Electric City Power, Incorporated

JOURNAL OF BOARD PROCEEDINGS

November 3, 2008

Electric City Power, Incorporated (ECP): Regular meeting of the Board of Directors
Great Falls Civic Center, Commission Chambers

CALL TO ORDER: 5:30 PM

ROLL CALL: Directors present: Chairman George Golie, Lee Ebeling, Bob Pancich, Bill Ryan and John Gilbert. Also present were the ECP Executive Director, Assistant City Manager, City Attorney and the City Clerk.

EXECUTIVE DIRECTOR REPORTS

Executive Director Coleen Balzarini updated the Board on the following:

The Affidavit of Anne Hedges was provided by the City Attorney today and is to be attached to MEIC’s brief that was included in the Board packets.

Ms. Balzarini explained that, due to the ECP Board meeting being held late last month, there is no financial change to report.

Due to the request at the last meeting for additional information regarding the blended rate, Ms. Balzarini provided a graph showing a six month rate comparison of calculated NWE rates, amounts billed by SME to ECP, the actual amounts billed to ECP customers, and a future cost estimate if the current blended rate were to be applied. She explained that the blended rate would be more stable and a lesser amount because it would include the City’s existing PPL contracts, as well as the various power supply contracts that SME has in place. The lower rate results from a blending of all Southern contracts.

In response to questions about the City not being a part of the new corporation that is going forward with HGS, and what will happen to the money the City invested in HGS, Ms. Balzarini provided a facsimile from Randy Boysun, Southern’s accountant, that contained her hand-written notes. The amount of $2,288,894.45 is what ECP has on the books as paid to SME by capital calls or draws. ECP/City is one of six members of SME. The five cooperatives invested approximately $21 million in HGS. As of May 1, 2008, the new corporation took over the cost of moving forward with HGS.

Ms. Balzarini reported that in April, 2008, Southern adopted a resolution recognizing YVEC’s desire to withdraw from participation in HGS, setting HGS costs to all Southern members as of May 1, recognizing other continued interest in developing HGS, intent to create stand alone corporation to continue HGS development, and that the new corporation (SME) would be responsible for all costs incurred after May 1, 2008. The new corporation will purchase HGS (pre-May 1) from Southern at book value when funding becomes available.

Ms. Balzarini explained the term “impaired asset” and that it is a Generally Accepted Accounting Principle (GAAP), a term used in evaluating financial assets that may have a change in book value due to certain events and their potential financial impact. SME’s accountant determined the assets were not impaired. In October, an independent auditor agreed that the assets were not impaired. When the buyout becomes available, the City Commission will make the ultimate decision as to the City’s investment in HGS.

Director Gilbert expressed concern about not having access to the SME resolution. The Board is assuming it can convert its interest in SME or the new entity without being able to see the document. Ms. Balzarini provided Colstrip 4 as an example, where multiple entities are owners, but have separately on their books. Director Gilbert stated that it seems like a bond holder versus an equity owner. He stated that this matter needs further exploration and analysis. Ms. Balzarini reminded the Board that the City Commission has not made a determination yet if it wants to be a member of SME.

Director Pancich asked if the $2 million was refunded, would the City lose purchasing power from SME. Ms. Balzarini answered if the City was an equity owner in HGS, then the City would get first rights to output from HGS. If the City decides to just pledge its contracts, then it would be entitled to a portion of incremental increase.

Director Gilbert commented that the legal fees for the bond issue should be expensed. Ms. Balzarini recognized that a portion of the debt issuance costs should be expensed. She commented that financing efforts are ongoing. The agreement with bond counsel was if financing efforts are halted or financing is finalized legal fees would be due.

Director Ebeling commenting that, as an advisory board, a motion should be made to advise the City Commission with regard to the blended rate.

Ms. Balzarini read portions of a letter from Ugrin, Alexander, Zadick & Higgins and Affidavit of Tim Gregori regarding the location conformance permit for Southern Montana Electric Generation and Transmission Cooperative, Inc., and setting forth the summary of costs incurred to date.

I.  UNFINISHED BUSINESS

Ms. Balzarini discussed Commissioner Bronson’s draft Memo to the Mayor and Commissioners about proposed directives to the City Manager regarding Highwood, SME and ECP. She recommended that the Board look at the enabling documents and make recommendations for amendments. One of the purposes the documents were originally created was to address the intention that the City would be directly financing a portion of HGS construction costs.

Director Pancich commented that SME should be reporting to the ECP Board on a regular basis to better advise the City Commission.

Director Gilbert commented that the City Commission needs to tell the ECP Board what it expects.
Director Ebeling added that the ECP Board should get involved with the drafting of documents as set forth in paragraph 7 of Bronson’s Memo.

Chairman Pancich Golie suggested that the Board members review the Memo and provide feedback and proposals within the next month or two. A major discussion will then take place on where to go from here.

Ms. Balzarini reported that HGS broke ground. Phase I includes fencing and the cooling towers. She discussed HGS’s need for water and explained that there is a water contract in place with SME that allows the use of raw water during construction. She also explained that the Section 106 process needs to come to conclusion prior to the permit for the intake structure to be built.

II.  NEW BUSINESS

Accept Board Meeting Minutes of September 8, 2008. Bob Pancich moved, seconded by Bill Ryan, to approve the September 8, 2008, Board meeting minutes as corrected.

Motion carried 5-0.

Accept Board Meeting Minutes of October 13, 2008. Bob Pancich moved, seconded by Lee Ebling, to approve the October 13, 2008, Board meeting minutes.

Motion carried 4-1 (Bill Ryan abstained).

III.  BOARD MEMBER REPORTS

Director Gilbert stated that he appreciates comments, but the noise gets so high it is difficult to understand what was being said. ECP losing money and whether or not the City should be in the power business are fair debates. However, the conflict with ECP and the City’s involvement with SME and investments with SME are better debates. ECP does not have anything to say about HGS being built.

IV.  COMMUNICATIONS

Public Comment.

Brett Doney, Great Falls Development Authority, commented that GFDA supports ECP and understands that municipal power has its advantages and risks. Mr. Doney discussed issues he expects at the next legislative session and further efforts to curtail electric competition, as well as a host of transmission issues. The more power generated here, the better chance of attracting high power users. Competition brings rates down.

Ed McKnight, 906 3rd Avenue North, commented that all of his questions asked at the last meeting were not reflected in the minutes. Mr. McKnight discussed water credits, Block 1, 2 and 3 power, the imbalance market, and that he is not satisfied with the answers he has received. Mr. McKnight stated that ECP was disseminating false information about the cost of power, and to know what the average is, you have to go back 10 years. Chairman Golie reminded Mr. McKnight that the cost of electricity was regulated 10 years ago, and that it is not regulated now. Mr. McKnight discussed other technology and concluded that there are other things to consider other than this plant.

Kathy Gessaman, 1006 36th Avenue N.E., commented that Block 1 imbalances went to pay off water credits, and Block 2 and 3 imbalances should have been invested in the ECP fund. Ms. Gessaman reminded the Board that on November 12, Judge Phillips will reconvene the zoning hearing and other pending matters.

Ron Gessaman, 1006 36th Avenue N.E., complimented Director Gilbert for saying ECP is losing money. Mr. Gessaman requested a brief biography from each of the Board members including the executive director.

Mike Witsoe, 2612 1st Avenue South, welcomed Director Gilbert as an auditor to the Board. Director Gilbert responded that he is not on the Board in that capacity. Mr. Witsoe suggested that new agents look through the financials. He also informed the Board that he has over 200 hours of Board meetings taped.

ADJOURN: Chairman Golie adjourned the meeting at 6:55 p.m. The next meeting is set for December 1, 2008, at 5:30 p.m. in the Gibson Room of the Great Falls Civic Center.