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Power will continue flowing to Southern Montana Electric Generation and Transmission Cooperative for the wholesaler to sell to its members under agreements approved Monday by U.S. Bankruptcy Judge Ralph Kirscher.

Kirscher also approved appointing a trustee to run Southern while it tries to reorganize its finances. And the judge indicated that he would approve an agreement that will allow the cooperative to pay its bills and salaries using cash claimed as collateral by its biggest secured creditor.

Kirscher, based in Butte, appeared by video in U.S. District Court in Billings, where more than 30 people, including attorneys, Southern board members and co-op representatives, gathered for the hearing. Attorneys for other creditors and other parties participated by video from Missoula, Butte, Great Falls and Connecticut.

PSC files motion

Montana Public Service Commission Chairman Travis Kavulla also attended. On Monday afternoon, the PSC filed a motion to enter the case on behalf of the public’s interest. While the PSC does not regulate co-ops, Southern’s bankruptcy could affect regulated utilities, like NorthWestern Energy, which is regulated by the PSC, he said.

The court hearing was first since Southern filed for bankruptcy on Oct. 21, declaring “an acute cash-flow crisis.” Southern said it is $21.4 million in the red, with assets of $110.4 million and debts of $131.8 million.

Earlier this month, Kirscher issued a temporary order prohibiting the power suppliers from stopping service to Southern and had set Monday’s hearing to consider making his order final.

Malcolm Goodrich, Southern’s bankruptcy attorney, said after the hearing that the power suppliers in general are “very willing to work with the co-op.”

Prudential Insurance Co., which is Southern’s biggest secured creditor at about $75 million, also has shown “a strong willingness” to work to resolve the issues, Goodrich said.

Montana co-ops

Southern, a Billings-based wholesale co-op, buys electricity from PPL Energy Plus and the Western Area Power Administration to sell primarily to its members, which are five rural co-ops in central and southeastern Montana and the city of Great Falls.

Southern also built the Highwood Generating Station, a 40-megawatt natural gas plant outside of Great Falls. Southern borrowed $85 million from Prudential to build the plant.

Goodrich has spent most of his time working with some of Southern’s biggest secured and unsecured creditors, including Prudential, PPL, WAPA and NorthWestern Energy, which transmits the power, to reach interim agreements to allow the troubled co-op to keep running for the short term.

Because of the agreements, Kirscher heard no testimony on Monday. By afternoon, Kirscher had issued orders approving stipulations Southern had reached with PPL and NorthWestern Energy. He indicated he would approve the rest when they are filed.

The interim agreements give Southern some breathing room before a hearing Dec. 20 to consider long-term arrangements with creditors.

It is expected that by then a trustee will have been appointed to help Southern navigate its way through what could be a long and complicated bankruptcy proceeding.

Daniel McKay, attorney for the U.S. Trustee, said he has talked to some possible candidates and has received suggestions from Southern’s members and from creditors.

He expected to have a trustee in place by early next week.

“The trustee would have to hit the ground running, to say the least,” McKay said.

Billings attorney Joseph Womack, who has trustee experience in liquidation cases, said a reorganization can take anywhere from six months to three years or more to resolve.

Contact Clair Johnson at or 657-1282.