Electric City Power, Incorporated

JOURNAL OF BOARD PROCEEDINGS

January 5, 2009

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, Bill Ryan, Bob Pancich, John Gilbert and Lee Ebeling. Also present were the ECP Executive Director, Assistant City Manager, City Attorney and the City Clerk.

I.  EXECUTIVE DIRECTOR REPORTS

Executive Director Coleen Balzarini updated the Board on the following:

Ms. Balzarini reported on the preliminary balance sheet, water credits, and preliminary revenue and expense report through October, 2008. The net assets changed to negative $8,568, and included the interest paid to date, as well as internal service charges, services to ECP, and travel expenses in relation to ECP activities.

She reminded the Board that construction began at the HGS site in November. There will be a $15.40 reduction to the water credits for the amount of water that was consumed.

Director Gilbert asked Ms. Balzarini if she anticipated making entries for imbalances. Ms. Balzarini responded that in January the customer rates will be going up. She will then begin applying the imbalances and have a separate line for it.

With regard to the blended rate status, Ms. Balzarini updated the Board that this item was pulled from the City Commission’s December 16 agenda. After further consideration and upon Southern Montana’s review, it was determined that it was more appropriate and followed industry standards to add a rate rider instead of a contract addendum. The rate rider is in the process of being prepared and will come before the City Commission for consideration.

Ms. Balzarini reviewed charts that she prepared for the Board covering July, August and September, 2008. The charts depict what the flat block contracts are compared to what the actual consumption was. She discussed the challenges of comparing years due to the impacts of the weather. The flat block of power covers the general needs of the customers. When other impacts affect the needs of the customers, then electricity is bought and sold on the imbalance market. The same customer base was used on all the charts, but the fluctuation from month to month and year to year occurs due to the weather.

Chairman Golie asked if there were any questions regarding the charts.

Director Pancich commented that in September, 2007, more electricity was sold on the imbalance market than what was sold to customers. Ms. Balzarini directed him to compare that chart with September, 2008. The two are significantly different due to the impacts of the weather.

Director Gilbert commented that it looks like energy pricing and scheduling becomes a non-statistical based guess. Director Ryan responded that the particular comparison was only between two months. It is common throughout the industry to buy and sell on the imbalance market. The imbalances average out year after year. Ms. Balzarini added that it is more accurate to look at a year at a time.

Ms. Balzarini reported that ECP has customer contracts through 2012 and beyond. Southern Montana will be putting out a request for proposals for long term contracts to supply the related energy needs of ECP and the other Southern members.

Ms. Balzarini discussed the Public Service Commission’s ruling in response to the City’s request for a declaratory ruling. The PSC ordered that the request for a declaratory ruling on the City’s ability to serve its existing customers’ new meters was beyond their purview and jurisdiction. The City does not agree with the PSC’s findings. Harley Harris timely filed a motion to reconsider that decision. If the PSC does not reply then it means their decision stands. At that point, an option would be to ask the legislature for clarifying statutory rulings. She doesn’t think there needs to be a legislative change, but that is an option to more clearly identify what the intent was. The other option is to appeal the decision to District Court. Southern Montana has indicated an interest in assisting in the cost if that is the route chosen.

Benefis wants all of its meters served by the same entity. Other hospitals across Montana are currently not being served by NorthWestern Energy. Benefis is checking with colleagues to see if they are being treated the same with their new meters as Benefis is being treated.

Ms. Balzarini reported that the amount paid to Luxan and Murfitt for legal fees in the PSC case was about $14,500. If the appeal is filed in District Court there will be more costs. The 10 day time period has to elapse first to find out if the PSC will reconsider. After that a discussion needs to take place with the customers, City Commissioners and this Board regarding whether or not to pursue this matter. Director Gilbert responded that he thinks that conversation needs to start with the attorneys and their assessment of the likelihood of prevailing. Ms. Balzarini added what that means then is that communications will be ongoing between Board meetings so that this Board can be kept up to speed with what is going on with the feedback from customers and the PSC’s response.

Director Pancich discussed attempting to figure out how much income and revenue ECP was foregoing on this issue and doing a projection into the future to answer the question should ECP continue. The parties discussed attempting to obtain information from Benefis regarding what it is paying ECP versus NorthWestern Energy. There are customers that want to be served by one entity that are currently being served by two. Director Pancich thought it important for ECP to try to meet that need.

Ms. Balzarini reported that the special emphasis report from the auditors was previously emailed or mailed to the Board members. She provided a copy of said report for the record.

With regard to the HGS status update, Ms. Balzarini reported that SME is in weekly contact with the underwriters in New York to discuss items necessary for SME’s presentation to the rating agencies. SME will be going before the rating agency sometime this month or next to get an indicative rating on the project. The underwriters are saying it is a great project and likely will receive an investment grade rating, but that does not necessarily guarantee that SME will find investors. The general economy and the YVEC lawsuit present challenges to the presentation to the investment community.

Tim Gregori has offered to attend any Electric City Power Board meeting to provide updates and answer questions with an invitation from the Board. Ms. Balzarini suggested specific topics be scheduled that he could present to the ECP Board. Director Pancich thought it would be worthwhile for Mr. Gregori to update the two new Board members about HGS, and also to discuss specific topics such as the YVEC lawsuit, how the rates are set, the imbalances, and the ongoing financing.

Director Ebeling asked if the joint meeting with the City Commission was going to be scheduled on January 12 and was responded to affirmatively. Staff is working on the proposed agenda. The parties discussed specific topics they would like presented. Ms. Balzarini stated she would work with Chairman Golie on drafting a letter to Mr. Gregori inviting him to the next Board meeting.

Regarding the YVEC lawsuit, Ms. Balzarini reported that MMIA assigned attorney Jerry Murphy from Billings to represent ECP. He and Ms. Balzarini will be scheduling an initial meeting. As a starting point, she is sending him the enabling documents. She anticipated he would want to talk with some of the Board members as well. Ms. Balzarini asked City Attorney David Gliko to discuss the letter from Stan Kaleczyc as well as their coverage as Board members through the City.

City Attorney Gliko reported that the Board members are provided insurance coverage and a legal defense through MMIA; State laws cover the members by indemnification as appointees; and, the complaint does not make any prayer for relief against ECP. Mr. Gliko assured the members that their liability exposure was all but non-existent.

Director Gilbert inquired if counsel should review the agenda for the joint City Commission/ECP Board meeting. He explained that he thought the ECP Board needed to have a frank discussion about the relationship with SME, and that discussion may not be possible as defendants in the lawsuit. Mr. Gliko stated he didn’t disagree with that observation and thought it would be advisable.

Request Counsel to Review Agenda for Joint City Commission/ECP Board Meeting. John Gilbert moved, seconded by Bob Pancich, to direct Executive Director Coleen Balzarini to have the agenda for the meeting scheduled with the City Commission on January 12, 2009, reviewed by counsel.

Chairman Golie asked if there were was any public comment regarding this item.

Neil Taylor, 3417 4th Avenue South, commented that ECP is named in the YVEC lawsuit. He pointed out that the member of SME is the City, not the ECP Board.

Richard Liebert, 289 Boston Coulee Road, asked if Mr. Gliko was referring to SME as the old Southern or the new SME Electric. Chairman Golie responded SME - the new entity consisting of the four cooperatives.

Stuart Lewin, 615 3rd Avenue North, called the Board’s attention to the document between the City and the Board entitled Assignment and Assumption Agreement. Mr. Lewin read paragraph four of said agreement regarding indemnification. Mr. Lewin suggested that the Board consider a separate attorney to represent their interests in the YVEC lawsuit. In his opinion, at some point this lawsuit will pit the City against this Board. In addition, the City may come back on its ordinance regarding ECP operating at a loss and say this Board is responsible for its own losses. Mr. Lewin commented that it is not clear to him if the Executive Director is representing this Board or the City of Great Falls. He believes she has a conflict of interest because she can’t tell this Board what she hears at SME meetings. The indemnities that the City Attorney talked about only apply and protect the Board members if their actions were reasonable. He suggested that their actions would not be reasonable unless they make the kind of distinction that he is talking about and make certain this Board is being represented by a separate attorney. Mr. Lewin believes the motion to be premature at this point.

Chairman Golie asked if there were any other comments from the public. No one came forward. In response to Mr. Lewin, Chairman Golie clarified that the buyer referred to in the Assignment and Assumption Agreement were the customers buying electricity. SME is a separate entity than Southern. ECP is a member of Southern, but not SME.

Chairman Golie asked if there was any further Board discussion.

Director Gilbert commented that he does not see a problem with an attorney reviewing the agenda, and that it may be reasonable to consider a separate attorney.

Motion carried 5-0.

II.  UNFINISHED BUSINESS

Resolution 2008.0001.  Bill Ryan moved, seconded by Lee Ebeling, that the Board remove Resolution 2008.0001 from the table for further discussion.

Director Gilbert stated that he would like to wait to further discuss this matter until after the joint meeting.

Ms. Balzarini stated that she has additional information for consideration.

Motion carried 5-0.

Ms. Balzarini reported that, after the last Board discussion, it was her understanding that the ECP Board preferred a kinder, gentler approach than what was envisioned in the Resolution. She also discussed the matter with Assistant City Attorney Chad Parker, who was in attendance at that meeting. He agreed with some of the items that were brought up as to what this Resolution would actually accomplish. She provided historical information on items this Board had already dealt with regarding this matter. She read Section 3.07 of the Bylaws regarding addressing the Board and establishing a uniform time limit for each person addressing the Board. She also referred to Section 6.01 that set forth the rules contained in Robert’s Rules of Order to govern the meetings. Ms. Balzarini further provided Guidelines for Public Discussion that was discussed previously.

Director Ryan commented that he thought the recommendation at the last meeting was to adopt the Resolution as a guideline with a subsequent discussion to allow additional time if requested and PowerPoint presentations.

After discussion, Chairman Golie inquired if it was Director Ryan’s intention to adopt the Resolution as a guideline. Director Ryan answered affirmatively.

City Attorney Gliko commented that he is familiar with what the Board has under consideration. The Montana Supreme Court rendered a decision last month that spoke to the very issue about boards and legislative authority to take control of their meetings and establish time limits and other processes to insure proper decorum and reasonable consideration of topics. Mr. Gliko added if the Board merely adopted this as a guideline, it leaves the real decision making in the Chairman’s hands. It would be more definite if a Resolution with the limits established were passed by the entire Board.

Director Ryan added that the Resolution as a guideline is reasonable and a person could ask the Chair for additional time. Chairman Golie asked if it was his intention to adopt the Resolution and Director Ryan responded affirmatively.

Director Gilbert stated his inclination would be to rely on the guidelines as opposed to the Resolution, with added provisions that the Board appreciates the comments being kept to the five-minute timeframe, and that there was no need to repeat what was said by others.

Director Pancich thought the guidelines were adopted previously and had been operating under them when he was Chairman of the Board. The guidelines seem to have been working in his viewpoint and adding what was proposed would be worthwhile. He didn’t believe it mattered if guidelines or a resolution was adopted. Either way, the Chair is still in charge.

City Attorney Gliko expressed his opinion that if he had to legally defend an action, he would rather have an established and adopted policy by the Board as a whole that the Chairman was acting upon. That has the force and strength of the legislative body, so to speak, adopting an official rule that it is operating under. If it is a guideline, that becomes a weaker proposition in his point of view. It could lead to arbitrariness by the Chairman.

Director Gilbert asked how the five-minute rule would be enforced. Mr. Gliko responded that the police department could be called if it was necessary.

Resolution 2008.0001.  Bill Ryan moved, seconded by Lee Ebeling, that the Board adopt Resolution 2008.0001.

Chairman Golie asked if there were any comments from the public.

Richard Liebert, 289 Boston Coulee Road, inquired if this protocol would be enforced next week at the City Commission/ECP Board meeting, and asked how public comment would be facilitated. Chairman Golie responded that he doesn’t anticipate being the Chair at that meeting. He believes that will be up to the elected officials. Director Ryan added that he thought that would be addressed at the beginning of the meeting.

Chairman Golie asked if there were any other public comments or further discussion from the Board members. No one responded.

Motion carried 4-1 (Director Gilbert dissenting).

III.  NEW BUSINESS

Director Gilbert noted a typographical error on page 2 of the draft December meeting minutes.

Accept Board Meeting Minutes of December 1, 2008.  Bob Pancich moved, seconded by Bill Ryan, to approve the December 1, 2008, Board meeting minutes as corrected.

Chairman Golie asked if there were any public comments or further discussion amongst the Board members. No one responded.

Motion carried 5-0.

IV.  BOARD MEMBER REPORTS

Director Ebeling commented that, as a new member of the Board, he was not sure what “board member reports” meant. He inquired if there was something he should have prepared. Chairman Golie explained that this item provides the Board members an opportunity to report on items germane to Electric City Power business.

V.  COMMUNICATIONS

Public Comment.

Kathy Gessaman, 1006 36th Avenue NE, asked to see a copy of the certificate of membership in the cooperative as provided for in the SME bylaws. Ms. Balzarini directed Ms. Gessaman to fill out a records request form, and she would request a duplicate from Southern Montana.

Ron Gessaman, 1006 36th Avenue NE, read the first paragraph of the Assignment and Assumption Agreement. He emphasized that agreement states the City of Great Falls is the “seller” and Electric City Power is the “buyer.” Mr. Gessaman referred to Ordinance 2925 and Resolutions 9529 and 9530, and stated there was no mention contained within those documents about an Executive Director. He asked where this Board gets its authority to have an Executive Director, and where the Board provides for the duties and responsibilities of the Executive Director.

Mr. Gessaman referred to Section 3.08 of ECP’s bylaws. He commented that the previous discussion regarding the PSC ruling was not on the agenda. Mr. Gessaman next discussed Sections 4.04 and 4.05 of said bylaws and stated that the elections of the Chair and Vice-Chair should have been on the agenda for this meeting.

Richard Liebert, 289 Boston Coulee Road, asked if ECP would allow customers to do net metering. Ms. Balzarini answered that the meters are owned by NorthWestern Energy. Mr. Liebert asked if Benefis had any provisions for conservation and energy efficiency incentives and was responded to affirmatively by Director Ebeling. Mr. Liebert discussed John Driscoll addressing the City Commission and commented that he also believes public power to be a noble endeavor if the people get to vote on it. Lastly, Mr. Liebert stated that he resents the fact that when he goes before the City Commission he is watched by detectives. He would rather have a uniformed officer in the chambers like District Court has. Director Gilbert asked Mr. Liebert if he would put uniformed air marshals on airplanes. Mr. Liebert responded no, that was totally different.

Neil Taylor, 3417 4th Avenue South, commented that on December 28 the Tribune reported that the City of Helena reduced its energy consumption from 2001 to 2007 by 22% by switching to energy efficient light bulbs and updating the temperature control systems in buildings. He suggested that the City of Great Falls do something similar.

Stuart Lewin, 615 3rd Avenue North, inquired what the Board was going to do to make certain that documents, agreements and emails involved in the lawsuit would not get destroyed. He encouraged the Board to set up guidelines that it expects of its Executive Director to make sure these documents are maintained.

There being no one else to address the Board, Chairman Golie responded that a discussion did take place at a Board meeting regarding the Executive Director; the “buyer” in the discussed agreement is the buyer of electricity; ECP has no control over wind energy because of the limit on the megawatts; and, there has already been a directive sent to the Board members to preserve all documents.

ADJOURN: Chairman Golie adjourned the meeting at 7:09 p.m. The next meeting is set for February 2, 2009, at 5:30 p.m. in the Gibson Room of the Great Falls Civic Center.