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Great Falls faces costly trial in bankruptcy court

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By Richard Ecke Great Falls Tribune Staff Writer 
Feb 4, 2013 
A very expensive trial looms a year from now for the city of Great Falls in its energy venture mess.
But the city faces a much quicker deadline of Feb. 18 to decide whether to object to the departure of a fellow member of the Billings-based Southern Montana Electric Generation and Transmission Cooperative.
Three members of the bankrupt, six-member umbrella rural electric co-op have been trying for months or years to leave the group.
Now, the largest member, Huntley-based Yellowstone Valley Electric co-op, has secured a settlement to leave Southern Montana.
The other members hoping to leave, the city of Great Falls’ Electric City Power, and Red Lodge-based Beartooth Electric, have the power to object to the departure of Yellowstone Valley. That will create some awkward moments for Great Falls and Beartooth.
“I’m wondering if the city is going to object to that (settlement),” retired college professor Aart Dolman told the Electric City Power Board on Monday night in Great Falls.
“No comment this evening,” power board Chairman Bob Jones, a city commissioner, replied. He said city officials will discuss that matter with attorneys, and if they recommend that move, “They’ll contact us.”
Southern Montana filed for Chapter 11 bankruptcy reorganization in October 2011 after inking unfavorable terms with a power supplier and building a 40-megawatt natural gas-fired power plant east of Great Falls that almost never runs.
The bankruptcy case largely involves how two lenders, Prudential financial and Modern Woodmen of America, will recover $85 million in loans given Southern Montana to build the power plant. Officials have estimated the power plant’s worth at about $30 million, although a formal appraisal is under way.
Last month, Yellowstone Valley and Southern Montana’s appointed trustee reached a settlement agreement that would allow the umbrella co-op’s largest power user to leave the group for good.
Great Falls’ own position remains fuzzy. City officials earlier said the trustee had offered to settle stranded cost issues — over electricity the city will not buy because most of its customers left after a price hike — for $60 million and then $30 million. The city turned down both those offers, and city officials in recent months said they were not supposed to discuss details of potential settlements that take place under mediation.
Jones said Monday the city has no mediation sessions scheduled, but it is leaving the door open for such talks.
If no settlement is reached, the city and the trustee could go through with a trial proceeding in federal bankruptcy court in Missoula roughly a year from now, according to court documents. U.S. Bankruptcy Judge Ralph B. Kirscher on Jan. 10 signed an order giving a tentative court date of Feb. 24 through March 7, 2014, or “soon thereafter.”
The trustee would be expected to argue the city of Great Falls entered the power business voluntarily and signed contracts it should be required to follow. The city has argued the city’s all-requirements power contract should be invalidated, and the city should be allowed to leave the group, on a variety of grounds.
Deadlines include one of April 8 for amending the city’s pleadings in the matter, and all depositions of witnesses are to take place by year’s end. All pertinent documents should be disclosed by both sides to the other by Dec. 31, the order said.
Any settlement talks would need to be wrapped up by Jan. 24, 2014, and lists of exhibits and witnesses, including expert witnesses, would be due by Feb. 4, 2014.
After Monday night’s meeting, City Manager Greg Doyon acknowledged a trial as described potentially could cost the city hundreds of thousands of dollars in legal fees and other costs. Jones said those costs could be “astronomic.”
“Legal fees are the big ones,” Jones said after the meeting. “We certainly don’t want to wait until 2014 to have our hearing.”
Ron Gessaman of Great Falls theorized at the meeting that Southern Montana trustee Lee Freeman figured he got as much money as he could out of Yellowstone Valley Electric, and the only member with any assets left to speak of is the city of Great Falls.
Gessaman said he believes chances as “pretty slim” Freeman would settle with the city.
“He needs the cash,” Gessaman said of Freeman.
The next power board meeting will be 5:30 p.m. March 4 at the Civic Center.
“I think there should be some movement coming,” Jones predicted.
Freeman has until Feb. 15 to file details of his reorganization plan for Southern Montana. Freeman’s plan calls for the umbrella co-op to continue, with remaining members paying higher-than-market power rates to help repay debts.
The city of Great Falls is not an especially attractive member any longer because so many customers quit, either breaking their contracts outright or exercising an escape clause.
Great Falls joined Southern Montana in 2003 after its previous power supplier, a subsidiary of NorthWestern Energy, out of the blue canceled a power contract it had with school districts and cities and towns in Montana. That prompted anger in Great Falls and elsewhere; Great Falls officials decided the city should start selling power on its own.
The city and later Electric City Power went on to lose $7 million, mostly by selling power at a loss to up to 20 major customers since 2004. Great Falls could lose another $2 million in cash in the bankruptcy case, said Melissa Kinzler, city Fiscal Services director.
And that doesn’t count claims by Freeman that the city also owes stranded costs.
A trial in federal bankruptcy court a year from now might happen even later than the time frame described, Jones said at the meeting.
Reach Tribune reporter Richard Ecke at 406-791-1467 or email him at Follow him on Twitter at @GFTrib_REcke.