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Some members of Beartooth Electric Cooperative are calling for the bankruptcy trustee for Southern Montana Electric Generation and Transmission Cooperative to conduct a forensic audit of the troubled wholesale power supplier.

"They went through a lot of money. We know so little. So much was secret," said Judith Gregory, a Beartooth member in Red Lodge, on Monday.

Also on Monday, an attorney with the Office of the U.S. Trustee filed papers in U.S. Bankruptcy Court seeking court approval for appointing Lee A. Freeman as trustee to run Southern as it reorganizes its finances.

Freeman worked as an antitrust attorney in Chicago and now lives and works in Livingston. He handled utility cases in New Hampshire and Vermont and is currently involved in proceedings before the Federal Energy Regulatory Commission.

Southern, a Billings-based wholesale power co-op that supplies electricity mostly to its member co-ops, abruptly filed for bankruptcy in October.

Shortly after the bankruptcy filing, Tim Gregori, Southern's general manager, retired. Since the bankruptcy filing, Gregori has not returned phone calls seeking comment.

Gregory worked with other Beartooth members to successfully oust three incumbent Beartooth trustees in September for their support of Southern and its gas-fired power plant, the Highwood Generating Station.

A former corporate treasurer for health care organizations, Gregory said she has read Southern's bankruptcy documents and several items "were enough to raise our eyebrows."

In April, Southern got a $5 million line of credit from National Rural Utilities Co-op Financial, and by September it was gone, Gregory said.

And in August, Southern Montana Electric, a related group composed of Beartooth and three other co-ops in Southern, got a $600,000 mortgage from First Interstate Bank in Great Falls on property it owns near the Highwood plant. SME transferred the money to Southern and that money is gone, she said.

"Where did the $5.6 million go? There is a big chunk of money they went through really fast," Gregory said.

Southern still owes PPL Energy Plus about $7.5 million, Gregory said. PPL is Southern's biggest unsecured creditor and its main electricity supplier.

The $600,000 mortgage is of particular interest to Beartooth, Gregory said, because Beartooth was not informed of the mortgage even though it has a share of SME's assets.

Gregory said she was told by Beartooth trustee Joe Kern, who was filling in on the SME board when the mortgage was approved, that the money was given to Southern to create cash flow.

"We just want to answer the question, 'Where did all the money go?' " Gregory said.

Dick Nolan, a retired consultant in the Luther area and Beartooth member, also supports a forensic audit.

Members may learn that Southern was worse off than anyone thought but just delayed bankruptcy, Nolan said.

"Who knows? All of Southern's financial stuff was done in closed session," he added.

"We may find out what we're looking at is an incredibly incompetent person who was good at hiding things for a while. I certainly think it's worth the trustee looking back several years," Nolan said.

Gazette reporter Jan Falstad contributed to this story.

Contact Clair Johnson at cjohnson@billingsgazette.com or 657-1282.

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Federal Court, Yellowtone County Reporter

Federal court and county reporter for The Billings Gazette.