The trustee overseeing the Southern Montana Electric Generation and Transmission Cooperative, Inc. (Southern) bankruptcy was removed by U.S. Bankruptcy Judge Ralph Kirscher, Tuesday, Nov. 26, in an unexpected move that could lead to the breakup of the troubled co-op and the sale of assets including a power plant near Great Falls. Beartooth Electric Cooperative (BEC) Manager Richard Peck exclaimed, “It happened yesterday and I heard around 4:30-5 p.m.; the texts were going wild. This is a great Thanksgiving.” Southern Board member Arleen Boyd observed, “We are the ‘Debtor in Possession’ now; we are in charge.” Peck said, “You’ll have to work fast.” Boyd agreed, “Fast and hard and constant,” noting the challenging times ahead with the leadership of the company back in the hands of the board and daunting debts mounting to over $440 million.

Kirscher had said in a Nov. 13 hearing that he was reluctant to remove trustee Lee Freeman, given that his reorganization plan for the Southern Montana Electric Generation and Transmission Cooperative was still pending. But Kirscher said that with the members now in agreement to liquidate the plant and other assets, Freeman is no longer needed. The judge also noted that the trustee has submitted claims for more than $6 million in fees and expenses for his attorneys and consultants and those of lenders for Southern Montana's seldom-used Highwood power plant near Great Falls, Prudential Insurance and Modern Woodmen of America. Peck said, “It was in that earlier September hearing when the judge noted that the debtors did not agree. The plan was not sustainable.” Boyd agreed, “He said to Freeman, ‘You’re going to have to explain your case when you go forward for confirmation.”

They felt that was the turning point. Peck wanted to commend Fergus and their lawyers, Goetz law firm in Bozeman and attorney Trent Gardner in particular. “The judge agreed with all of his points. It was basically very simple: In November, December, 2011, six members of the Southern board were hopelessly deadlocked-so many 3-3 votes. They agreed to file the Chapter 11 bankruptcy because of the circumstances that existed at that point in time. As the attorneys explained, today it’s totally different-Great Falls and Yellowstone are gone and all four remaining co-ops want the sale of Highwood Generating Station and the liquidation of Southern.” Even though fourth co-op Tongue River Electric Co-op did not join the Fergus motion to remove the trustee as the other co-ops did, Peck said it still sought those two outcomes. Meanwhile, the legals fees mounted each month for the Trustee and his team and the court noted.

Freeman wanted to keep together Southern Montana's four member co-ops, which collectively represent more than 10,000 businesses and households. By raising electricity rates for those customers, Freeman planned to pay off the bulk of an $85 million loan for the Highwood plant. "Yet, after two years, the trustee has not secured confirmation of a plan," Kirscher wrote. "There is the appearance of a perverse incentive to keep this case going along under the status quo, so the trustee, his counsel, and counsel for the (lenders) can continue filing interim fee applications."

The trustee's removal leaves the members' liquidation plan as the only one on the table. However, Kirscher has said the lenders could step in and offer their own plan in Freeman's absence. Freeman, who lives in Livingston, was appointed as trustee in November 2011, just weeks after Southern declared bankruptcy with more than $440 million in debt. He did not immediately return a phone message from The Associated Press seeking comment. His attorney, John Parks, also could not be reached for immediate comment.

Parks had argued during the November hearing that Freeman balanced the competing interests of Southern Montana's members and creditors, a role no one else would be able to perform in his absence. Secured creditors Prudential and Modern Woodmen opposed Freeman's removal. The court’s decision showed that over $14.5 million dollars had already been paid by Freeman to Prudential as “adequate protection insurance.” It is not even clear whether any of this money would apply to the existing debt or interest at this point. Adequate Protection Insurance is insurance to make a creditor feel secure. Boyd and Peck were cautious about the next steps noting that there had to be a series of meeting with the board and the attorneys to review things.

Peck said now that the co-ops were back in charge they had to see “where things stood” such as management contracts for Highwood and Southern. “I know that there was some testimony at the hearing on Fergus’ motion that one of the four co-op managers might be tapped to manage Southern,” said Boyd. “There is a lot to talk about.” 
“And with a hearing on the liquidation plan coming up on Dec. 10, not much time,” noted Peck. Boyd observed, “The court agreement for the application of cash collateral approved by Prudential ends the end of December and must be addressed.” The agreement keeps Southern operational, “keeps the lights on,” allowing Southern to continue collecting revenues and spending money such as paying the bills. “Now we have the opportunity to drive solutions to the matter and we have a plan before the court,” said Boyd. “There is a ton of work to do to make a resolution acceptable to the court and confirmable. Lots of hours, lots of work.” Peck reflected, “I feel it will be worked out more effectively than it would have been before. It is a blessed Thanksgiving.”

Upcoming Events

  • Monday, February 19, 2018 - 6:00pm
    The Beartooth Elks Lodge will be hosting the monthly complimentary Veterans Dinner at the Lodge, Feb. 19 at 6 p.m.  All Veterans and their families are invited to attend. Please call 446-1812 to make reservations. It is helpful to have a headcount ahead of time so the caterer can prepare enough food.
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