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Finally! BEC shares the good news

By Eleanor Guerrero CCN Senior Reporter

Carbon County News

The Beartooth Electric Cooperative, Inc. (BEC) Annual Meeting took place on Saturday, Sept. 26, at Roberts High School with lots of good news for members. About 75 members attended. After suffering skyrocketing rates and a 2011 bankruptcy filing by Southern Montana Electric Generation and Transmission Cooperative, Inc. (Southern), of which BEC is a member, BEC members were informed that the worst appeared to be behind them. Risk Management Chair Arleen Boyd assured members, “It’s over!” The days of BEC’s involvement with Southern and the complex bankruptcy were nearing an end.

Dan Dutton, Chair of the Finance Committee announced, “I’m pleased to report that the financial condition of Beartooth Co-op is healthy, very healthy!” Board President Roxy Melton said, “I look forward for us to be lean and mean, in line with the rest of the state and not the highest anymore!” A 5 percent rate decrease was previously announced for August. BEC members pay 17 cents kWh vs. the state average for co-ops of 10.9 cents. “It would be good to get to the state average,” said BEC Manager Jim Webb. Highwood Generating Station (HGS) has been sold. The BEC board could not release the price. Boyd explained, “The HGS purchase was negotiated between the liquidation trust and Pro Energy Solutions,” said Boyd although Southern had some dealings to protect its interests. “The trust and the buyer insisted on confidentiality about the contract except for information released with consent of all parties.” No one offered to purchase and run HGS. It will be dismantled in November and assets sold. Auditor Rick Matusiak announced BEC had hit 29.2 percent equity by the end of June, a “tremendous change” from 18.7 percent. It was a 10.5 percent increase in three years, which he called “a big turnaround.” No new long term debts have been incurred and much old debt paid off.

There have been huge systems improvements and new construction to maintain and repair BEC service. “I do believe your future is looking very bright.” Summing up, Boyd said, “We are leaving Southern...the generation and transmission cooperative that has supplied our wholesale power since 2004; HGS, completed in 2011, has been sold and Beartooth has contracted to purchase power for its members for at least the next 5 years at rates below anything we have seen since 2008.” BEC will assume its share of the power contract Southern signed in 2014 to run through September 2017. Two weeks ago, BEC secured a subsequent 3 year contract for power. BEC signed a letter of intent to be out of Southern by October 31. Southern’s co-op members have approved the exit.

The amount required to exit is $1.3 million, which Boyd believes is the same amount staying in Southern would require to cover their share. Financing for the prepayment has already been obtained. Boyd said, “Once we leave Southern’s rates behind, the resulting savings will more than cover financing our prepayment-and improve our monthly cash flow.” HGS noteholders must still approve the exit but it is expected to follow; if not, Boyd said, they believe BEC can still exit in “short order.” Looking back, BEC had faced “at least ten years of unwanted G&T buying power at rates three times that contracted for, to pay off close to full value of the Highwood notes and supply a $10 million dollar power security deposit,” said Boyd. To add to the burden, HGS had to be kept ready to operate regardless of business. Melton shared that she came to the board after receiving her bills and “getting angry.” Dick Nolan (who with Laurie Beers was reelected for another term) said we look forward to being “just a co-op.” This year, BEC paid off $245,356 to First Interstate Bank to close out their share of a Southern debt. Over the years, BEC has written off $4.8 million in equity on the books as Southern investment. Nearly $800,000 in legal and consulting costs were incurred for the bankruptcy, the reorganization and to exit Southern. Legal costs are expected to decrease and rates may be reduced again in 2016. Webb, who is also CFO of Lower Valley Electric (LVE), works with his team to manage BEC.

He said LVE has the lowest co-op residential rates in the country and they would be looking to lower BEC costs. Despite the fact that BEC cannot access LVE’s low power from the Bonneville Power Administration, that LVE has more density (i.e. meters per route-10 per mile vs. BEC’s 3 per mile) and has more industrial users, he said there were other ways to save like energy conservation. Board and policy committee member Laurie Beers said they are working on a solar policy.

Currently, a base rate of $32.50 must be paid regardless, but alternative energy users can already receive a credit for energy surplus. Management is working to bring down rates. The national rate average is 11.9 cents per kWh. Webb believes rates can be significantly lowered. Webb said they have met or are working on the following goals: 5 percent rate decrease; power supply contracts through 2020; a transmission agreement with NorthWestern Energy (NWE), CFC financing for the Southern exit, evaluation of the NWE option and agreements with Western Area Power Administration. Webb will focus on high line losses because “it’s 5 percent nationally but we’re (BEC) 10 percent.” Line losses could result from hot transformers or cables, meter failures or meter theft. Credit improvement was crucial because it also increases power supply options and can attract industry in an area 81 percent residential.

Webb will meet with the board to examine budget options, “How low can we go?” he said. In three years, BEC options to be explored include merger with LVE, continuing as is or with different management and selling BEC to another utility. Any merger or acquisition requires 2/3 of member votes. Webb said he will work to earn BEC members’ trust and praised the current board and expert advisors. “Yes, it does feel great to see so many of the real challenges addressed with very good outcomes: out of Southern, HGS sold, power for at least 5 years at really good rates — and plans for continued expense reductions,” said Boyd.

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