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U.S. Bankruptcy Judge Ralph Kirscher on Tuesday questioned whether the Montana Public Service Commission has a role as it claims in the bankruptcy of a large wholesale power cooperative.

“I’m certainly willing to be persuaded one way or the other,” the judge told more than a dozen lawyers gathered in Billings, Denver and other cities for a video conference on the matter with Southern Montana Electric Generation and Transmission Cooperative.

But after listening to attorneys for the PSC, Southern’s trustee and Southern’s members, Kirscher said he would consider the issue and rule later. He did not indicate when.

Representing the PSC, Special Assistant Attorney General Sarah Norcott said intervention was a matter of public interest.

Norcott called Southern’s bankruptcy the “third-largest energy disaster” in the state after deregulation and the bankruptcy of NorthWestern Energy. “I think it’s imperative for us to be involved. Our intervention in this case is inevitable,” she said.

While acknowledging the PSC doesn’t regulate co-ops, Norcott said the commission regulates NorthWestern Energy, which is a Southern creditor and provides transmission service for the co-op. The PSC also regulates Energy West Montana, another Southern creditor.

The PSC has expertise in the energy field and would help, not delay proceedings, Norcott said.

PSC Chairman Travis Kavulla, who attended the hearing in Billings, said the regulatory commission needs to be involved in Southern’s bankruptcy to ensure a successful reorganization.

Electric co-ops are part of Montana’s overall energy system, he said. “It’s a fiction to think it (the bankruptcy) doesn’t affect” the system, he said.

Kavulla also called opponents’ contention that the PSC has no consumer creditors in the case “a narrow-minded splitting of hairs.”

Billings-based Southern 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 Great Falls. Southern borrowed $85 million to build the plant, which was completed last fall, and was trying to borrow up to $300 million to expand the plant to 120 megawatts.

Southern filed for bankruptcy last October seeking to reorganize. Southern listed $21.4 million in debt, with assets of $110.4 million and debts of $131.8 million.

Southern’s financial problems stem from contracting for more power than it could use, having to sell the excess into a depressed market and hiking their members’ wholesale rates to try to cover the losses. Some members refused to pay the increases.

Attorney John Parks, representing Southern’s trustee, said “there is no reason for the Montana PSC to intervene.”

The PSC is not a creditor, does not regulate co-ops and does not have consumer creditors in the case as claimed, he said.

And the PSC has no experience with co-ops, he added.

Consumers who buy their power from Southern’s member co-ops and from Great Falls already are represented in the bankruptcy by their members’ attorneys, Parks said.

The PSC could enter the case later if a specific issue arises, Parks said.

Attorney Jeff Hunnes, who objected on behalf of Southern’s Mid-Yellowstone, Fergus and Tongue River co-ops, said the PSC's intervention would delay the case and “increase costs in a very expensive case already.”

Hunnes represents the Tongue River co-op.

Southern’s other co-op members, Beartooth and Yellowstone Valley, took no position on the issue.

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

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