Article published Mar 20, 2008

SME meeting to discuss new funding possibilities

By KARL PUCKETT

Tribune Staff Writer

A coal-fired power plant proposed east of Great Falls will be the main topic of the annual meeting Friday of the board of directors of Billings-based Southern Montana Electric Generation and Transmission.

SME is the developer of Highwood Generating Station and supplies power to 60,000 rural customers from Lewistown to Billings.

The plant, if constructed, would replace inexpensive hydro-generated power from the Bonneville Power Administration that SME will lose beginning in July and entirely in 2011.

The meeting, which is not open to the public, is the first since the USDA Rural Utilities Service publicly announced in February it was suspending its low-cost loan program for new power generation projects.

SME, which was counting on an RUS loan, continues to work on arranging a new financial package to build the 250-megawatt facility, CEO Tim Gregori said Wednesday.

"We have not hit any insurmountable road block as of yet," Gregori said. "That's not to say there's not one out there, but we haven't hit one yet."

The board of directors will receive an update on land zoning, the plant's air-quality permit and financing efforts, he said. No major decisions regarding Highwood will be made, he said.

SME is made up of Beartooth Electric in Red Lodge, Fergus Electric in Lewistown, Mid Yellowstone Electricity in Hysham, Tongue River Electric in Ashland and Yellowstone Valley Electric Cooperative in Huntley. Yellowstone, the largest SME cooperative, also is the largest rural electric utility in the state.

Electric City Power, which is the utility arm of the city of Great Falls, is part of SME as well.

Highwood, if built today, would cost an estimated $790 million, up from the original estimate of $450 million.

Besides the 60,000 customers of the cooperatives, 13 large commercial customers of Electric City Power would use power from Highwood, but the city can't sell power to residential customers so Great Falls residents won't benefit.

Friday's annual meeting will be the second at which Highwood figures prominently.

Auditor Richard Matusiak reported during the Yellowstone Valley Electric Cooperative meeting Tuesday that CoBank, which is part of the U.S. Farm Credit System, "called" SME's $10 million line of credit on the project, said Terry Holzer, Yellowstone's general manager. A call means a loan was repaid on the demand of the lender, before it was due.

It was reported at the meeting that the call of the $10 million loan followed the decision by RUS to suspend funding for new generation projects such as Highwood, Holzer said.

The $10 million loan had helped SME plan for the Highwood project as it waited for the long-term RUS funding to come through.

Gregori said the SME cooperatives repaid the loan Dec. 30. The loan was not called, he said.

Holzer agreed that the loan was not prematurely called.

But he agreed with Matusiak's characterization in the sense that CoBank did not extend the line of credit to SME, which it had previously done.

The cooperatives had planned to repay the $10 million loan through electric rates after Highwood came online.

When the loan was called in December, the five cooperatives were forced to come up with the money immediately, Holzer said.

"We knew we would be responsible for repaying this, but we didn't know it was coming at this time and now we have to pay it," Holzer said.

Yellowstone took out a 10-year loan of $4.3 million to cover its share of the $10 million loan. The loan could contribute to future rate increases, Holzer said.

Yellowstone Valley just raised its electricity rates 7.5 percent in November. The increasing cost of wholesale power was the biggest reason, Holzer said. Beginning in July, SME is losing part of its contracted power supply from the Bonneville. The Bonneville power is being replaced by electricity from PPL Montana, which is more expensive, Holzer said.

The city of Great Falls, which initially was seeking separate financing for its share of the Highwood project, was not part of the loan from CoBank.