The trustees of the Beartooth Electric Cooperative recently informed members that they would see an average reduction of 5 percent in their electric bills starting July 1.
That’s notable in itself, but it follows three other rate reductions totaling 20 percent over the past two years. The idea that energy consumers anywhere would see a total rate reduction of 25 percent in a little more than two years seems incredible.
The really remarkable thing, however, is the story of how Beartooth was able to pull itself away from the Southern Montana Electric Generation and Transmission Cooperative, whose disastrous business decisions led to the steep rate increases in the first place.
Because the fact is, even with all those reductions, electricity rates paid by Beartooth’s members are now somewhere close to the average in Montana.
SME finally went into bankruptcy in 2011, and Beartooth narrowly avoided declaring bankruptcy itself. After what Beartooth co-op member Arleen Boyd called “an astonishingly difficult exit” from SME, it considered merging with another co-op based in Wyoming.
The director of that co-op successfully guided Beartooth through almost three years of quasi-independence, but trustees recently decided not to go through with the merger. Now, they are in the midst of hiring a new, permanent manager of their own and moving forward as a completely independent co-op.
They also managed to sign an energy contract that will keep prices stable for at least the next five years. And everything they’ve accomplished has been done in an unusually open, transparent way.
“We’ve created something kind of different here,” said Boyd, who chairs the co-op’s risk management committee. “I believe this and I’ve heard this from many people—I think we’re the most open co-op in Montana.”
Jim Webb, Beartooth’s current general manager and president and CEO of Lower Valley Energy, a co-op headquartered in Afton, Wyo., said few co-ops in the country can match Beartooth’s openness.
“Beartooth is up there in the top 5 percent for transparency,” he said, and that openness worked so well for Beartooth that Lower Valley Energy has benefited from its partnership with the Montana co-op.
“I learned a few things that we hadn’t done at Lower Valley,” Webb said. “We started expanding what we were doing. There shouldn’t be anything we have to hide.”
Boyd said that besides having good solid leaders—Richard Peck was the manager before Webb took over three years ago—Beartooth was able to pull itself out of a desperate situation because so many members of the co-op became deeply, passionately involved in righting the ship.
And they pushed for transparency and open communication because they were shut out of Southern Montana Electric’s decision-making process. In fact, in the spring of 2010, Billings police officers were called in by SME management to keep Boyd and other co-op members from attending meetings of the SME board.
They were told that if they tried to enter the co-op’s offices in an industrial park on the West End of Billings, they would be arrested for trespassing. After being treated so badly and ignored for so long, members of the co-op resolved to reverse that state of affairs after Beartooth broke away from SME.
Unless there is a legal reason to keep something secret, everything discussed by board members, every study and piece of correspondence, is posted on the Beartooth website or otherwise made available to all members.
“Our attitude since Day 1 is that our members own this co-op,” Boyd said. “It has just been, in my opinion, invaluable. … The degree to which we do it, and the fact that we actually do it, is unusual.”
Beartooth Electric, headquartered in Red Lodge, was incorporated in 1938 and now serves about 4,300 members in Stillwater, Sweetgrass and Carbon counties, as well as a portion of Park County, Wyo.
Beartooth was one of five rural electric co-ops—with Fergus, Mid-Yellowstone, Tongue River and Yellowstone Valley—and the city of Great Falls that belonged to Southern Montana Electric, formed in 2003.
Leaders of SME blamed the co-op’s rapid decline on a depressed wholesale power market, unfavorable contracts and lost customers, but critics—including members and non-members—blamed those leaders themselves, mostly for building a 40-megawatt natural-gas plant after abandoning plans to build a much more costly 250-megawatt coal-fired plant.
Boyd said Southern Electric made some “hugely stupid assumptions,” among them that it would add many more customers than it had and that energy consumption by all users would inevitably increase. In fact, Boyd said, growth in energy use has been flat in recent years, partly because of energy conservation efforts, partly because of more local power generation—especially in California, with lots of solar power, and in the Northwest, with lots of wind power.
SME also lost its supply of relatively cheap energy from the Bonneville Power Administration and started buying power from PPL Montana. By contract, it was buying far more power than it needed, with the result that it was re-selling electricity at a big loss or couldn’t sell it at all in a depressed market.
Boyd was on the SME board in those days, and “looking at those numbers it was so obvious they were heading toward the wall.”
In 2012, Beartooth hired Peck, in what would be his last job in a long career with rural electric co-ops, to restructure the co-op during SME’s bankruptcy proceedings. After a long, bitter court fight, Beartooth Electric was allowed to sever its ties with Southern Montana Electric.
When Peck retired in 2015, Beartooth entered into a management services agreement with Lower Valley Energy, of which Peck had previously been president. Under that agreement, Webb and the LVE management team provided professional services to Beartooth for the life of the three-year agreement.
Beartooth also agreed to consider merging with LVE, whose members had the lowest energy rates in the country back in 2012, when Beartooth’s rates were among the highest.
Under the management of Peck and Webb, and with the broad involvement of Beartooth members, rates have dropped steadily and now are close to the Montana average. Beartooth continues to receive most of its power supply from Twin Eagle, but as of this September will be under a five-year, fixed-rate contract with Morgan Stanley for a power supply.
Mostly because Beartooth is doing so well and is positioned to keep doing well, the board of trustees, relying on the research of Boyd and her risk management committee, ultimately decided this year not to pursue a merger with LVE. It hired a national firm to lead the search for a new manager, who could be on board before Beartooth’s management agreement with LVE expires in July.
Boyd said it wouldn’t be accurate to say the co-op’s success has been surprising, because she always knew they could turn things around if they severed their ties with Southern Montana Electric. Still, she acknowledged, “it’s really astonishing that it went the way it did.”
In a report she wrote for an upcoming edition of the Beartooth co-op newsletter, Boyd said it was “gratifying to tell members that we are on a solid, and pretty standard, path for an electric cooperative.” The headline on her report is, “No Drama, Just Good Business.”
Thanks to the fixed-rate contract, Beartooth’s annual power costs, now at just over $3 million a year, are expected to barely rise—to a little under $3.3 million—by 2023, the report says.
Webb said Beartooth “is in the sweet spot” now, having signed a contract for fixed-rate power. Most co-ops are tied to a generation and transmission company, not a general provider like Morgan Stanley, he said, and “we’re beating what any of the G&T’s are offering right now.”
Webb said Lower Valley Energy completely understands Beartooth’s decision to go the independent route, and he will step away from managing the co-op on more than amicable terms.
“I’ve become good friends with every board member,” he said, and LVE will “provide whatever services the new manager wants for as long as they want.” Even so, he added, he doesn’t expect the new manager to need much help.
“The table is very much set for success for this person,” he said.
Boyd said finding the right manager will be important. Some candidates might find the transparency and the degree of member involvement a little daunting, she said, but she’s convinced they’ll find someone who appreciates those factors.
With the energy world changing as quickly as it is, she said, the involvement of intelligent, committed members will be essential. When the co-op announced it was cutting rates as of July 1, it also told members it would be borrowing $1.9 million to replace all meters by 2019. Consumption data from those meters will help the co-op redesign its rate structure and ratepayer classes.
“The next step for the board is to get more educated about rate design in a world with increasing renewables,” Boyd said in that press release. “Other co-ops are finding ways to keep changes equitable and make sure that distribution costs are covered.”
Beartooth board President David Peterson, a rancher who lives between Reed Point and Absarokee and has been a member of the co-op for 40 years, said, in something of an understatement, “We’ve really come a long ways in the past six years.”
He said the guidance of Peck and then Webb was invaluable, and “everything just kind of come together after a few years. It looks like we’re going to be in pretty good shape here pretty soon.”