Article published Apr 1, 2008

Montgomery offers to sell SME power

By KARL PUCKETT

Tribune Staff Writer

Texas-based Montgomery Energy is pitching to sell electricity to Southern Montana Electric Generation and Transmission, which has run into financing and environmental challenges in building a coal-fired power plant to generate its own power.

Montgomery is planning to break ground by summer on a 275-megawatt natural-gas-fired power plant north of Great Falls. It is power from that facility that Montgomery is offering to sell to SME.

SME hopes to build a 250-megawatt coal-fired power plant called Highwood Generating Station east of Great Falls, but it has yet to arrange financing, and the project is facing legal challenges and environmental opposition as well.

Montgomery made the offer in a March 4 letter to SME, which is made up of the city of Great Falls and five rural electric cooperatives.

Montgomery says it could offer a long-term solution to SME at a "fraction of the cost of the proposed Highwood project." Financial institutions are not willing to finance coal-fired power plants, the letters says.

"Our facility has no more hurdles and is ready to begin construction immediately," the letter states. "All financing for the project is in place."

The city of Great Falls said thanks but no thanks in a response letter sent Monday.

Coleen Balzarini, the city's fiscal services director, said construction of the Highwood plant continues to be a viable option, even though the project has faced challenges.

SME is aware of a number of knowledgeable financial institutions that still are willing to finance coal-fired facilities, she said.

"Southern Montana and its customers have energy supply through 2011 and continue to work on constructing Highwood Generating Station, which is base load," Balzarini said. "It's really not timely for us to be looking at energy contracts for peaking and firming power."

Base load is the total power load, or demand, that exists 24 hours a day. Peaking and firming power is supplemental electricity that's purchased to cover needs not supplied by the source supplying the base load power.

Natural gas plants typically supply peak and firming power while coal-fired facilities are used to meet base load demands.

Montgomery's Taylor Cheek said there's doubts Highwood will be built and "we have to sell power to somebody.

"It might as well be SME as opposed to anybody else," he said.

Critics of Highwood have urged SME to replace the power supply it will lose in 2011 from another source rather than building the coal-fired facility.

The city's Balzarini didn't rule out SME purchasing peaking or firming power from Montgomery in the future, but not base load.

"Out in the market right now, gas-fired generated electricity is running around $70 to $80 a megawatt," Balzarini said.

SME currently is paying $50 to $60 a megawatt for its electricity.

SME hopes Highwood can produce power that costs in the mid-$50s per megawatt, she said.

However, the plant's rising construction estimates will impact the final cost.

Highwood could cost as much as $790 million and SME is now seeking private financing after the federal government decided against issuing any more low-cost loans for new generation power facilities in light of skyrocketing construction costs and an uncertain regulatory climate due to concerns over greenhouse gas emissions.

SME will lose its hydro-generated power supply from Bonneville Power Administration in 2011, which is why it's proposing to build Highwood.