Southern Montana Electric plan confirmation hearing vacated by court

By Caroline Salls

Pittsburgh, Oct. 15 - Southern Montana Electric Generation and Transmission Cooperative, Inc.'s Nov. 12 plan of reorganization confirmation hearing was vacated Tuesday by the U.S. Bankruptcy Court for the District of Montana.

Judge Ralph B. Kirscher ordered counsel for the company's Chapter 11 trustee, as well as its unsecured creditors' committee, noteholders and members to confer about whether to mediate disputes, ask the court to reschedule the plan confirmation hearing and schedule trials on pending adversary proceedings, or both.

As previously reported, four of Southern Montana Electric's co-op members filed a lawsuit against the company's Chapter 11 trustee that asks the court to rule that their supply contracts are void and unenforceable.

The plaintiffs are Beartooth Electric Cooperative, Inc., Fergus Electric Cooperative, Inc., Mid-Yellowstone Electric Cooperative, Inc. and Tongue River Electric Cooperative, Inc.

According to the lawsuit, the objectives of the plan proposed by the trustee for Southern Montana's bankruptcy case are

• To reorganize Southern Montana Electric as a shell-entity and puppet controlled by Prudential Insurance Co. of America and Morgan Stanley Capital Group, Inc.;

• To strip the plaintiffs of their rights under the supply contracts;

• To usurp Southern Montana's board of trustees' control over the company;

• To make Southern Montana's members, contrary to the bylaws and Montana law, personally liable for obligations owed to Morgan Stanley Capital by the company;

• To avoid the effect of the nonprofit contracts and pay huge profits to Morgan Stanley Capital and Prudential;

• To hold the plaintiffs hostage to new power supply agreements with a provider that bears no resemblance to Southern Montana;

• To use a rate negotiated between the trustee, Morgan Stanley Capital and Prudential to avoid the contractual oversight of the U.S. Department of Agriculture Rural Utility Services and self-regulation of the company's members; and

• To use the court's jurisdiction to "cram down" a plan on Montana rural electric consumers that violates and avoids traditional oversight.

The disclosure statement for the plan filed by the trustee was approved on Oct. 1.

Southern Montana filed for bankruptcy on Oct. 21, 2011. The Billings, Mont.-based cooperative's Chapter 11 case number is 11-62031.

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