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Beartooth Electric offers updates on bankruptcy, options during annual meeting

17 hours ago  •  By LINDA HALSTEAD-ACHARYA For the Gazette

RED LODGE — Roxie Melton, chair of the Beartooth Electric Cooperative’s board, would like nothing better than to have the Red Lodge-based electric cooperative out of the headlines.

“I look for the time when we may again be that small, obscure rural electric cooperative at the base of the Beartooths,” said Melton during the co-op’s annual meeting held north of Red Lodge on Saturday. “But we have a daunting task still ahead.”

 As the co-op celebrated its 75th year, board members reaffirmed their resolve to withdraw from Southern Montana Electric, to sell or in some way divest themselves of the Highwood Generation Station near Great Falls and to find reliable and affordable power for Beartooth members.

The problems that prompted member revolt several years ago continue to plague Beartooth customers today, but in different forms. Now, instead of railing against rate increases imposed by Southern, the umbrella cooperative that contracts for Beartooth’s power, members railed against Southern’s bankruptcy proceedings that could leave them holding the bag for millions of dollars in debts. One Beartooth member suggested that Beartooth take busloads of members to court to “show that face” of the people personally affected by the judge’s decisions.

Travis Kavulla, a member of Montana’s Public Service Commission and one of the meeting’s two keynote speakers, summarized the history behind Southern’s bankruptcy and the troubles that haunt the four rural cooperatives —  Beartooth, Fergus Electric, Mid-Yellowstone Electric and Tongue River Electric —  that still make up Southern. This spring, the court approved settlements for former Southern members Yellowstone Valley Electric and the City of Great Falls, leaving the 11,000-plus members of the remaining four rural co-ops to wonder about their futures.

Kavulla cites bad decisions, ego and lack of oversight as the root causes for Southern’s bankruptcy and related problems.

“Southern had one advantage —  the all-requirements contracts that kept member co-ops on the hook,” he said. Those contracts run through 2048.

Now those four rural electric cooperatives, once divided in their support of Southern and Highwood, have all filed objections to the proposed bankruptcy plan and disclosure documents, which recommend a reorganization bankruptcy for Southern. The reorganization would keep the four co-ops as members of Southern and would retain ownership of Highwood. The disclosure statement also proposes rate increases of 2.6 percent annually over the next 12 years.

Beartooth board member Arleen Boyd objects to a number of points in the proposal, including any rate increase.

“From Beartooth’s perspective, the current rate is not sustainable for Beartooth,” she said.

According to Kavulla, Beartooth members are currently paying twice what they should be paying, with half of their power bills going to cover costs associated with the bankruptcy, attorneys and debt.

As the bankruptcy process hits the two-year mark, Beartooth continues to voice its support for liquidating Southern and selling Highwood. The gas-fired plant was built for $85 million and has more recently been valued between $2 million and $15 million.

The four co-ops not only oppose the bankruptcy plan and disclosure as outlined by bankruptcy trustee Lee Freeman, but during a Sept. 24 hearing they indicated they would be filing an alternative, Boyd said.

“They called it a liquidation plan,” she said, noting that it has not yet been developed.

Meanwhile, Kevin Owens, longtime manager of Columbia River People’s Utility District in Oregon and the meeting’s other keynote speaker, said he’s recently seen signs for optimism. Not only have the four co-ops joined ranks in opposing Southern's reorganization, but he was heartened to hear in court that their unified opposition troubled the judge.

“That was the defining moment in my eyes,” he said. “I think you’ve turned the corner.”

Even should that prove to be true, the Beartooth board envisions much work ahead. But board members have spent the past two years investigating options for just such a scenario.

“We cannot predict the outcome of Southern’s bankruptcy,” said Richard Peck, Beartooth's  general manager, "but there are three or four companies that would love to serve our interests tomorrow.”

Peck said Beartooth has weighed pros and cons of consolidating or merging with another co-op, selling assets to Northwestern Energy and even the possibility of Beartooth filing for bankruptcy.

The long-term goal is to reduce power rates, he said, noting that Beartooth customers currently pay the highest electricity rates in the Northwest.

As members were apprised of Beartooth’s financial status for 2013, auditor Rick Matusiak said the cooperative wrote off $3.9 million associated with Southern and Highwood. But power rates remained unchanged and the cooperative was able to continue operations without borrowing.

“We even managed to save $300,000 over last year’s expenses,” Melton said.

By meeting’s end, Beartooth Trustee Pat Holman announced that Roxie Melton and Arleen Boyd were re-elected for second terms on the Beartooth Board.

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