Judge removes power co-op trustee in surprise move

BILLINGS, Mont. (AP) — The trustee overseeing a bankrupt Montana power cooperative was removed by a federal judge Tuesday 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.

U.S. Bankruptcy Judge Ralph 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.

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.

Prudential and Modern Woodmen opposed Freeman's removal.

An attorney for one of the member co-ops that sought Freeman's ouster said Tuesday that Kirscher's ruling was a welcome surprise.

"They said they want to make us pay for that plant, and we just can't," said Gary Ryder, representing Mid-Yellowstone Valley Electric. "This gives us an opportunity to take our own direction, let us make our own choices about how we're going to obtain a future power supply."

A hearing on the members' liquidation plan is scheduled for Dec. 10.

The financial problems that led to Southern Montana's bankruptcy were rooted in a failed attempt to build a 250-megawatt coal-fired power plant and sell much of the electricity it generated on the market. The project was later scaled back to a 40-megawatt gas plant that has sat dormant most of the time since its completion.

Adding to Southern Montana's woes was a 2009 contract with PPL Montana that obligated the co-op to buy more power than it needed. The excess power was dumped on the market at low rates, Freeman testified, undermining the co-op's already tenuous financial situation.

PPL's contract was later cancelled by Freeman, and the company has a pending claim against Southern Montana for more than $370 million.

PPL joined the member co-ops that called for Freeman's ouster — Fergus Electric, Beartooth Electric and Mid-Yellowstone Valley. The fourth, Tongue River Electric, had not participated in the effort against Freeman but joined the others on the proposed liquidation plan.

Two former members of Southern Montana — Yellowstone Valley Electric and Electric City Power of Great Falls — broke away earlier this year under settlements with the trustee. Their departure cut the co-op's power supply needs by roughly half.