying the debt.
¥ Electric City Power, representing the city of Great Falls, is legally bound under Montana law to share information with the public. So, Yellowstone Valley claimed that Southern Montana refused to distribute hard copies of key financial information about Highwood, thus keeping the data private.
¥ Dec. 12, 2008 - Yellowstone Valley sued Southern Montana. SME. four other Montana rural electric cooperatives and ECP (the city of Great Falls). The lawsuit seeks reimbursement of the $7 million to $8 million Yellowstone Valley has spent, plus punitive damages and other legal remedies.