Leadership of the bankrupt Southern Montana Electric Transmission & Generation Cooperative remains up in the air after Tuesday's surprise retirement of chief executive Tim Gregori.

Following the announcement, Southern's board president, Bill FitzGerald of Hysham, unilaterally appointed Alan See as interim manager. See is the general manager of the Tongue River Electric Cooperative in Ashland.

But that appointment is illegal, contends David Kelsey, a Southern board member from Yellowstone Valley Electric Cooperative in Huntley.

"Bill FitzGerald had no authority to make that appointment. He should have contacted the board members and had a special meeting, at the very least, a conference call, and he didn't do any of that," Kelsey said.

The Yellowstone Valley co-op and the City of Great Falls will ask Montana's bankruptcy judge to reject See and turn over management of Southern to a court-appointed trustee, Kelsey said.

They also want Judge Ralph Kirscher, who is handling Southern's Chapter 11 bankruptcy, to appoint an examiner to dig into the wholesale power cooperative's financial affairs, a somewhat unusual move.

"We need to find out what all has taken place here," Kelsey said.

James Santoro, Great Falls city attorney, said the city wants transparency and full disclosure of Southern's activities. The latest developments, he said, further support appointing an examiner and a trustee.

In another development Thursday, a creditors meeting set for Nov. 17 has been rescheduled for Dec. 2 in the federal courthouse in Billings. A notice of the change was filed by Daniel P. McKay, attorney for the U.S. Trustee in Great Falls. The meeting will be the first chance for creditors to question Southern representatives under oath.

Southern was formed in 2003 with Gregori as manager to provide wholesale power to five rural cooperatives in central and southern Montana, plus the City of Great Falls. Southern's members are Tongue River, Mid-Yellowstone, Fergus, Beartooth and Yellowstone Valley cooperatives, and Great Falls and its utility arm, Electric City Power.

Southern in September completed an $85 million, 40-megawatt, natural-gas power plant called the Highwood Generating Station near Great Falls. Gregori, with the approval of Southern's board, planned to borrow up to $300 million to expand the plant. Highwood operates only at times of peak power demand.

During an August deposition, Gregori said he is being paid $228,000 per year from Southern and two other entities, plus $74,265 in benefits, including his 401k retirement plan and a company car.

Gregori receives an annual salary of $174,000 from Southern; $30,000 per year for being chief executive of an affiliated company, Southern Montana Electric; and another $24,000 per year for managing Independent Electricity Supply Service. SME formed IESS in March to sell retail power and is the sole shareholder.

"He's still being paid the salary until he retires on the first of January," said Terry Holzer, Yellowstone Valley's general manager. "Now, essentially what you have is an employee (Gregori) who still is the general manager, but isn't (working) at Southern, and you have an interim general manager that has been appointed inappropriately by the Southern board."

Holzer said he didn't know if Gregori will be receiving an additional payment on top of his retirement pay.

In separate earlier actions, Yellowstone Valley and the City of Great Falls sued Southern in an attempt to leave the wholesale cooperative, but those lawsuits are on hold until the bankruptcy case is settled.

When asked what authority he used to appoint See, FitzGerald refused to answer and referred calls to Southern's attorney, Jon Doak of Billings. Doak did not return telephone calls. In addition to being Southern's president, FitzGerald serves on the board of Mid-Yellowstone cooperative in Hysham and is a SME board member.

See also did not return calls for comment and was not at Southern's offices in Billings on Thursday or at Tongue River's offices in Ashland. Gregori could not be reached by telephone or at his Billings home.

Attempts by Yellowstone Valley to contact Gregori since the bankruptcy filing last month haven't worked, Holzer said.

"We have no idea where he's at. He has a house in Italy," he said. "We don't know if he's left the country."

Gregori has the most in-depth knowledge of the complex corporate organization and power contracts and if he doesn't attend a key bankruptcy meeting with creditors, that meeting may be unproductive, Holzer said.

See said Wednesday that he didn't know if Gregori would be attending the creditors meeting but that Gregori would be available "to help as needed with his institutional knowledge."

Southern's bankruptcy filing and Gregori's retirement caught some member co-op leaders by surprise. Critics have complained about what they say is secrecy, lack of transparency and financial accountability by Southern's board and Gregori.

As its financial condition worsened, Southern has been raising the rates of its member co-ops. When it filed for bankruptcy on Oct. 21, the board imposed another 20 percent rate hike, which some members have refused to pay.

Even the legitimacy of the bankruptcy is being challenged.

When Southern's board refused to seat a newly elected member from the Beartooth cooperative in Red Lodge, half of the board walked out in protest. Only half of the six-member board approved the bankruptcy petition, meaning the board lacked a quorum and therefore the filing is illegal, critics claim.

Finally, Yellowstone Valley has asked Judge Kirscher to remove Doak as Southern's co-counsel in the bankruptcy. Doak represents Southern, SME and IESS and that is a conflict of interest, the filing argues.

"He can't represent all the members fairly," Holzer said.

In the bankruptcy records, Southern said its debts exceed its assets by $21.4 million. Southern listed its assets, chiefly Highwood, as $110.4 million and debts totaling $131.8 million.

Gazette reporter Clair Johnson contributed to this story.

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

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