Article published Sep 14, 2007

Great Falls taxpayers paying the piper for Electric City Power

By LARRY REZENTES

The City Commission recently authorized $1.4 million in a set-aside from "scattered city funds" to be paid to Southern Montana Electric. John Lawton, city manager, was quoted by the Tribune as saying that SME had fluctuating needs for cash and, referring to them, stated "businesses need cash sometimes."

Mr. Lawton described this need as representing deposits from customers, but SME's customer is Electric City Power and, namely, the city of Great Falls.

What SME is really expressing is its desire for repayment by Electric City Power. The primary debt Electric City Power owes to SME is money owed to SME based on ECP's subsidizing of the price of power to its customers and SME's willingness to temporarily finance the losses resulting from this under-pricing in the interest of its desire to obtain customers for the Highwood Generating Station.

In past response to inquiries, Lawton stated that the framework for repayment to SME had not been agreed upon. We were assured, however, that repayment of the amounts owed to SME to finance the under-pricing of power would notcome from general funds of the city.

I have stated before, in a prior guest opinion, that the poor business decision to under-price was a conscious decision based on the desire to entice new customers by pricing power at rates that could not be sustained in the interest of building a customer base for the Highwood Generating Station.

This subsidy to customers of Electric City Power is now being called for repayment (termed a "deposit") by SME. SME wants its money! But it is happy to provide a rationale to the city in the form of a request for a "deposit" and to sign an agreement documenting the transaction as payment in that form.

SME knows that with the city's posting of a "deposit" in the form of a letter of credit or other liquid asset, it can borrow now, secured by the account receivable from the city, with the lender assured that the receivable serving as collateral will be repaid based on the deposit. This "deposit" can be converted into a repayment by the city later, when the time is more politically expedient. Of course the city will not own up to the fact that these subsidy monies are now being recalled by SME. The city has left itself vulnerable to a call of amounts owed by it to SME by not having a written agreement in place.

I have requested from City Fiscal Officer Colleen Balzarini financial statements for Electric City Power to allow me to derive numbers for the amount of the losses and liability to SME generated by the under-pricing of the electricity it sells. My request was denied, with her stating that it "would be inappropriate and misleading to give you incomplete information."

Yet ECP emphasizes in its PowerPoint presentation to the city of Helena that "ECP maintains an open-book policy where any customer will have access to our records."

So Electric City Power customers have access to ECP's numbers but not members of the citizenry of Great Falls.

Extrapolating, however, from prior history, amounts owed to SME could be in the amount of $1.2 million, and total losses generated by Electric City Power from inception are probably in the range of $1.3 million. Poor decisions, and lack of oversight of Electric City Power by the mayor and City Commission, have resulted in large losses incurred as a result of the city's operation of this business, large debt to SME to fund these losses, and now SME is insisting on repayment and the citizens of Great Falls must now pay the piper. This combines with $2 million the city has spent on investigatory and other startup expenditures to set the stage for its participation in the Highwood Generating Station: a total of $3.5 million in round numbers plus the amount of other debt on the books of ECP that ultimately will have to be repaid.

The mayor and City Commission missed a golden opportunity to redeem themselves by saying no to the further expenditure of money on this project, but instead approved a long-term contract with Electric City Power.

They also, at the same time, failed to call a halt to the misrepresentations being made by Electric City Power in its attempt to secure additional customers through a sales strategy that emphasizes cost savings to customers that cannot be sustained.