Montana Electricity Provider Files for Chapter 11 Bankruptcy
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Montana Electricity Provider Files for Bankruptcy

November 2, 2011

By: Brenna Working

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Southern Montana Electric Generation & Transmission Cooperative (SME) filed for Chapter 11 bankruptcy last week, according to reports from the Billings Gazette. The group provides electric power to a number of electricity cooperatives in Montana, which in turn provide resources for roughly 65,000 residents, including those in the city of Great Falls.

The Billings-based SME reportedly filed its Chapter 11 bankruptcy petition in Butte, Montana, citing both assets and debt in the $100 million to $500 million range. The bankruptcy paperwork apparently noted that an “acute cash-flow crisis” prompted the filing. SME owes its 20 largest unsecured creditors roughly $19.5 million.

The months leading up to this bankruptcy filing have included significant financial strain for SME: since December 2010, the cooperative has increased electricity rates four times, with the most recent hike instituted at the same board meeting during which members voted for the bankruptcy filing.

The fourth rate increase is also apparently the largest to date, raising rates fully 20 percent. The three prior increases totaled only 13.2 percent. But SME’s troubles are not merely financial: it seems that three of the group’s six board members walked out of the rate-hike and bankruptcy-decision meeting because the board would not agree to seat a new representative from one of its members.

Further, two of its members, Yellowstone Valley and Great Falls, have reportedly sued the cooperative to end their contracts. The bankruptcy case will effectively halt those lawsuits. In addition to its other debts, it seems SME owes its defense lawyers more than $273,000 for their work thus far on the lawsuit.

The filing may also put a damper on SME’s plans to expand a plant it opened recently, which it had planned to do with help from a $300 million loan. Now that the group is in bankruptcy proceedings, though, the future is murky for the new plant and any funds for expanding it.

Official statements from SME have noted that the goal of the bankruptcy filing is to stabilize its financial position. Chapter 11 bankruptcy will give the group an opportunity to reorganize debts and potentially renegotiate existing contracts to save money. Chapter 11 bankruptcy may also allow SME to discharge certain unsecured debts.

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