March 23, 2005

Manager: Cities can save with co-op power

By JAN FALSTAD
Of The Gazette Staff

Despite a recent legislative setback, plans are gung-ho to build a coal-fired power plant near Great Falls to serve residents of that city and customers of five rural electric co-ops.

The Montana Legislature recently killed a bill to allow Great Falls to require most residents to buy power from this plant to supply their homes.

However, Tim Gregori, general manager of the umbrella organization building the plant, said the city can accomplish the same thing by convincing residents they'd save money buying co-op power.

Gregori heads the Southern Montana Electric Generation and Transmission Cooperative. The SME represents Great Falls plus five rural electric co-ops with 23,000 members based in Huntley, Red Lodge, Lewistown, Hysham and Ashland. The cooperatives are nonprofit companies that sell electricity mostly to rural, sparsely populated areas.

SME wants to build a 250-megawatt, coal-fired power plant seven miles east of Great Falls. The plant, called Highwood Station, will cost $515 million and could be operational by 2010.

This plant should not be confused with the failed Great Falls natural-gas plant started, then abandoned, by NorthWestern Energy.

Gregori told more than 600 members at the Yellowstone Valley Electric Cooperative annual meeting in Billings on Tuesday that SME has made great progress, including:

· Options on the land.

· Installing on-site air monitors.

· Applying for air permits.

· Obtaining bridge or temporary financing.

· Finishing test burns of the coal.

· Completing a loan application that is 23 pounds and growing.

He also told the annual meeting that SME has enough land to build a second power plant, if needed, for future growth.

Yellowstone Valley gets 80 percent of its wholesale power from the Bonneville Power Administration that runs the Pacific West hydropower system, but that power contract begins to wind down in 2008.

That will thrust the co-op into buying electricity on the open market, which could get expensive quickly.

"It was cheaper in the long run for Yellowstone Valley and the other co-ops to build and own than to go out and buy the power," Gregori said.

Co-ops will be able to keep costs to their customers down compared to investor-owned utilities, he said, because utilities that have to make profits have higher borrowing costs and higher tax rates.

"In addition, they won't take risks for rural Montana service," he said.

Co-ops have been serving rural Montana for 60 years or more, Gregori said, and they need to control their own future.

"Montanans need to take Montana coal, burn it in a Montana plant and have the benefits stay in Montana," Gregori said.

Since the breakup of Montana Power, the state's hydroelectric dams and properties at Colstrip are owned by PPL Montana, whose parent company is in Pennsylvania.

A subsidiary of MDU Resources Group is completing a coal-fired plant near Hardin, but that power is being sold to Canada.

Finally, the never-ending drought in the Northwest will take another big bite out of utility budgets, perhaps doubling the costs in the summer, he said.

So, why a plant in Great Falls, when most of the co-op members live south and east of there?

SME hired a Denver consultant who determined that the site has the right combination of transmission lines, water and coal. The site is the same area that Montana Power Co. chose in the 1980s for a similar plant.

The best coal to fuel the plant would be from the Decker and Spring Creek mines on the Montana/Wyoming state line, Gregori said.

That most likely means transporting coal by rail.

One co-op member told Gregori that Burlington Northern Santa Fe would be a silent partner in the project like "a horse and a hare" and could overcharge to the point of ruining it.

Gregori said they've anticipated that problem and if the railroad overcharges, SME could build its own coal mine near Great Falls and use an independent rail line.

Since the Montana Legislature deregulated electricity and Montana Power Co. disintegrated, Gregori said, wholesale prices for electricity and natural gas have doubled.

Yellowstone Valley General Manager Terry Holzer said his co-op increased its rates 5.5 percent last year and will have a similar increase this year.

"I think it's responsible for us to raise our rates incrementally rather than hit customers with 25 percent increase in one year," Holzer said.

Even so, he said YVEC rates are 7 percent lower than NorthWestern Energy's and YVEC remains the lowest-priced regional co-op.

Jan Falstad can be contacted at (406) 657-1306 or at jfalstad@billingsgazette.com.