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: George Golie, Bill Ryan, Bob Pancich and Lee Ebeling. Also present were the ECP Executive Director, Assistant City Manager, Chief Prosecutor and the City Clerk.
Executive Director Coleen Balzarini updated the Board on the following:
Financials - Year to Date and Projected. Ms. Balzarini noted that page 3 is a listing of items contained on pages 4-34. Those pages are posted on Electric City Power’s webpage, and that financial information will be posted each month. She reviewed the financial documents with the Board and noted the following:
On page 4, Ms. Balzarini highlighted that the energy imbalances account as of May was down to $950,923. The amount of $39,832 was expensed out in April, and $39,322 in May. Cash on deposit with Southern as of May was $288,742. Director Pancich asked what number that tops out at. Ms. Balzarini answered about $735,000, but that number changes depending on what the consumption is and what the actual rates are.
On page 5 of the Income Statement, she explained why April’s final net revenue was different than last month’s projected due to the take or pay contract with Barrett’s Minerals. Her estimates are based on the average consumption using the contract price. She does not take into account the imbalance market sales. Director Ebeling asked what the length of the contract was with Barrett’s Minerals and was informed until 2011. In response to Chairman Golie, Ms. Balzarini reported that Barrett’s Minerals very seldom goes over 4 Mw/hour.
Chairman Golie asked if the Board members had any questions regarding the financials. Director Ebeling expressed that he didn’t see a need to have pages 25-33. Posting the information was sufficient. The Board concurred.
Energy Consumption Charts. Ms. Balzarini reported that, since ECP went to the blended rate, the hourly consumption charts for ECP are no longer available.
YVEC vs. SMEG&T, et al. (Cause No. DV 08-1797). On May 29, 2009, Southern filed an Answer to YVEC’s Amended Complaint. On July 6, 2009, Southern filed a Motion for Partial Summary Judgment. The key points are that Yellowstone Valley has made an argument of a non-protected minority. That part of the law doesn’t apply to cooperatives because it is one member, one vote. It is likely the attorney for Electric City Power and the City of Great Falls will join that motion.
Gas Industry Presentation
Guest speaker, James E. Morin, Director of Shell Energy North America, provided a PowerPoint presentation regarding the gas industry. Mr. Morin read Shell’s disclaimer. He also made known that Shell Energy did respond to an RFP from SME as a supplier. However, Shell Energy is in no way connected to the development or construction of that project.
Mr. Morin reported that Shell Energy trades about 14.7 Bcf of natural gas per day. To put that in perspective, Shell trades in five days approximately the entire consumption of Montana in one year. Shell’s mission is to operate and expand a sustainable gas and power marketing and trading business in North America. Shell is not actively in the power market in Montana, but is a major trader of power in the Pacific Northwest. Mr. Morin displayed maps showing Shell’s major offices, existing terminals, equity and non-equity gas, as well as where the main transmission system is for NorthWestern Energy. He noted that natural gas follows price; unless, operationally, the pipelines won’t allow it to follow that way. NorthWestern is an intra-state pipeline, which means that oversight jurisdiction for NorthWestern is the PSC in Montana. He discussed the NorthWestern, WBI, Colorado Interstate and Trans Canada pipelines and explained where gas comes into Montana from certain pipeline systems. The pipe was designed at the turn of the 20th Century. It is a pipeline that was not designed for where the growth in Montana is. It is not a looped system. He explained how the transmission system works. Gas is produced at the well head, it gets into the transmission system via gathering lines. The gathering lines take the natural gas from the well to the transmission system, from the transmission system to what is known as the city gate. In Great Falls it is north of the refinery.
Energy West is the local distribution company. All the gas that comes into Great Falls is managed by Energy West. They own all the gas lines in the City. NorthWestern owns and operates the natural gas transmission system. They operate the main transmission lines that come into the City and they are also the local distribution company for other major cities. They also own and manage the natural gas storage reservoirs in Montana. The reservoirs are used to serve utility and transmission customers. Mr. Morin explained security of supply, terms of firm and interruptible supply, and operational gas terms.
In response to the question of whether there is sufficient pipeline capacity to deliver needed gas for Great Falls, Mr. Morin stated that the answer is three parts. First, look at the City supply behind the City gate that is a responsibility of Energy West. Currently, there is sufficient capacity. And, Energy West has sufficient capacity to make sure that they have the gas necessary to respond to the needs of the community, unless there were to be a material increase in the requirement for up-stream firm capacity. Second, a material increase for new firm pipeline capacity on the NorthWestern system will require pipeline enhancements to their system. This means that if anywhere on their system there is a requirement to build a new plant or facility that would require a material increase in new firm capacity, then it would require an enhancement to their system. There has also been some talk about a development east of Great Falls. If there were a material development east of the MAFB that required a substantial amount of natural gas, a pipeline expansion would be required either through a service line from the LDC (Energy West), or from NorthWestern Energy directly. Those are the circumstances that would have to be considered when trying to answer whether there is sufficient pipeline capacity. There is sufficient capacity today, but anything that is material will require an enhancement on the NorthWestern system.
In response to whether or not there is sufficient capacity, Mr. Morin explained that it depends on where it is built, what the capacity requirement is, what the size of the pipe would be and, generally speaking, costs to construct those are recovered in a rate.
Montana and Wyoming are net exporters of natural gas. Supply is not necessarily the key issue regarding large projects, there is probably ample supply. The bigger question is the transmission system and the pipeline management and constraints that are associated with the transmission system that may be more of a relevant issue. When Shell buys gas in Montana on the NorthWestern system, it is priced to the Aeco index in Canada. He reviewed the average price since the year 2000. It is very difficult to project what natural gas will cost.
Director Pancich asked if it would make sense for a large user to try to lock in a price for a long term. Mr. Morin responded that most long term contracts today are five years. The real question is what the credit requirements are for buying long term natural gas. Shell is a big company with a pretty stringent credit requirement. He explained how gas is structured for buying. It is very much similar to electricity. Two primary ways to buy natural gas is on the index, or at a fixed price. The exposure is analyzed as part of the credit and has to be posted up front. He provided an example of Shell’s credit requirements including posting cash or a letter of credit.
In summary, natural gas is generally plentiful in Montana. He doesn’t believe there is an issue to supply a project that may or may not build on NorthWestern’s system or any other transmission system in Montana. He thinks the issue is that the gas may not necessarily come from Montana because of transmission constraints.
Mr. Morin explained how “on-system” storage facilities help manage gas supply. He doesn’t believe that large facilities can be managed that ramp up and ramp down without storage, unless there is a base load to use day in and day out at a certain volume. In order to manage that flexibility, storage is the tool.
If new and material firm transport capacity is required on the NorthWestern Energy system, existing natural gas transmission lines will, of necessity, require enhancements.
Chairman Golie asked if the Board members had any questions.
Director Ebeling asked about the Highwood’s proposed generating station and if that was taken into account when he mentioned supply not being a problem. Mr. Morin answered that he was speaking generically. But, he does not think supply is a problem for projects like that. Additionally, he doesn’t think the supply will come entirely from Montana. Director Ebeling stated that there is also a plant in Butte. Mr. Morin responded that is a different type of plant and is an important distinction. That plant is designed as an interruptible plant. He is not positive of the proposed plant here – how much is interruptible and how much is firm.
With regard to transmission, Director Pancich asked if the pipelines were usually paid for in the rates. Mr. Morin responded not always, but can be. He couldn’t imagine any transmission company like NorthWestern, or even an LDC like Energy West, not looking at the outlay requirements for pipeline enhancement, and then looking at the underlying credit and measuring that risk. Ms. Balzarini added that the ethanol plant years ago needed gas and electric infrastructure upgrades and NorthWestern Energy and Energy West proposed that they pay for it upfront, and then they would give them a credit over a period of years to pay it back.
Chairman Golie asked if NorthWestern Energy owned all the storage in Montana. Mr. Morin responded that NorthWestern owns two major storage fields. The storage facilities that are available under their system, they control and manage, and some of those storage facilities have been allocated to transport customers which could be shippers or industrial end users, as well as the utility users.
Chairman Golie asked if gas could be stored in a pipeline. Mr. Morin responded there are ways to do it, but it is short term. That is a tough question to answer because it depends on what the objective is.
Chairman Golie asked if there were any other pipelines that cut through the state. Mr. Morin responded that there is a major pipeline on the northern border, but there is no connect to NorthWestern’s system. Chairman Golie stated that there is quite a bit of source for natural gas to come into Great Falls. Mr. Morin responded absolutely, supply is not the problem. Transmission is the issue and how you manage the supply on the transmission system.
Chairman Golie asked when a company sends out an RFP for natural gas, would NorthWestern charge to use their transmission lines. Mr. Morin explained NorthWestern has a postage stamp rate. It doesn’t matter where you are at on the system, they will charge the same rate. The question is if it is a major new site and it requires an enhancement and substantial dollar improvement to the pipeline, how are they going to match those costs to the required end user. Sometimes, if it benefits the rest of the ratepayers on the system, then they may be able to blend that in with the rate base. If it is only to the benefit of the end user, then most likely those costs for the enhancement will be paid for by the end user. It is a hard question to answer because it depends on where it is located, the size of the project, and what they have to do. Sometimes they don’t have to put new pipe in, and can just add compression. It depends on how much capacity is needed. Another key question is whether it is firm or interruptible. He further explained that looping added quite a bit of capacity to the Kalispell area.
Ms. Balzarini asked what the process was to make the determination. Mr. Morin answered that a request is submitted to NorthWestern or whatever pipeline is being used and then they do an engineering study.
Chairman Ebeling asked if Shell has tried to do any future forecasting in terms of supply with the new technologies. Mr. Morin referred him to www.shell.com for that information, as well as www.eia.com.
Director Golie asked if there were any comments from the public.
Neil Taylor, 3417 4th Avenue South, commented that he reviewed the HGS engineering plans and noted that there was a gas line that crossed through the property, and that it surfaces with control valves at the north end of Salem Road. It looks to be an eight inch pipeline. He asked if pipeline was a feasible usage for the proposed gas fired plant. Mr. Morin responded that he checked with Energy West and NorthWestern Energy late last week and both said they had no service to that area. He was not sure if an eight inch pipeline would be sufficient because he is not sure of the level of compression, or what the requirements will be in totality.
Richard Liebert, 289 Boston Coulee Road, asked what Mr. Morin’s personal view was of the Pickens Plan, and whether Shell would be a supplier for Montgomery Energy. With regard to the second question, Mr. Morin responded that Shell looks at any large project as there is always interest. Some deals have to be passed on because it just doesn’t meet Shell’s credit requirements. With regard to the first question, Mr. Morin commented that wind is definitely a resource that Shell has looked at and is involved in. He reminded Mr. Liebert that with wind power, there are two major issues: transmission to move the wind and firming power. He believes Pickens has an idea that merits a lot of study.
Aart Dolman, 3016 Central Avenue, asked if there were any agreements between the United States and Canadian governments for the gas that flows across the border. Mr. Morin responded affirmatively that those agreements have been in place for a long time. A new requirement is that any gas that comes into or ships out of Montana has to be reported to the Department of Homeland Security. Mr. Dolman asked if an extra line had to be put in due to community growth, would that increase the rate. Mr. Morin answered that there are three components to a gas bill: capital, commodity and operational costs. It depends on who is benefitting from the increased capacity that will determine who pays the charge. Mr. Dolman asked if the price of gas varies in different areas in Montana. Mr. Morin responded that depends on the type of customer. A utility customer on the NorthWestern system will pay the same gas charge whether in Butte or Missoula.
Ron Gessaman, 1006 36th Avenue NE, commented that he didn’t hear anything about gas processing plants, and inquired what the quality of gas was in Montana. Mr. Morin responded that there is a gas processing plant in Cut Bank. A lot of the gas that is delivered into the Montana/NorthWestern system is pipeline quality gas already. It is NorthWestern’s job to make sure that the heat content in that natural gas is within a certain range. Mr. Gessaman commented that the pipe mentioned earlier on Salem Road has a tag on it that reads high pressure gas pipeline. Mr. Gessaman asked what pressure would be associated with the tag on the NorthWestern system. Mr. Morin responded that it varies. He opined that on the north end of the system it is 800-900 pounds. NorthWestern operates it within its tolerance standards. Mr. Gessaman asked if there were any privately owned storage facilities. Mr. Morin responded that there may be some areas that could possibly be developed into private storage fields. He is not aware of any on the NorthWestern system. Mr. Gessaman asked if he would opine on what was happening with the LNG market. Mr. Morin responded that LNG is just another supply of gas. It is a small percentage of the total domestic supply. At least in the near term, there is so much gas in storage already in the United States, that to project how LNG will impact prices going forward would be pure speculation.
Richard Ecke, Great Falls Tribune, 205 River Drive South, commented that consumers in the area have some concerns that a natural gas plant being built here would cause their heating bills in their homes to go up dramatically, and that it sounded like there was enough gas around here for supply without increasing the pipeline. He asked if that translated into customers not seeing dramatic increases in their bills at home. Mr. Morin responded that, even if several plants were added, it is so insignificant compared to the amount of gas that is moving north on the TCPL pipeline, that he thinks the chance of it affecting price is very minimal, if any. The bigger question of the impact for cost may not be in the commodity as much as it is in the transport piece. Mr. Morin opined that a new plant in Great Falls would probably not affect the price that consumers would pay in Great Falls or Montana, as far as commodity is concerned. Mr. Ecke asked if it would make sense to have a natural gas plant in Great Falls for firming wind. Mr. Morin responded that those plants are generally located as close to wind projects as they can be.
Kathy Gessaman, 1006 36th Avenue NE, asked Mr. Morin’s opinion that if the City decided to have compressed natural gas, would there be enough capacity to run garbage trucks. Mr. Morin responded that he can’t answer any questions for Energy West.
Mike Witsoe, 510 11th Street South, asked Mr. Morin how many years he has been in this field and was informed 15 years. He asked if Shell sells to NorthWestern, and NorthWestern controls the gas in Montana. Mr. Morin responded that he must have misunderstood. Shell does not sell gas to NorthWestern. Shell sells gas to customers that use NorthWestern’s transmission system. Mr. Witsoe inquired about credit requirements. Mr. Morin responded that he cited an example of a particular amount of gas over a given period of time and what Shell would look at. That doesn’t mean other suppliers have the same credit requirements.
Brett Doney, GFDA, residing at 3048 Delmar Drive, commented that the PSC regulates the NorthWestern transmission line because it is an intra-state system. Further, that the PSC would study and determine what costs of any pipeline upgrade would get passed on to existing consumers and what would have to be borne by the new. There is a regulatory system in place to protect existing consumers. Mr. Morin agreed.
Accept Board Meeting Minutes of June 1, 2009. Lee Ebeling moved, seconded by Bob Pancich, to approve the June 1, 2009, Board meeting minutes.
Chairman Golie asked if there were any comments from the public. Hearing none, Chairman Golie called for the vote.
Motion carried 4-0.
Chairman Golie reported that an energy consultant was hired by the City Commission. Two City Commissioners, the City Manager, Lee Ebeling and himself reached a consensus and he believes the right person was hired for the job.
Director Ebeling asked and was excused to attend another meeting.
Public Comment.
Neil Taylor, 3417 4th Avenue South, asked who the legal entity was representing ECP in the recent proceedings filed against the PSC, and where the money was coming from for those legal expenses. Ms. Balzarini responded that the legal representative is Harley Harris from the Luxan and Murfitt firm. The payment is coming out of the Electric City Power fund. There is partial reimbursement from some of the ECP customers as well.
Larry Rezentes, 2208 1st Avenue North, disagreed with the year-to-date numbers reported on the financials. He believes that accrual basis of accounting is appropriate in most cases, but that it is a big stretch here. He suggested that any analysis of ECP’s results needs to give credence to the cash implications to the public and taxpayers, more than the accrual basis. Mr. Rezentes further suggested that, on a monthly basis, a cash flow statement be prepared. He believes the consulting firm will have a biased outcome.
Richard Liebert, 289 Boston Coulee Road, commented that SME Electric is the developer and the owner of the property. He reviewed portions of a letter dated July 13, 2009, that he authored. After some discussion, Chief Prosecutor Chad Parker stated that there is no requirement that the Board has to answer his questions right now as they were just submitted. Mr. Liebert requested a written response.
Ron Gessaman, 1006 36th Avenue NE, commented that he reviewed the proposals and would not have selected Burns and McDonnell as the energy consultant. He read information from Burns and McDonnell’s website. Mr. Gessaman commented about the City Commission meeting discussions regarding hiring a consultant to evaluate water rights proposals. As part of the application for a new diversion point for the City’s water reservation that is being supplied to SME, a discussion took place about where the new diversion point would be. Mr. Gessaman read a portion of the Water Service Agreement signed on March 15, 2005, setting forth that Southern would provide the City with the description of the location of the points of diversion and appropriation together with the place of the use of water. Ms. Balzarini responded that the City of Great Falls hired a consultant to assist in making an application to add an additional point of diversion. Southern Montana/SME has also hired a consultant. The details and specifics of where that point of diversion will be located will be in the application to DNRC.
Mike Witsoe, 510 11th Street South, requested access to all non-confidential records relating to Electric City Power since its inception. Mr. Witsoe asked Mr. Morin if he could copy his presentation to his website. Mr. Morin responded that he could not do that without permission from Shell. Mr. Witsoe accused the Board of never providing a written response and Mr. Liebert interrupted saying that wasn’t true. Mr. Witsoe reported that he almost lost all of his hearing in one ear and requested that the microphones be turned up. In response to Mr. Witsoe’s request for access to all non-confidential records, Ms. Balzarini clarified that all documents are available with the City Clerk, all debits and credits are now posted on the website and are a part of the Board packets.
Kathy Gessaman, 1006 36th Avenue NE, requested an explanation of the “due to other City funds” under liabilities on the financial reports and asked if the money was from the general fund to the electric fund. Ms. Balzarini answered affirmatively and that it was the deficit cash flow as of April.
ADJOURN: Chairman Golie adjourned the meeting at 7:31 p.m. The next meeting is set for August 3, 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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