The Yellowstone Valley Electric Co-op asked a federal bankruptcy judge Tuesday to allow it to recoup more than a half-million dollars from its wholesale supplier if the co-op has to pay a Bonneville Power Administration bill it claims it already paid.
The issue is the latest dispute in Southern Montana Electric Generation and Transmission Cooperative's efforts to reorganize $21.4 million in debt. Southern is a Billings-based wholesaler that buys electricity primarily for its members, which are five rural co-ops and the city of Great Falls. Southern also built the Highwood Generating Station, a part-time 40-megawatt natural gas plant outside Great Falls.
Bankruptcy Judge Ralph Kirscher heard testimony on the matter Tuesday afternoon and said he would rule later.
BPA, which sold power to Southern until its contract ended in September, is an unsecured creditor seeking $1.2 million for power and transmission service for August and September.
BPA also recently billed Southern's co-ops directly for their share, including interest, for a total of $1.17 million. BPA wants payment by Feb. 20 under a provision in a power sales agreement in which the members agreed to pay their share if Southern did not, court records said.
BPA's billing touched off a new round of fighting among Southern's members, who have longstanding disagreements over Southern's management that predate the bankruptcy.
Yellowstone Valley's share of the BPA bill is the largest, at 48 percent, or $564,102, including interest.
"We already paid it once," said Terry Holzer, who retired as Yellowstone Valley's manager but is consulting on the bankruptcy. The co-op will have to borrow money if forced to pay again, he said.
Yellowstone Valley contends it paid BPA in its regular monthly billing from Southern but that Southern breached its contract with the co-op and diverted the money, along with the payments by other members, to "other undisclosed purposes," the co-op argued in court records.
Yellowstone Valley didn't learn that Southern hadn't fully paid BPA until Southern filed for bankruptcy in October, Holzer testified.
If co-op has to pay BPA, Yellowstone Valley wants to deduct the money from future Southern power bills, Holzer said.
Southern's trustee, Livingston attorney Lee Freeman, objected, saying in court records that Yellowstone Valley owes money to Southern and is not entitled to money ahead of other creditors.
There was "nothing surreptitious or nefarious" in what Southern did with members' payments in the months before bankruptcy, Freeman said. Southern was scrambling to pay bills with limited cash and paid PPL, its main supplier, rather than BPA, whose contract ended, he said.
Yellowstone Valley, Southern countered, has been paying only about half of what it is billed, picking and choosing what it will pay. The amount that Yellowstone Valley wants to recoup "pales in comparison" to the more than $2 million it owes but refuses to pay Southern, Freeman said.
Yellowstone Valley said most of the disputed billings are issues in a separate state court lawsuit between the co-op and Southern. Yellowstone Valley sued in 2008 to leave the wholesaler. The bankruptcy filing halted that lawsuit.
Southern also argued that Yellowstone Valley is misinterpreting the contracts and is not entitled to recoup the money. John Parks, an attorney representing Southern, said the co-ops are "not without other rights and remedies" for contract violations.
Beartooth Electric Co-op, a Southern member, backed Yellowstone Valley's position, but the three other member co-ops did not.
Fergus, Mid-Yellowstone and Tongue River co-ops said in court records that Yellowstone Valley is not entitled to recoup payment because it has not been paying its full share of expenses, placing a bigger burden on the rest of them.
But if the judge rules in favor of Yellowstone Valley, they, too, want the right to recoup their payments, the three co-ops said.