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BEC pursues leaving Southern

By Eleanor Guerrero

Carbon County News, May 8, 2014

The Board of Trustees of Beartooth Electric Cooperative (BEC), met in Red Lodge at the Red Lodge Area Community Foundation for their monthly meeting. For discussion, were some of the latest filings and ongoing negotiations with the Southern Montana Electric Generation and Transmission Cooperative, Inc. (Southern) bankruptcy. Former Southern trustee, Lee Freeman had filed a bankruptcy plan. Southern amended the plan after resuming control following the trustee’s dismissal by the federal court. According to the due diligence report to BEC by Arleen Boyd, BEC and Southern board member, “The new reorganization plan and its related disclosure information project a payment period for the noteholder debt, now set at $21 million, over four years. A trust will be formed to sell or otherwise dispose of the Highwood Generating Station with the proceeds going to the noteholders. Details of the note and the trust are expected in supplemental filings still to come.” Boyd announced that the judge had granted Southern’s motion to expedite the plan hearing. Parties have time to object, but not much more time. If all can be worked out, according to Boyd, the plan could be confirmed by the end of May. “It’s possible,” said Boyd, “that we may agree. We have been negotiating with the other co-ops for an exit plan for BEC.” If not, mediation is scheduled to start May 14.

Three items were discussed: the withdrawal of BEC from Southern, the future of Highwood Generating Station, and the properties owned by SME, a corporation formed by the board of Southern supposedly to run HGS. Boyd said, “For a long time we thought the confusion around ownership of these properties would be resolved as part of the Southern bankruptcy.”

Since the properties of SME will not be included, SME is starting the process to put the property up for sale. “We expect the sale of the one property to cover the debt it secures for First Interstate Bank (FIB),” said Boyd. It is being appraised. SME guaranteed a line of credit of $600,000 from FIB to Southern with the property. According to the documents filed recently, BEC may withdraw its membership from Southern on terms: subject to approval by the other members; not inconsistent with any other provision of the plan addressing the treatment of the Indenture Trustee and the noteholders, and not inconsistent with Southern’s Bylaws and BEC’s All Requirements Contract. BEC’s departure must also be approved by the noteholders-upon payment by BEC or the debtor, prior to the effective date on or after the effective date to the noteholders of an amount equal to the outstanding balance of the restructured notes ($21 million), multiplied by 17.5211%, (BEC’s current average load purchased from Southern). BEC and the other members, with the consent of Southern have agreed to a process for BEC’s withdrawal. Boyd said in addition, “Our share of other legal obligations would have to be met — those remain to be defined and agreed to."

When asked the cost of staying, Boyd added, “We are comparing the hard costs of a four-year term with Southern to paying off our share of the note upfront. There are risks associated with staying in Southern and opportunities if we leave.  We will reveal more about the model comparing the costs of borrowing the money as soon as we can.” A major factor with Southern and BEC is the fate of Highwood Generating Station (HGS), an asset owned by Southern. As is stated in the recently filed documents, “Other than any unpaid HGS Costs…the HGS Holding Trust shall be responsible for payment, on behalf of the debtor, of all obligations, agreements and contracts of the debtor deemed necessary by the HGS Holding Trust for the use, access, operation, maintenance, retention and disposition of HGS…” with various conditions. Once the trust is active, the noteholders as trust beneficiaries, shall have the risks and benefits of all costs, liabilities and proceeds. The HGS Trustee shall be selected by the noteholders and shall consult with the noteholders, including whether to accept a bid to purchase all or part of HGS.

The HGS Trust will not be permitted to sell power without the consent of the noteholders and Southern. Conversely, the HGS Holding Trustee may prevent Southern by order of the Court if necessary, from taking any action that it deems financially injurious to the noteholders. The HGS Holding Trust shall indemnify Southern against HGS liabilities and costs, subject to conditions. Check with the BEC website for a meeting near you. There will be a hearing on May 9 for the disclosure information and a hearing is scheduled for May 20 on confirmation of the plan.