U.S. Bankruptcy Judge Ralph Kirscher on Thursday denied the Montana Public Service Commission's request to enter the case of Southern Montana Electric Transmission and Generation Cooperative.
The judge left open the possibility for the PSC's involvement later if a specific issue arises.
Kirscher's ruling follows a hearing in January at which an attorney for the PSC argued that the commission's intervention was a matter of public interest.
The judge said he agreed with Southern's trustee that the PSC can monitor case filings through the federal court system's electronic public access system and attend hearings without intervening.
"If and when the Commission has a specific need or purpose to intervene on a particular matter or issue, it can seek to intervene at that time," Kirscher said.
PSC Chairman Travis Kavulla said in a statement Thursday that he continues to believe Southern's bankruptcy is one of the most important events in state energy economics since deregulation. He said the commission's involvement would ensure a successful reorganization.
"The public policy implications of the bankruptcy court's decisions and of any reorganization simply are not being discussed. If the Commission is not allowed to intervene at a later time, the risk is much higher that those decisions may be made in a vacuum," Kavulla said.
"We were hoping that the only party representing the general public would have a seat at the table in this proceeding," Kavulla continued. "It's a shame that won't happen at this point in time, and there is little doubt that rural Montana ratepayers will be worse off for it," he said.
The PSC would continue to track the case and intervene as necessary, he said.
Special Assistant Attorney General Sarah Norcott noted during the January hearing that the PSC regulates NorthWestern Energy and Energy West Montana, which both are unsecured creditors of Southern.
The PSC has expertise in energy and would help, not delay the case, Norcott argued.
The PSC does not regulate Southern, which is a wholesale power cooperative that supplies electricity mostly to its members. Southern's members are five rural co-ops in central and southeastern Montana and the city of Great Falls.
Attorney John Parks, who represents Southern's trustee, argued against the PSC's intervention, saying the PSC was not a creditor, does not regulate co-ops, has no experience with co-ops and did not have consumer creditors in the case as claimed.
Parks also said that consumers who buy their power from Southern's member co-ops and from Great Falls already are represented in the bankruptcy by their members' attorneys.
The Billings-based Southern filed for bankruptcy in October to reorganize, listing $21.4 million in red ink. Southern's financial problems stem from contracting for more power than it could use. Southern also borrowed money to build the $85 million Highwood Generating Station, a 40-megawatt natural gas plant outside Great Falls.