By Beacon Staff

Flathead Electric is drilling test wells for geothermal down by Hot Springs? Hope they score big, given other exciting co-op news – the implosion of Southern Montana Electric (SME), a partnership of five southern Montana co-ops and Great Falls public utility Electric City Power.

At the end of October, after refusing to seat new board members and raising rates 20 percent, SME filed for bankruptcy, with $132 million in liabilities over $110 million in assets. Last week, SME longtime executive director Tim Gregori resigned, sparking speculation that SME’s bankruptcy will move from a Chapter 11 reorganization to Chapter 7 liquidation. On Nov. 11, the Billings Gazette reported SME’s request of a court order from bankruptcy Judge Ralph Kirscher to prevent its power suppliers from “changing or stopping service” – granted Nov. 15. Finally, as I write this, a hearing was scheduled before Kirscher on Nov. 21 to appoint a trustee – essentially kicking SME’s board of directors off the ball field.

What happened? Long story, long timeframe, one word: Highwood.

Ten years ago, like our Flathead Electric and most Montana cooperatives, SME’s customer co-ops didn’t control any generating assets. SME drew juice from two suppliers: The Bonneville Power Administration (BPA) supplied about 80 percent of SME demands, with the Western Area Power Association (WAPA) providing the remainder from government dams on the Missouri system.

In 2002, after Montana deregulation, Enron, and California’s power crisis, SME learned, as the Highwood coal plant Environmental Impact Statement put it, “its major supplier [Bonneville Power] will end its sales of power to SME by 2011.” Because demand from “statutorily required” customers west of the Divide (like FEC) is nearing BPA’s capacity, BPA had to cut off “extra-regional” SME.

Utility partner Electric City Power got its juice from PPL (Pennsylvania Power and Light, which bought Montana Power assets in 1998) – with contracts also expiring also in 2011.

All told, SME’s 120,000 customers would be short 225 megawatts by 2012 – forced to the fickle and vicious spot power markets. Gulp …

SME therefore proposed to build a 250-megawatt coal generation station at Salem near Great Falls for a projected cost of around $480 million, with six additional megawatts of wind for $12 million. Montana Power had studied the site for a coal plant in the 1980s. The site is near the railroad, and close to a source of steam water – the Missouri River. Even better, the south end of the Montana-Alberta Tie Line is planned to be less than 10 miles away. In short, a no-brainer.

SME duly got going, had its air permit (if it turned dirt by 2007), but environmentalists fought it on all fronts.

Ultimately, Greens found their “hook:” The site and surrounding land had been previously zoned as “agricultural” by Cascade County. After a bitter administrative and public brouhaha, Cascade County re-zoned the site “industrial.”

So a lawsuit was brought in 2008. The case, argued by Kalispell attorney Roger Sullivan (and current Supreme Court candidate Elizabeth Best) on behalf of Montana Environmental Information Center, went mostly SME’s way at the district level, so SME began turning dirt, deciding in February 2009 to build a 40 megawatt gas “peaking” facility for an interim source of power (and revenue).

Plaintiffs appealed, but never got an injunction halting work. But in July 2010, a deeply-split Montana Supreme Court ruled the site had been illegally “spot zoned.”

If you are on, or want to run for FEC’s board, you dang well better read the ruling, which led in turn to a negotiated agreement in August 2010, brokered by former Justice James Regnier. Coal was permanently prohibited, the ultimate size of any gas facility restricted to 120 megawatts (leaving SME well short of the 225 MW it needs), and SME had to pay $140,000 for MEIC’s lawyers.

All SME had to show after 10 years was $40 million gone and 40 megawatts on-line only during peaks, while needing another $300 million in loans for the remaining 80 megawatts of gas base load. Now they’re bankrupt.

I just hope our FEC trustees are prepared for what might happen if our current speculative inquiries into biomass and geothermal don’t pan out. If not, we’re gonna get zapped.