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Bankrupt Montana power co-op, creditors reach deal that would keep rates at current levels

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BILLINGS, Montana — A bankrupt Montana electric cooperative announced a tentative deal with creditors Wednesday that would keep customer rates at current levels and allow it to unload a largely unused power plant near Great Falls that helped drag it into bankruptcy.

Southern Montana Electric Generation and Transmission Cooperative serves more than 11,000 customers in central and eastern Montana.

It fell into bankruptcy in October 2011 after building the now-idle Highwood gas plant and getting locked into unfavorable contracts to buy more power than it needed.

Interim manager Scott Sweeney says the proposed deal would allow Southern's four smaller member co-ops break up after four years. Other members at the start of the bankruptcy already have exited, taking with them most of the parent co-op's customers.

A prior proposal from ousted bankruptcy trustee Lee Allen Freeman would have kept Southern together for 12 years and driven up electricity rates to pay off $85 million in loans used to build Highwood.

Terms of the deal filed Wednesday in federal court must be approved by U.S. Bankruptcy Judge Ralph Kirscher.

It followed months of negotiations after the two sides filed competing plans to reorganize the co-op so it could get emerge from bankruptcy.

The settlement was reached by representatives of Southern and the noteholders that loaned it money to build the gas plant, Prudential Insurance and Modern Woodmen of America. The plant served as collateral on the loans.

It's not known how much Highwood is actually worth. Prior estimates have placed its value at a fraction of the loan amounts. One appraisal put the figure as low as $1.8 million and Sweeney said an earlier offer on the plant was made for $30 million.

The negotiations that led to Wednesday's deal did not include unsecured creditors — entities that did not have any collateral but filed more than $390 million in claims in the case. Unsecured creditors' attorney Harold Dye of Missoula said he had not yet reviewed the proposed settlement terms.

Southern was formed as an umbrella cooperative that contracts to provide power to its members.

Yellowstone Valley Electric Co-op and the City of Great Falls left Southern after Kirscher approved settlement payments negotiated by Freeman.

The remaining four members are the Beartooth, Fergus, Mid-Yellowstone and Tongue River rural co-ops.

Sweeney said it's unlikely they would stay together after the four years term of the settlement expires.

"When you get down to four members, it would probably be more efficient to join a larger cooperative," he said.

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