Three members of the Southern Montana Electric Generation and Transmission cooperative walked out of a board meeting in Billings on Friday to protest the board's refusal to accept a new representative from the Beartooth Electric Cooperative.

The boycott by Beartooth, Yellowstone Valley Electric Cooperative and city of Great Falls officials came barely an hour into a meeting that opened with a shouting match and then disintegrated over whether Arleen Boyd, Beartooth's pick to represent the Red Lodge-based co-op, should be seated.

Friday's fireworks added to Southern's problems as it grapples with significant deficits, controversial rate increases to members, financing for a new gas power plant and litigation. The boycott also raises questions about Southern's ability to conduct business with half of a board.

The meeting fell apart over concerns that Boyd, who has been outspoken about Southern's financial troubles and its effect on Beartooth's members, might not keep confidential some Southern information and whether Southern even had the authority to determine a co-op's representation.

The controversy also brought to a head a bitter rift between Southern and Yellowstone Valley and Great Falls, who have repeatedly objected to Southern conducting business in closed sessions and to its management decisions. Both Yellowstone Valley and Great Falls are suing Southern to end their contracts with the wholesaler.

Southern's general manager, Tim Gregori, did not return a call seeking comment.

"We want more transparency," said Bob Jones, Great Falls' representative on the Southern board. Jones, who is a Great Falls city commissioner and commissioner of Electric City Power, the city's utility arm, said he left the meeting "as a show of support for Arleen and Yellowstone."

Great Falls City Manager Greg Doyon walked out with Jones.

"We've had it," said Dave Kelsey, who is Yellowstone Valley's representative on Southern. Kelsey called Southern's refusal to seat Boyd "totally inappropriate" and illegal.

Beartooth, not Southern, decides which trustee it wants as its Southern representative, he said.

Never before has Southern put a board member through the scrutiny it imposed on Boyd, Kelsey said. He, Jones and Beartooth trustee Joe Kern, who temporarily served on the Southern board, all came aboard without an executive session or vote, Kelsey said.

"We didn't have to pass secondary inspection. This thing is a travesty," he said after the meeting.

By rejecting Boyd, Southern created an artificial majority and refused to give Bearthooth its vote, Kelsey said. Co-ops are based on the principle of one member, one vote, he said.

Kelsey followed up the walkout with a letter to Southern's president, Bill FitzGerald, of the Mid-Yellowstone cooperative, saying Southern lacked a quorum to make any decisions, impose rate increases or make agreements with third parties, like power suppliers.

Southern, a wholesale power supplier, is composed of five rural co-ops in central and southeastern Montana and the city of Great Falls. The five co-ops serve about 25,100 members.

The turmoil comes as Southern is seeking financing for up to $300 million to complete Phase II of the Highwood Generating Station, a new 40-megawatt gas-fired power plant that began operations last month outside Great Falls. Phase II would increase the plant to 120 megawatts.

Southern also is struggling with significant losses caused by a depressed wholesale power market and by paying more for power from PPL Montana than it is earning from sales to customers.

Southern lost $7.2 million in the first six months of this year and has imposed a series of rate increases on its members. Recent updates, including financial reports on Friday, have been discussed in closed sessions.

"I really thought they would seat me," Boyd said, looking a little stunned as she stood on the sidewalk outside Southern's office.

During the Southern meeting, Boyd tried to assure board members that she would work in Southern's interests while also being responsible to the Beartooth board and its members. While some of Southern's information may be proprietary, other financial information was not and should be shared with the Beartooth board, she said.

As Beartooth's power supplier, Southern's actions and decisions have a fundamental effect on Beartooth members, Boyd said during the meeting.

Boyd was to have replaced Beartooth trustee John Prinkki, who has supported the Highwood project. Prinkki, who is facing a possible recall by Beartooth members for his Highwood votes, earlier resigned from the Southern board.

Beartooth recently went through its own upheaval.

At its annual meeting in September, members elected three new trustees to replace incumbents who had supported the Highwood plant. Earlier this month, the new board reversed course and instructed its Southern representative to vote against spending or committing funds to Phase II of Highwood until a due diligence analysis has been completed.

But Beartooth's representative on Southern didn't get that far.

FitzGerald opened Friday's meeting by calling for an executive session to discuss seating Boyd.

Kelsey immediately objected.

"No. We need to vote to go into closed session. You can't just dictate that," he said.

Kelsey and Jon Doak, Southern's attorney, began shouting at each other over whether Southern had the authority to approve Boyd's seat and whether that could be done or discussed in an executive session.

"You don't have to come" to a closed session, Doak told Kelsey.

Doak advised the board that it has previously adopted resolutions for seating new members, a point disputed by Yellowstone Valley. He also recommended a closed session because of discussions involving board member responsibilities and the disclosure of financial information.

Kelsey maintained that Southern board members have a right to share financial information with their co-op boards.

"We are not going to keep it a secret," he said.

Southern ultimately voted three to two to go into executive session to discuss whether to seat Boyd. FitzGerald, Joe Dirkson of Fergus in Lewistown and Gerhard Helm, of Tongue River in Ashland, voted for a closed session. Kelsey and Jones voted no. Boyd, who sat at the table, was told she had no vote.

When the board reconvened about 20 minutes later, it again voted 3-2 not to seat Boyd. There was no discussion.

After the walkout, FitzGerald called for another closed session with remaining members Dirkson and Helm to discuss financial reports, rates and litigation.

The three members, Doak said, still constituted a quorum because the meeting had started with five members.

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.