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Bankrupt co-op members seek to oust trustee

Published on NewsOK Modified: November 12, 2013 at 4:52 pm •  Published: November 12, 2013

BILLINGS, Mont. (AP) — Members of a bankrupt Montana power cooperative were due to appear before a federal judge Wednesday to push for the ouster of a court-appointed trustee who wants to keep the co-op together.

The members contend that trustee Lee Freeman is no longer needed after they decided among themselves to bust up the troubled co-op.

Attorneys for the members said in court filings that Freeman would drive up electricity rates with his reorganization plan for Southern Montana Electric Generation and Transmission Cooperative. Keeping the co-op together would hurt Montana consumers while benefiting the creditors who bankrolled the co-op's seldom-used, $85 million power plant near Great Falls, the attorneys said.

The members instead want to liquidate Southern Montana's assets, including the Highwood power plant. That would let them shop around for a cheaper electricity supplier, although that could come at the expense of Southern Montana's creditors.

Attorneys for Freeman and Prudential Insurance, which holds the note on the loan used to build Highwood, say the members are ignoring their obligations to Southern Montana's creditors. They accused the members of trying to get off the hook for power supply contracts by pursuing a "scorched earth" policy of liquidation.

The two sides are scheduled to make their case Wednesday before U.S. Bankruptcy Judge Ralph Kirscher in Billings. The matter was originally set for Tuesday but was postponed after a hearing in an unrelated case ran late.

The financial problems that led to Southern Montana's 2011 bankruptcy were highlighted by a failed attempt to build a 250-megawatt coal-fired power plant. The project ultimately was scaled back to a 40-megawatt gas plant, but even at its reduced capacity there has been insufficient power demand to offset its price tag.

Southern Montana provides power to more than 10,000 customers in central and eastern Montana. It's made up of four member co-ops — Fergus Electric, Beartooth Electric, Mid-Yellowstone Valley Electric and Tongue River Electric.

Two others — Yellowstone Valley Electric and Electric City Power of Great Falls — broke away earlier this year under settlements with the trustee. Their departure cut the co-op's power supply needs by roughly half.

From his November 2011 appointment until Sept. 17, Freeman had been paid almost $580,000 in fees, according to documents filed by his attorneys as part of his proposed reorganization of the co-op. The trustee has also paid almost $2.5 million to attorneys and other professionals, and more than $2.6 million to attorneys and professionals employed by the co-op's creditors.

In court filings, Fergus Electric attorney Trent Gardner accused Freeman of marching in lockstep with creditors including Highwood lender Prudential.

Beartooth and Mid-Yellowstone have joined Fergus in the bid to oust Freeman. Tongue River has not taken a position on Freeman's ouster, although it joined the remaining members when they filed the liquidation plan for Southern Montana last month.

Freeman's attorneys contend he balanced the competing interests of Southern Montana's members and creditors, a role no one else would be able to perform in his absence.

A separate hearing on the members' liquidation plan is scheduled for Dec. 10.


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