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Yellowstone Valley Electric Cooperative told a bankruptcy judge on Tuesday that it wants its long-awaited day in court -- state court -- to persuade a jury to end its contract with its wholesale power provider.

John Crist, YVEC's attorney, said the Huntley-based co-op was only weeks away from a jury trial when its power supplier, Southern Montana Electric Generation and Transmission Cooperative, filed for bankruptcy last October, effectively halting about three and a half years of expensive litigation.

"Our members want closure to this," Terry Holzer, YVEC's consultant and former manager, testified during hearing before U.S. Bankruptcy Judge Ralph Kirscher.

John Parks, the attorney for Southern's trustee, told the judge that YVEC's issues are a critical part of Southern's reorganization plan and can be settled through the bankruptcy process.

Parks asked the judge to order YVEC and Southern into mediation.

"We simply can't wait for Yellowstone Valley to slug it out in state court," Parks said.

Kirscher said he would rule on the issue later but did not indicate when.

Southern provides wholesale power mostly to its members, which include five co-ops and the city of Great Falls. In addition to YVEC, the other co-ops include Fergus, Tongue River, Beartooth and Mid-Yellowstone.

Southern also built the Highwood Generating Station, a 40-megawatt natural gas plant near Great Falls.

Southern's financial problems stem from having contracted for more power than it needed at expensive rates. Southern also borrowed $85 million to build the Highwood plant and was seeking to borrow up to $215 million more to enlarge the plant when it went broke.

Great Falls also has sued Southern to end its contract. And Beartooth recently filed a request asking Kirscher to declare its contract with Southern null and void.

YVEC alleges that Southern breached its contract and has been battling to leave Southern since 2008, when it filed a complaint in state court. Attempts to negotiate a settlement have failed.

Holzer testified that the litigation against Southern has cost YVEC $730,000 and has generated about 20,000 documents.

YVEC's attorneys also said the dispute belongs in state court and should not be decided in the bankruptcy case.

Parks countered that federal law applies because the United States, through the Western Area Power Administration, which is one of Southern's power suppliers, is a party in YVEC's contract with Southern.

Southern Trustee Lee Freeman testified that YVEC represents a substantial portion, 38 percent, of the wholesaler's demand for power and that Southern has a "golden opportunity" to try to work out a plan because market rates for power are substantially cheaper than when it went broke.

Freeman was hopeful that all of the parties could find a way to agree on a plan.

"The whole is worth much more than the sum of its parts," he said.

Freeman also said District Judge Todd Baugh, who was hearing YVEC's case, told him the next possible trial date would be April 2013. The trustee said he wanted to have a reorganization plan approved by then.

Litigating YVEC's case in state court would cost Southern an estimated $500,000, Freeman said. Southern would have to find a new lawyer because its previous attorney, the Edwards Law firm, won't continue representing Southern because of the money it owes.

Mid-Yellowstone's general manager, Ted Church, testified that with its 729 members, the Hysham-based co-op is Southern's smallest member and cannot afford an attorney to represent itself in the YVEC dispute.

 

 

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