Electric City Power, Incorporated

JOURNAL OF BOARD PROCEEDINGS

August 31, 2009

The spelling of Mr. Jergeson's name was corrected.

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

CALL TO ORDER: 5:30 PM

ROLL CALL: Directors present: Bill Ryan, Bob Pancich, Lee Ebeling and Olaf Stimac. Chairman George Golie arrived at 5:54. Also present were the ECP Executive Director, City Manager, Acting City Attorney and the City Clerk.

I.  EXECUTIVE DIRECTOR REPORTS

Executive Director Coleen Balzarini updated the Board on the following:

Financials. Ms. Balzarini reviewed the June 30th preliminary, final numbers. She noted that June is the end of the fiscal year and that there will still be a few changes. She highlighted the following:

• Page 4 consists of a listing of what financial information the Board is receiving. The information is also posted on the City’s website. The individual meter reads listed as Item 5 on that page are posted on the web, but not printed.
• Page 5, Statement of Net Assets – the account receivables increased from $952,648 at end of the year to $1,426,044 this year. The change is due to the cycle billing for the utilities and the new rates being charged.
• The prepaid energy imbalances decreased almost $160,000. It was cash paid in the past, but not yet expensed.
• Restricted cash on deposit with others changed from zero on June 30, 2008, to $334,954 on June 30, 2009.
• A primary item that needs to be changed is capital assets, investment in joint venture and the depreciable/non-depreciable capital assets. Since Southern Montana relinquished its air quality permit for the coal plant, the preliminary engineering and design expenses now need to be expensed out and will no longer be capitalized. Southern Montana’s accountant, an independent auditor and a third party accountant are looking at the asset value on Southern’s books. They are going through a detailed analysis of what still has value for the gas plant and future construction and what items now need to be expensed because they are tied to the coal plant. Before ECP can finish its audit for June 30th, that number will be adjusted down and will be expensed out.
• The due to other city funds balance was $1,368,061 as of June 30, 2009. The reasons for the increase are the increase in receivables and the cash on deposit with Southern Montana. There are one to two months of receivables waiting to be collected from customers, but the supplier for the expense has already been paid.
• The water credit changed $103,000 from June, 2008 to June, 2009. The water credit will decline once water is being used for energy generation or is paid off directly. The contracts the water credits applied to are no longer in effect. Director Pancich inquired if that amount was for the one month period of May. Ms. Balzarini responded no, that in May the amount that had accumulated during the fiscal year was listed as short term. In June, she explained that she closed that current year accumulation out and moved it to long term.
• Page 6 – Statement of revenues, expenses and changes in fund net assets - the fund experienced an $83,000 loss as of June 30, 2009. In quarters one and two, there was a $315,000 net loss, and in quarters three and four there was a $232,000 gain. The shift is a combination of the blended rate and the increased charges to customers. A profit is anticipated in 2010.
• Pages 7-8 – the statement of cash flows was always included in the audited financial statements. She will now try to include the document to the Board each month to track the cumulative change from the beginning of the fiscal year to the end of whatever month she is reporting on.
• Pages 9-14 – Notes to financial statements. She explained the bracketed areas are changes that need to be updated. The changes include the raw water agreement, the Fire Services Agreement, and the transition rate.

Vice-Chairman Ryan asked if there were any questions from the Board members regarding the financials. No one responded.

PSC Memorandum D2009.5.61. Ms. Balzarini reported that PSC staff recommended to the Public Service Commission to accept the City’s Co-Generation facility as a renewable energy source so that it can be applied towards the City’s renewable portfolio. There will be annual reporting requirements. At the work session, the Public Service Commission concurred with staff’s recommendation.

YVEC vs. SMEG&T, et al. (Cause No. DV 08-1797). Ms. Balzarini explained the legal discovery process, and amending documents. The case continues to move forward.

MEIC vs. City of Great Falls and Southern Montana Electric (Cause No. CDV-07-614).
Ms. Balzarini noted that Southern had requested an extension of time to comply with the Court’s Order, and the Judge only gave them until September 4.

City of Great Falls, et al. vs. PSC/NWE (Cause No. CDV-09-127). The City filed its Motion and Brief. The Court set an oral argument date for December 1, 2009. The PSC/NWE requested and were granted an extension of time to file their Motion and Brief.
Director Pancich expressed that a meter is not a customer. The City has a variety of meters all over town. When a new meter is added, the PSC/NWE is treating the meter as a new customer rather than an add-on to an existing customer’s business. It is straight forward to him. He stated concerns about the former chairman of the PSC, Bob Rowe, heading up NorthWestern, and ties he may have to the current PSC Chairman, Mr. Jergeson.

Vice-Chairman Ryan commented that the case regarding the proprietary information should be settled soon. He asked if there were any questions or comments from the Board members regarding the legal cases. Director Stimac concurred with Director Pancich’s comments and added that a customer is a customer and a meter is something you hang on a box.

II.  NEW BUSINESS

Accept Board Meeting Minutes of July 13, 2009. Lee Ebeling moved, seconded by Bob Pancich, to approve the July 13, 2009, Board meeting minutes.

Vice-Chairman Ryan asked if there was any discussion amongst the Board. Hearing none, Vice-Chairman Ryan called for the vote.

Motion carried 3-0 (Director Stimac abstained from voting).

NWE Proposed Rates and Adjustments – July, August, September. Ms. Balzarini reported that starting on page 201 of the Board packets are the energy rate changes for July 1. A number of times the Board has heard comment about the deferred component. When she gets the monthly printout from NEW it doesn’t list the deferred component. It is listed for this July because there was a reduction from 0.002704 to 0.003778. That number will remain until NWE makes application for another tariff change. The rates went down in July, and then increased in August and September.

Chairman Golie arrived at the meeting at 5:54 p.m.

Vice-Chairman Ryan asked if there were any questions or comments regarding the rates. No one responded.

Richard Liebert July 13 Handout and Responses. Ms. Balzarini reported that most times handouts are included in the packet for reading material. This month Chairman Golie requested that the handout be included on the agenda. In response to one of Mr. Liebert’s questions regarding who from the City of Great Falls attended the Southern Board meeting at which Southern Montana was approved for creation by the Southern Board, she explained that the resolution sets forth that Southern Montana gives permission to SME to use the name SME. The City of Great Falls had to do something similar when it created Electric City Power. There is one paragraph on the second page of the resolution that states that they recognize and approve the efforts to further the construction. One corporation is not giving authorization or authority to another corporation to create. Vice-Chairman Ryan asked who was in attendance at that meeting. Ms. Balzarini responded that she was.

Director Ebeling referred the Board to Mr. Liebert’s letter on page 219 regarding expanding the scope of work of Burns & McDonnell. He stated that the City Manager provided a well worded document and scope of work that was to define clearly what ECP’s relationship is, was and should be with SME and Southern. He believes it was limited because ECP was the client. He would oppose changing the City Manager’s scope of work at this time. Vice-Chairman Ryan concurred. Director Ebeling added that it would also have a financial component that ECP certainly can’t take on that liability in expanding the City Manager’s scope of work.

Vice-Chairman Ryan asked if there were any other questions or comments from the Board members regarding Mr. Liebert’s questions and responses. No one responded.

III.  BOARD MEMBER REPORTS

Director Ebeling reported that he and Director Pancich attended the consultants’ public meeting in August. He attended the public forum as an individual and not as a member of this Board. There were several questions regarding the submission of the consultants’ report. Director Ebeling requested that Burns & McDonnell’s report be submitted electronically so that it can be posted on the City’s website. Ms. Balzarini responded that, even if the consultant didn’t send the report electronically, it could be scanned and put in PDF format to post on the web. It is consistent with what the City has done with other reports. Director Ebeling explained that there was a lot of concern at the meeting that the report would be subject only to their eyes, and that was not true, based on the open meeting laws of the State of Montana.

Director Pancich added that he attended the meeting as a taxpaying observer. He didn’t appreciate the comments made by Mr. Jergeson at the meeting that he didn’t believe the City should be in the power business. Director Pancich expressed concern that Mr. Jergeson is creating the meter issue. Director Pancich reported that Mr. Jergeson came to the meeting with a fistful of cards for the consultants stating that his staff would stand ready to answer any questions that the consultants may have. That was fine, but then he commented that the City didn’t belong in the public power business. Quite frankly, Director Pancich didn’t believe that was his place as chairman of the Commission to be discussing.

Chairman Golie added that, as an elected official, Mr. Jergeson shouldn’t be lobbying on behalf of a major corporation in the State either.

Director Stimac added that as a public citizen he may have the right, but as a taxpaying citizen of the State he takes exception to an elected member commenting in the negative on public power which works all over the west and whose customers typically pay lower rates.

IV.  COMMUNICATIONS

Public Comment.

Vice-Chairman Ryan reminded speakers to keep their comments and questions to business dealing with Electric City Power, and not the City Commission. In the past there were a lot of questions having to do with SME and the coal or gas plant.

Neil Taylor, 3417 4th Avenue South, welcomed Olaf Stimac to the Board. Mr. Taylor reported that he attended the consultants’ public meeting. He believed the PSC commissioner’s primary impetus for attending the meeting was to invite the consultants to contact the PSC and get the PSC’s input as a Board.

Larry Rezentes, stated that he is a CPA, residing at 2208 1st Avenue North. Mr. Rezentes commented that much of what Ms. Balzarini presented this evening underscores what he said at the last meeting. The operation of Electric City Power has continued to lose money. He appreciated Ms. Balzarini’s preparation of a cash flow statement and, again, believed that document underscored what he has said in the past. He provided material and discussed his annotations on the profit and loss statement for the month of June. He stated that the difference applied to the deposit was over $44,000. That represents money that was paid by the City to Southern Montana Electric for power that wasn’t charged to the profit and loss statement. If the “profit of $34,272” was reduced by the increase in the deposit of $44,240, the City actually expended $9,968 more in expense than it would have taken in revenue. The year to date shows a loss of $83,475. He disagreed, stating the amount of deposit shown on the balance sheet as of June, the line item referencing restricted cash and investments on deposit with others, of $334,954, is money the City spent and not the charge to the profit and loss statement of the City. He believed the real loss year to date to the City was $418,429.

Director Pancich referred to the $334,954 deposit and asked “is that not a liability of Southern.” Mr. Pancich commented that it wasn’t an expense from his viewpoint, it was a deposit. Mr. Rezentes responded that it is money Electric City Power will not get the benefit of, if it ever gets the benefit of it, until December 31, 2010. It is subject to litigation by Yellowstone Valley Electric Cooperative, and it is reasonably questionable if this asset will ever be recovered by the City or by Electric City Power.

Mr. Rezentes continued that the cash flow statement underscores the issue he is raising. He again stated that the only reason Electric City Power is able to survive is based on loans from other funds supporting ECP cash deficits, and that the City is still operating this business illegally. He is hopeful that at the upcoming debate that one or more of the candidates will underscore this, particularly in light of two commissioners running for office that have allowed this to continue to happen. In conclusion, Mr. Rezentes commented that he would like to see his numbers cited in the minutes. He stated that his concept is not theoretical; that he is very well versed and able to speak on accounting theory. The reality here is the numbers that the City is spending more than it is taking in and has from the existence of Electric City Power.

Ron Gessaman, 1006 36th Avenue NE, also welcomed Mr. Stimac to the Board. Mr. Gessaman pointed out that Mr. Zadick’s pleading for additional time to respond in the MEIC lawsuit noted that there were in excess of 10,000 pages of documents in the “secret or black box.” He expressed that shows why the public is concerned about this. Mr. Gessaman disagreed with Ms. Balzarini’s comment tonight that the document that provides the rates that NorthWestern charges only comes out once a year. Mr. Gessaman stated that it is available monthly. With regard to the response to Mr. Liebert’s question of who attended the meeting, Mr. Gessaman stated the written response skirted around the answer. Vice-Chairman Ryan stated that he heard the answer tonight that Ms. Balzarini attended the meeting. Mr. Gessaman discussed Mr. Liebert’s question regarding the water diversion, and asked why wasn’t SME Electric asking the City to do that. Vice-Chairman Ryan responded that was outside the parameters of this Board. Mr. Gessman argued then why was it listed on the agenda. Further, he would have thought that the consultants’ meeting would have been an item on the agenda tonight. Vice-Chairman Ryan responded that it was discussed this evening by two Board members that attended that meeting. Mr. Gessaman commented that he believed it was the consultants’ need to obtain all the information possible and, obviously, the PSC has a lot of information.

Director Pancich stated that when Mr. Jergeson was testifying and offering the help of his staff, that was well presented as Mr. Taylor said. However, he took exception when Mr. Jergeson sat in the audience and was not speaking very favorably about the City being in the power business.

Mike Witsoe, 510 11th Street South, commented that Mr. Jergeson made comments under two parameters as a public service representative and as an individual. Mr. Witsoe welcomed Mr. Stimac “to the zoo.” Director Ebeling requested that Vice-Chairman Ryan direct that we treat each other with respect. The “zoo” comment was completely out of order. Mr. Witsoe apologized. Mr. Witsoe continued that he has tapes of Mr. Morin’s presentation and Lisa’s notes were not as comprehensive as he would like. He stated that when he asked for a copy of Mr. Morin’s report, he was told it was confidential. He asked what the status was of that report now, and whether it was reviewable by the public in regards to gas. He inquired if the City still had a copy of the Shell report. Vice-Chairman Ryan responded that the City Clerk has one copy. Mr. Witsoe inquired if it was available to the public or was it still considered confidential information. Vice-Chairman Ryan responded that Mr. Morin asked that it not be handed out, so he believes it is still proprietary information. Mr. Witsoe asked when it would be available for review. Ms. Balzarini responded that Mr. Morin said that he would check with Shell as to whether it was available and releasable. She has not heard anything different from Mr. Morin. Mr. Witsoe inquired when the energy consultants’ report would be finished, and whether the public could obtain a paper copy or would it be available electronically. Chairman Golie responded that this Board did not hire the consultants and do not have any authority over the consultants or when they get their report done. Vice-Chairman Ryan commented that the report is going to the City, not the ECP Board, and that a recommendation was made earlier for Ms. Balzarini to request that the City immediately make available the report on the web. Mr. Witsoe asked when the report would be available. Director Ebeling commented that at the public meeting the consultants said it would be six to seven weeks, so it is expected the middle to end of October.

ADJOURN: Vice-Chairman Ryan adjourned the meeting at 6:27 p.m. The next meeting is set for October 5, 2009, at 5:30 p.m. in the Gibson Room of the Great Falls Civic Center.