BEC and Southern take bold steps in 2014

The David vs. Goliath battle goes on to permit a small group of rural electric cooperatives to go fully bankrupt and liquidate. Beartooth Electric Cooperat i v e (BEC) r e c e n t l y informed members that change is in the air for 2014 after the recent firing of Southern Montana Electric Generation and Transmission Cooperative, Inc.’s (Southern) Trustee Lee Freeman by the court in the ongoing federal Chapter 11 bankruptcy. The trustee had sought to keep the Highwood Generating and Tr ansmi s s i on St a t i o n (HGS), Southern’s own entry into the national energy producing market alive, despite the former board’s coops being against it as financially disastrous. Southern is reorganizing its board and BEC has de c lar ed a r e s o lut i o n against the former trustee’s plan. At issue is a BEC lawsuit filed against the trustee’s plan and joined by several of the other coop board members it claimed that the wholesale power contracts made by the former Southern board (with unlimited rate potential) would result in bankruptcy of the coops. In turn, a motion to dismiss BEC’s lawsuit filed by major creditor Prudential Financial Services, Inc. (Prudential) opposed BEC and Southern’s new plan to set aside these contracts the trustee proposed as collateral.

Southern claims its less than 10,000 primarily lowincome, rural members should not suffer “a bad loan” made by Prudential. Montana Public Service Commi s s i one r Tr a v i s Kavulla earlier agreed calling it a “bailout” attempt. Said BEC board member Arleen Boyd, “Our contracts with Southern are claimed as collateral for the noteholders' (Prudential et al) loan and the noteholders' plan of reorganization is based on keeping those contracts in place at Southern to secure that loan. Additionally, the noteholders' reorganization plan calls for Southern's member co-ops to individually guarantee a contract for power. Finally, there is no benefit for the member co-ops, certainly not Beartooth, in keeping Southern together.” Boyd said, “— the purpose (of the resolution) is to tell all parties in the bankrupt cy that we know Beartooth can do better by its members by leaving Southern and taking one of several identified alternative paths for power supply.” Recent actions taken by the new Southern board include: the appointment of Scott Sweeney of Fergus Electric Cooperative (Fergus) as interim manager for Southern; the appointment of bankruptcy attorney (and former Southern attorney) Malcolm Goodrich as counsel; the election of Fergus’ David Dover as Southern President; and the expansion of the number of board members to allow two members from each coop. After Yellowstone Electric Cooperative and the City of Great Falls were released from Southern by the court, board representation fell below legal requirements. Southern also wants greater co-op representation. January 14 has been set by the court as the revised date for the hearing on the disclosure information for the member's liquidation plan and the BEC case to deny use of its wholesale power contracts as collateral. Prudential has opposed the Southern reorganization plan offered by the new board and will be heard at that time. Ironically, after repeated co-op claims of the failure of the trustee’s plan with Prudential to disclose any details, Prudential argues Southern’s plan lacks details. Some of Prudential’s claims in its Motion to Dismiss to be argued January 14, include: 1. Bankruptcy is primarily for the benefit of creditors: by (legally) representing itself Southern has an inherent conflict of interest; 2. Southern’s disclosures are misleading, inaccurate and inflammatory; Noteholders should not have to bear cost of opposing the plan; 3.The attorney for Southern will also accumulate fees as did the trustee; 4. Southern’s disclosure does not contain enough information for the court to make an informed decision; 5. There is no proof of benefit to each and every creditor; 6. The assigned power contracts have value and even in a complete Chapter 7 liquidation it is inconceivable that the contracts would be “let go of”; 7. Construction leinholders would receive less; 8. General unsecured leinholder s would receive nothing; 9. The Power contracts of the co-ops are assignable since they do not contain prohibitory language; 10. Power contracts that obligate members to above market prices are not cause for shedding (voiding) the contracts; 11. There is no widespread criticism of former Southern and its petition other than from members; 12. Rates currently charged give no cause for complaint; 13. To call the Prudential loan a “bad loan, etc.” is inflammatory; 14. To say rates are already crippling is “arguing by innuendo”; 15. Debtor fails to show how Southern will be managed through to effective the date of plan; 16. Members will give up no benefits if the power contract is rejected; 17. Cash collateral payments must continue under earlier order even if a conversion to Chapter 7 occurs; and 18. The debtor would never be entitled to a discharge of its debts even if Chapter 7 l iquidat ion occurs.