Skip to main navigation.

Extracting Great Falls from energy muck - OUR OPINION

January 6, 2013 Tribune Editorial Board

Great Falls municipal government did plenty of things wrong in creating and operating its electric energy arm, Electric City Power. This arm of the city has lost $7 million already, and probably will lose at least $2 million more.

Yet Great Falls was simply a tag-along in an ill-fated venture that featured big egos, a series of ill-advised moves, and a recession that took a big bite out of even big players in the national energy markets.

A bankruptcy case involving the city’s wholesale energy supplier, Southern Montana Electric Generation and Transmission Cooperative, enters a key phase this year as an appointed trustee, Lee Freeman of Livingston, must submit details of his final reorganization plan by Feb. 15 to the federal bankruptcy court.

Looking back now, it’s clear to see the city’s former city manager, commissioners and fiscal officer could have done a better job in this mess. For one thing, energy is a tough business, and it’s not like taking up horseshoes or building model ships. The city joined Southern Montana in 2003 after a subsidiary of NorthWestern Energy canceled a power contract with school districts and cities, including Great Falls, angering officials.

Over the years, the city made mistakes. Electric City Power spent most of its existence selling power at a loss to other government agencies, nonprofit groups and area businesses. City commissioners approved a 40-year all-requirements contract to buy power from Southern Montana through 2048 while barely blinking an eye. And secretiveness by city officials over Southern Montana activities was embarrassing, prompting a lawsuit over public documents that the city lost.

Let’s remember, however, that there is plenty of blame to go around in this financial riches-to-rags tale. Southern Montana officials, including retired General Manager Tim Gregori, may have been persuasive, but they often balked at providing documentation for their plans and proposals. Their last contract the co-op negotiated with PPL EnergyPlus was highly unfavorable to members and helped pull the co-op into bankruptcy.

And we readily admit that the Great Falls Tribune did not use this page to criticize early city decisions on this matter.

It is also bewildering why in the world the two secured creditors in the case, Prudential financial ($75 million) and Modern Woodmen of America ($10 million) ever gave this feuding, dysfunctional organization $85 million to build a natural gas-fired power plant east of Great Falls. One estimate of the plant’s value at the moment is $30 million.

The secured creditors can expect to receive the power plant in the bankruptcy if they want it. They also have already been repaid $7 million to $10 million after the trustee invalidated Southern Montana’s contract with PPL EnergyPlus, and began buying cheap power on the open market.

We agree with Public Service Commissioner Travis Kavulla that the secured creditors should expect to receive some type of haircut in this bankruptcy process. The creditors should have done better research before agreeing to lend this money to this co-op.

Freeman’s reorganization plan calls for up to 10 years of more of the same, as the six members of Southern Montana would continue to pay high rates for power while the difference above contracted power costs would go to pay off creditors.

Disgruntled members of Southern Montana, including Great Falls and Yellowstone Valley Electric, would appear to be better off if the co-op simply would be liquidated, rather than trying to keep this albatross in the air. Claims against the co-op already exceed $400 million, far above any assets.

In the meantime, the trustee continues to press the issue of the city owing Southern Montana up to $60 million over electricity that its departed customers will fail to pay in the future, although the city has been firm in refusing to pay. It is especially unfair to suggest the city pay stranded costs to Southern Montana after some of the co-op’s own officials created a new company that secretly poached customers away from the city.

It would be highly unfair for city residential taxpayers, almost none of whom ever received a kilowatt of electricity from Electric City Power, to be saddled with paying for obscene stranded-power costs from this electrical energy disaster.

For that matter, for the inexperienced city of Great Falls to end up losing more money in total on its energy venture than will each of the five other co-op members, rural electric cooperatives with professional managers, would also be disturbing. That could happen even if claims for stranded costs get tossed into a dustbin.

Great Falls should not have jumped into the energy business as it did, but city taxpayers should not be unduly penalized for years for the risky actions several former officials took.

Let’s hope the bankruptcy court aims for justice and fairness as it tries to take into account competing concerns. Wrapping up this case before the end of the year could give the various parties in this mess some closure, and a chance to get their financial houses in order again.

— Tribune editorial board