Electric City Power, Incorporated (ECP): Regular meeting of the Board of Directors
Great Falls Civic Center, Commission Chambers Gibson Room
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, City Manager, City Attorney and the City Clerk.
Executive Director Coleen Balzarini updated the Board on the following:
Ms. Balzarini explained that, pursuant to Chairman Golie’s request, the agenda had been revised to add discussion about Commissioner Bronson’s Memo.
Ms. Balzarini highlighted items that had changed on the restated June 30, 2008, financial report. She explained items previously deferred to be expensed were amended to immediately expense. By doing so, the deficit fund balance increased. Additionally, a change of note disclosure took place on the certificate of deposit backing up the letter of credit with First Interstate Bank on behalf of Southern Montana.
With regard to the joint venture, ECP’s equity interest in the HGS project is now 10.31 percent. Last year it was 17.58 percent. The reason for the change is that the Commission had authorized $1.5 million in debt, plus a $500,000 contribution from the general fund. The Commission has not authorized any additional transfers for HGS for the past two years. In the meantime, the five coops continued to contribute additional monies. As their contribution went up, along with the value of the Highwood asset, and the City’s contribution stayed the same, then ECP’s percentage of that asset went down.
Director Gilbert stated that ECP is a member of the cooperative, which is different than a joint venture. It was his understanding that ECP doesn’t have an equity interest in HGS, it has a membership interest in the cooperative that has a receivable from the other group that is the equity owner of HGS. Ms. Balzarini responded that Southern is carrying the portion of the HGS investment on its books from before SME was created. Southern has a receivable on its books and a payable on SME’s books for HGS expenses incurred after May 1.
Director Gilbert added that he was under the impression that, if SME paid Southern for HGS investments up to that date, ECP could get some many money back. Ms. Balzarini responded that the agreement between Southern and SME is that when permanent financing is made available to SME, it will buy out the equity interest that Southern has. At that point, any value in the Highwood project will all move over to SME. Director Gilbert stated that ECP could then get its entire investment back or roll that money over as an investment in HGS.
Ms. Balzarini stated that the deficit fund balance was one of the areas restated. The deficit fund balance has increased by $356,257. Since ECP will no longer be issuing construction debt, it is expensing the issuance of costs for bond counsel and financial advisors. It is the difference between an immediate expense and an amortization of expense.
Another portion of debt issuance in the amount of $157,282 remains under assets. The agreement with Dorsey & Whitney for that portion of the expense is payable at the time financing occurs or at the time financing is no longer pursued.
Ms. Balzarini informed the Board that the contingencies were another restatement. The $1.4 million dollar certificate of deposit held by the City of Great Falls and invested at First Interstate Bank is backing up a letter of credit for ECP’s customers equal to two months of energy supply costs that was required by PPL. Up to this point, there have been no delinquencies by ECP customers, by ECP to Southern or by Southern to PPL. This reporting was changed to a contingent liability note disclosure. In the event of a delinquency, then a draw could be exercised against these funds.
Ms. Balzarini also reported that the cumulative water credit was being reported as a current liability, and has been moved to long term liabilities so that it more accurately reflects the intent of the water credit agreement. Anything that is not payable within one business cycle should be under long term liabilities.
Director Gilbert stated that the energy imbalance is $1.1 million dollars. That represents a portion of the amount of the difference between what ECP has charged its customers and what ECP paid for the power. He assumed that the auditors had looked at that and looked at projections and reached a comfortable level that, in fact, it is a real asset. At sometime in the future the operations will be sufficient to realize that asset based on customers and the rates. Ms. Balzarini answered she believed that was true. It has been discussed with the auditors. With regard to the audit, she reminded the Board that there is an area of special emphasis on ECP operations included in the FY 2008 audit.
Under liabilities on the balance sheet for July, August and September, 2008, it shows a long term account payable for the water credit in the amount of $1,083,914. In addition to that, there is a current year water credit in the amount of $60,292. That is the additional amount of water credit that accrued since July 1.
HGS is under construction. SME is already drawing on and using the raw water pursuant to a contract. There will be a reduction as SME uses the raw water. She estimated it to be $3,000 per year during construction.
Director Pancich stated that he liked the accounts payable breakdown under liabilities to see what has changed. Ms. Balzarini responded that she is providing the ECP Board more detailed information. It will not be as detailed in the City’s consolidated financial statements. After discussion, Ms. Balzarini stated in future reports she would differentiate between the short and long term payables.
Ms. Balzarini reported that she presented the historic rate comparisons to the City Commission at a work session in November. It answered three specific questions: what is ECP paying to SME; what are ECP customers paying to ECP; and, what would those ECP customers pay if they were NWE customers. It has always been said that there was a $2 million dollar savings to ECP customers. The customer savings doesn’t change. What ECP is charging its customers is $2 million dollars less than what they would pay for the same amount of kilowatt hours if they were NWE customers. She broke down the NWE comparisons by street lighting, demand meters and non-demand meters. ECP paid Southern Montana pursuant to a wholesale contract. Had NWE provided the same amount of energy, the charge would have been significantly more. She also went through a breakdown of customer consumption versus what those customers would have paid NWE. It shows a $2 million dollar savings to ECP customers. It also shows the amount collected from ECP customers was adequate to pay the amount that was paid to SME for their direct consumption. The deficit balance resulted from having more energy than ECP had customers for. If the PSC rules in the City’s favor on the meter issue, ECP could then expand its existing customer’s consumption.
Chairman Golie asked if there were any questions for Ms. Balzarini. Director Gilbert stated that the City needs to make a profit. He asked if there was money the City should try to charge. Ms. Balzarini answered that is the plan for the future. In the beginning, customers were offered fixed rate contracts at as close to cost as possible to attract that customer base.
Ms. Balzarini explained DEQ’s notice of violation to SME and SME’s press release. The .01 portion of the air quality permit was approved by the DEQ but did not go into effect until last Wednesday. This notice of violation was sent to Southern saying that they started work prior to the .01 portion of permit being finalized. Southern stopped work until that portion of the permit went into effect. Also, there was an article in the paper on Saturday regarding the zoning decision that ruled in SME’s favor.
Director Pancich asked if the press release was printed in the Tribune. Chairman Golie responded that a copy was sent to the Great Falls Tribune. Ms. Balzarini added that press releases go out to all the press and they decide what portion, if any, they want to report.
Director Ebeling asked if the .00 or .01 portion of the permit had the November 30th deadline to begin construction. Ms. Balzarini responded that it was the entire permit. SME had to have commencement of construction adequate to satisfy DEQ’s criteria for commencement of construction. DEQ will go to the site to determine whether SME has satisfied commencement of construction criteria.
Chairman Golie asked if there were any other questions for Ms. Balzarini. No other questions were asked.
Ms. Balzarini provided comparisons of the blended rate if it would have been in effect from January – August. She also provided a draft contract addendum regarding the blended rate. The blended rate is more level and Ms. Balzarini believes the blended rate is more favorable to the City, but there are no guarantees. If the City chooses to take the blended rate, the water credit component of Block 1 goes away, along with Block 1. A portion of the expense that wasn’t being paid for (water credit), will now have to be paid for at the lower blended rate. On January 1, 2009, the water credit would have gone away anyway because that is when the Block 1 contract expires. The savings from the blended rate over the last eight months would have been significantly higher than the interest earned on the cash payment deferred through the water credit.
Director Gilbert stated the Commission would have to approve the blended rate tomorrow night, otherwise it would be January anyway. Ms. Balzarini responded that it was approved by Southern on August 21. She reminded the Board that Southern bills in arrears.
Ms. Balzarini continued that one of the trade-offs is a cash deposit to be held by Southern. The one month cash on deposit with Southern will be invested and the City will receive the credit for the interest earnings.
Director Gilbert commented then there is absolutely no P&L effects and was responded to affirmatively.
Ms. Balzarini also explained that the existing $1.4 million is a deposit that PPL requires. There is one that Southern’s by-laws require of its members, and also PPL’s requirement of its customer, which is Southern. The $1.4 million will eventually phase out. As Southern’s cash flows increase, then Southern will no longer need the City’s certificate of deposit as security for their letter of credit.
Chairman Golie asked if there were any questions for Ms. Balzarini.
Director Gilbert asked if other members of SME have a need for more power on the market or, more specifically, are they buying the City’s power. Ms. Balzarini explained that, since it is a separate take or pay contract and it is specifically a pass through for the City, any surplus power from the City’s take or pay contract goes out to the market first. With the blended rate, all of the contracts will be blended together and the first users will be the five cooperatives and the City. Then, excess will go out to the market. The cooperatives are experiencing growth. There are probably certain hours of the day that we are using all of our contracts, plus, when you look at the Southern members as a whole. But there are days when there will still be surplus power that will go out to be sold. Director Gilbert expressed concern about the economy and large industrial customers.
Director Ebeling stated that right now the City has a fixed rate contract. He inquired if the City Commission would have to pass an ordinance to amend the contract. Ms. Balzarini answered that the City Commission would have to take official action to approve an addendum to the existing contract. Director Ebeling stated that the high/low periods will be leveled out. Ms. Balzarini added that instead of the market effects passing through directly to ECP, it gets blended out over the year among all of Southern’s members. Southern retains the market component benefits and risks. Director Ebeling asked if Ms. Balzarini knew if NWE was considering the blended rate concept. She responded that NWE already has the blended rate concept. They also have a deferred cost component. Director Ebeling also discussed green power and the cost of same. Ms. Balzarini added that Southern does have green power available, but it does not have a lot of takers. Director Ryan reminded the Board that Southern supplies the cooperatives and each cooperative has different rates. Director Ebeling concluded that green power is increasing and will be a marketing tool.
In reviewing the comparisons, Director Pancich commented that the City would have profited $80,000 in June had it had the blended rate. The blended rate would put the City on a trend of more profitability. Ms. Balzarini added that, assuming that historic trends continue, although she can’t guarantee that.
Director Pancich inquired if the proposed draft agreement was intended to change from the existing pass through contracts to a blended rate contract. Ms. Balzarini stated this document was drafted by staff. It has not been reviewed by the ECP Board, the City Commission or by Southern Montana. The format is consistent with previous addendums. Director Ebeling asked if the City Attorney would review the document and was responded to affirmatively. Director Pancich stated that the fourth “whereas” paragraph is confusing. He hoped the “to the extent possible” language would change in the addendum. Ms. Balzarini stated the City Attorney would help her clarify that paragraph.
Blended Rate Recommendation. Bob Pancich moved, seconded by Lee Ebeling, that the Electric City Power Board recommend that the City Commission accept the blended rate offer from Southern.
Chairman Golie asked if there were any comments from the public.
Stuart Lewin, 615 3rd Avenue North, inquired if this blended rate contract also included the blending of the costs of having to sell the excess power out on the market. Ms. Balzarini responded that is a component of the rate. Mr. Lewin again asked if it was clear in the contract that SME would not be allocating all the costs back to the City, but blending that allocation to all of its members. He stated if that is not clear, then the advantage would not necessarily be there. Ms. Balzarini responded that was the whole concept of the blended rate. It is blended across all the members of SME. Mr. Lewin further commented that the ECP Board needs to clearly understand where it stands in relation to SME to make a recommendation to the City Commission regarding the blended rates. He recommended that the Board put this matter under advisement.
Richard Liebert, 289 Boston Coulee Road, urged the Board to examine what is in the trade secret box, and asked if the issue of blended rates was within the privileged logs. Ms. Balzarini answered that those documents are in litigation. The privilege log is available for review.
Chairman Golie asked if there was any further discussion amongst the Board.
Director Gilbert commented that Director Pancich talked about the fourth “whereas” in the contract and it does state that SME will treat alike each of its cooperative members. That language addresses Mr. Lewin’s concerns.
Chairman Golie asked if this Board makes this recommendation to the City Commission, would legal staff review these documents. Ms. Balzarini responded affirmatively.
Director Ebeling asked if it was protocol for the City Commission to have a work session regarding this issue. Ms. Balzarini responded that she will notify the City Commission with what the Board’s recommendation is. But, it is the City Commission’s call whether it wants a work session.
Chairman Golie asked if there were any other questions or comments. No one responded.
Motion carried 5-0.
Chairman Golie read item 1 of Commissioner Bronson’s memo. Director Gilbert thought it appropriate to ask for a face to face workshop with the City Commissioners to discuss the memo so they would have the benefits of each other’s thoughts. Director Pancich concurred. Director Ebeling asked City Manager Doyon if he had responded to this memo. Mr. Doyon answered that he was trying to digest it, because there are some items that are fairly broad. Mr. Doyon stated that most of the items are going to take some pretty thorough discussion. He stated the area he is most concerned with is the structural relationship between the two entities – a private corporation that requires confidentiality and a public entity that is subject to open records laws. That has to be resolved first. It will take a lot of thought and discussion from both Boards. Long term, what is the vision for ECP, what is vision for the City and what is our role in the electric utility business. Mr. Doyon stated that he thinks it is time to sit down and have a conversation about what the future is going to look like as we move forward and, in making sure whether the Board and Commission are for or against it, that there is a good basis of information from which the community can move forward. He thought it very advisable to have this conversation with the Commission.
Chairman Golie asked if the Board wanted to comment on all seven items at this time. Director Gilbert thought comments could be made, but the discussion should take place at the workshop. Mr. Doyon suggested the Board members put their thoughts and questions in writing for him to present to the Commission prior to the workshop.
Director Ryan noted the changes in City management, legislative action and changes in HGS.
The following comments were generally “what if scenarios” made regarding said memo:
After further discussion, it was determined that more than one work session may be necessary. Mr. Doyon again asked that the members submit questions to him or Ms. Balzarini in advance to frame up the work sessions.
Chairman Golie stated that Director Gilbert shared a lot of concerns that others had and requested that he submit his list, as well as the other members, to Ms. Balzarini via email by Friday. She will then be able to structure who it is to ask to speak to be more productive.
Director Pancich noted a correction to the November meeting minutes on page 3, fourth full paragraph, should begin with Chairman Golie.
Accept Board Meeting Minutes of November 3, 2008. Bob Pancich moved, seconded by Lee Ebeling, to approve the November 3, 2008, Board meeting minutes as corrected.
Chairman Golie asked if there was any further discussion amongst the Board. No one responded.
Motion carried 5-0.
Chairman Golie asked if there were any comments with regard to proposed Resolution 2008.0001. Director Ebeling asked if it was exactly the same as what the City Commission has and was responded to affirmately. Director Gilbert asked how this resolution would be enforced. Assistant City Attorney, Chad Parker, explained that a timer is used. Request the speaker to wrap it up. If the speaker doesn’t, command to end. If someone is disruptive, that person can be lead out of the meeting. Director Gilbert stated when the City Commission passes something, it has the force of law. When the ECP Board passes something, it is saying the Board wishes you to sit down after five minutes because there isn’t going to be any policeman to lead anybody out. Director Gilbert stated he likes the kinder, gentler approach to ask the people to limit their comments to five minutes, gavel them if that is not happening. If that becomes a problem, then go to the next level.
Chairman Golie stated that the Board has always let speakers talk without a time limit. But his concern is a lot of the time what was said could have been said in five minutes instead of 25 minutes.
Director Ebeling added that some speakers have done a tremendous amount of preparation. It is hard to follow and impossible to digest someone’s mathematics when the speaker doesn’t provide handouts to the Board. He respects that the person spent a lot of time preparing, but the data needs to be provided to the Board as well.
If someone requested more than five minutes, Chairman Golie stated that this Board has never been unreasonable. He concluded that the problem in the past has been insulting the integrity of the Board members.
Chairman Golie asked if there were any comments from the public.
Aart Dolman, 3016 Central Avenue, commented that it depends on parliamentary procedure of the chair. The five minute rule is reasonable. But, it should not be used as a punishment.
Richard Liebert, 289 Boston Coulee Road, requested that the Board allow the public to use PowerPoint in the future.
Ron Gessaman, 1006 36th Avenue N.E., requested that the public also be provided copies of what the ECP Board is viewing during the meetings.
Ron Mathsen, 122 Treasure State Drive, commented when the discussion takes a turn that the public doesn’t anticipate, it is difficult to provide written material.
Charles Bocock, 51 Prospect Drive, stated that he attempted to provide written material at a Commission meeting and was told it had to go to staff. He then attempted to read it, went over the time limit, and was escorted out. Mr. Bocock stated it was his understanding, and asked the City Attorney to verify, that once the City enters into a blended rate, the assets of all of the contracts are given up. Ms. Balzarini clarified that it is Southern Montana that entered into those contracts.
Resolution 2008.0001. Bill Ryan moved, seconded by Lee Ebeling, that the Board adopt Resolution 2008.0001 as a working guideline, and also look at the possibility of PowerPoint presentations.
Chairman Golie asked if there was any further discussion amongst the Board.
Director Gilbert stated he likes it as a working guideline, not as a rule.
Ms. Balzarini asked if the Board wanted changes to the Resolution to clarify that.
After discussion, Bill Ryan withdrew his motion. Lee Ebeling withdrew his second.
Resolution 2008.0001. Bob Pancich moved, seconded by John Gilbert, that the Board table Resolution 2008.0001.
Motion carried 5-0.
Public Comment.
Aart Dolman, 3016 Central Avenue, suggested that if a workshop is set up between the ECP Board and the City Commission that the public be invited. Mr. Dolman also commented that the public has been frustrated not having access to the privileged documents in the box.
Richard Liebert, 289 Boston Coulee Road, thanked Directors Gilbert and Ebeling for volunteering and liked their fresh perspectives. Mr. Liebert shared a brochure from Home Depot. He asked what the City was doing about conservation. Mr. Liebert read portions of articles from the Wall Street Journal and New York Times. He discussed Montgomery Energy in the community and the creation of jobs and wind firming capabilities for the Montana Alberta Tie Line. Mr. Liebert encouraged the City to convert to Sylvania Christmas lights that conserve energy, but cost twice as much.
Ron Gessaman, 1006 36th Avenue N.E., pointed out that Resolution 2008.0001 was the first activity of the year, and opined that the Board doesn’t do a heck of a lot.
Director Pancich discussed an article in the paper about EPA rules and how it impacts ranchers.
ADJOURN: Chairman Golie adjourned the meeting at 7:43 p.m. The next meeting is set for January 5, 2009, at 5:30 p.m. in the Gibson Room of the Great Falls Civic Center.
Attest:
Coleen Balzarini, Executive Director/Secretary
Date: ____________________________
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