RED LODGE — Ron Roodell, general manager of the Red Lodge-based Beartooth Electric Cooperative, was guesstimating when he budgeted $250,000 for the co-op’s legal costs next year.
But that figure, up from the typical $40,000, illustrates what the cooperative could face as its counsel untangles the legal quagmire left by the sudden bankruptcy of Southern Montana Electric Transmission & Generation Cooperative. Southern, an umbrella cooperative, provides power to its members: Beartooth, four other rural electric cooperatives and the City of Great Falls.
“And that’s just a shot in the dark,” Roodell said.
Next year’s budget was on the agenda during the board’s November meeting held in Red Lodge Tuesday. In attendance were roughly 15 Beartooth customer/members seeking to learn more about how the events of the past month — Southern’s bankruptcy, a 20 percent wholesale rate increase imposed by Southern that has since been rescinded and the abrupt retirement of Southern’s general manager Tim Gregori — will impact the rural electric cooperative.
Until legal counsel presents more information at a meeting on Nov. 28, board members found themselves only able to speculate.
“This is going to get very complicated,” said trustee Arleen Boyd.”And just because the 20 percent (rate hike) went away doesn’t mean it won’t come back.”
As the board discussed finances, new information came to light on the Highwood Generation Station, a gas-fired plant built by Southern. In addition to the $85 million cost of the plant, Southern’s members will likely have to pay $30 million to cover a make-whole penalty clause in its contract.
According to Bear-tooth’s legal counsel, Larry Martin, Southern had only $70,000 cash on hand when it filed for bankruptcy. That figure did not include monthly payments due from its members, he conceded, “but it does reflect something about its finances.”
Southern’s bankruptcy filing also revealed that Southern Montana Electric, a company affiliated with Southern, mortgaged property it owned outright, apparently to extend a line of credit to Southern. The property, valued at $1.2 million, was mortgaged for $600,000 at the end of August, “well after it was clear that Southern was insolvent and bankruptcy was imminent,” wrote Boyd in a report to the board. Because Beartooth owns roughly 20 percent of SME, the move resulted in a loss of roughly $120,000 in assets for Beartooth.
Martin also commented on Gregori’s hasty departure from Southern. If, as reported, Gregori retired and is taking accrued vacation, the vacation should have required court approval, Martin said.
During Tuesday’s meeting, the Beartooth board also passed a motion seeking legal advice on parting ways with Independent Electricity Supply Service, another corporation closely linked with Southern. Beartooth had been represented on the IESS board by Al Nordahl, a former Beartooth trustee who was unseated during elections at Beartooth’s annual meeting in September. Since then, Beartooth has not been represented on the IESS board but questions remain regarding the co-op’s legal and financial exposure.
In light of the bankruptcy and related uncertainties, Roodell could only guess when projecting next year’s budget. He sketched out five budget scenarios based on wholesale rate increases ranging from 4.5 percent to 20 percent. A wholesale rate increase to the co-op typically translates into half that amount in retail increase to the member/customers.
The trustees talked of shaving planned expenses and looking more closely at personnel and other cut-backs. There seemed to be consensus that supplying power to customers would remain top priority.
Beartooth member Judith Gregory urged the board to freeze all expenditures, “at the very least until the smoke clears.”
“If Southern doesn’t lay anything else on us, I think we’re sitting quite well,” Roodell said.
Boyd was more skeptical.
“Personally, I think that 20 percent is extremely likely,” she said. “And it could be worse.”