The city continues to lose money in its Electric City Power program. In its last fiscal year it lost $425,000. As of December, an additional $200,000 had been lost: $35-$40 Thousand per month currently. This, because it is selling electricity for less than it is paying SME for the electricity. It is able to do this because the losses are being funded by debt it is incurring to SME (currently over $1 Million). City Manager John Lawton stated to the Tribune that these losses are Òno big dealÓ. SME is allowing the city to not fully pay for the power it is purchasing and in return is being promised future water to be used by the Coal Fired Power Plant. This is what the city refers to as a Òwater creditÓ. In fact, is debt that will have to be repaid. Debt being incurred as a result of Electric City PowerÕs subsidizing of sales of electricity to its customers, including commercial customers such as Federal Express. If the plant is not built, Electric City Power will have no future ability to sell water used by the plant to pay the debt to SME.
RW BeckÕs review of the follow-on Highwood Generating Station program stated:
á Estimated cost of construction has grown from $515 Million, to $720 Million, an increase of 40%.
á Estimated operating costs have grown from $5.23/MWh to $9.86/MWh, an increase of 88.5%.
á Estimated cost of Coal has grown from $8.50 per ton to $12.00 per ton, a 41% increase.
á That the projectÕs cost of power is expected to be ÒcompetitiveÓ in the Pacific Northwest marketplace, though no support is given for this conclusion, as no estimates are given of the market price of power so that these can be compared with these skyrocketing cost estimates.
á That the city will need to achieve a significantly higher amount of power sales (currently estimated at 20 MW) to key accounts to support Electric City PowerÕs 25% interest in the project (62.5 MW).
Mayor Stebbens, indicated to the Tribune that information contained in the RW Beck study was Òvery positiveÓ.
I disagree with the City Manager and Mayor Stebbens. Losses to the Electric City Power are a big deal. Cost estimates so far off that have been used as a basis for the cityÕs decision to proceed represent a potentially disastrous outcome for the economics of this project and are not Òvery positiveÓ news for the citizens of the city, either in terms of the fundamentals of the program, nor for the due diligence done by the city and others supporting the construction of the Highwood Generating Facility. I have served as CFO of companies funded by venture capital, by private equity and those publicly traded, and I can tell you that if I brought to my CEO news of unanticipated losses and operating and initial capital cost increases of these magnitudes, these bits of information would be considered a Òbig dealÓ and certainly not Òvery positiveÓ news for the program.
Tim Gregori and Terry Holzer, General Managers of SME and Yellowstone Valley Cooperative, respectively, stated to the Tribune that RUS funding is essentially committed (in fact this funding is still being evaluated by RUS), that the coal plant needs our water, and that should the city of Great Falls not participate in the program, that the plant will be constructed anyway, with interests being sold to others to replace the 25% interest proposed to be purchased by Great Falls.
If this occurs, the money expended by Great Falls in this money-losing, non-economic venture, with the permitting and other processes now being undertaken, Great Falls as a result will be left with an over $1 Million debt to SME, has spent an additional $1.5 Million dollars on planning, and be left with the pollution, use of our water, marring of the Lewis and Clark landmark, increased disease incidence caused by the plant, and this despite the fact that the power will be sent elsewhere. This should then make the city of Great Falls an ally of those opposing the plant, to avoid the detriments to the community produced by the plant that are clear, and now with the supposed benefits of the plant to disappear. City management, you now possess new information to serve as a basis to not participate in Highwood Generating Station. Citizens, contact the Mayor and City Commissioners encouraging them to cease their support of Highwood.
Lawrence Rezentes is a Certified Public Accountant with
experience as CFO in public, private, venture-capital and private equity funded
businesses. At present, he is
employed in the public sector by the U.S. Department of Justice, Office of the
United States Trustee, in Great Falls.