By Boris Ladwig, The Republic
bladwig@therepublic.
Hoosier Energy customers will continue to receive electricity, even if the cooperative loses a $120 million lawsuit and is forced into bankruptcy, an attorney for the cooperative said.
But state and federal agencies could not point to a statute that would protect the electric cooperative's roughly 800,000 Hoosier customers, including more than 40,000 in Bartholomew, Jackson and Decatur counties. Hoosier Energy provides power to 17 Indiana rural electric cooperatives in 47 counties.
They also could not say exactly what would happen if Hoosier Energy had to file for bankruptcy - partially because of the situation's infrequency.
Bloomington-based Hoosier Energy has filed a lawsuit to fend off bankruptcy due to a deal involving a $300 million payment from insurance giant John Hancock.
At the lawsuit's center lies a convoluted financial arrangement involving the leasing of Hoosier Energy's Merom power plant in Sullivan County.Hoosier Energy has filed the lawsuit because it faces the prospect of having to pay $120 million as a result of a tax shelter deal known as "SILO," short for "Sale in, Lease out."
A spokesman and an attorney for Bloomington-based Hoosier Energy said they do not foresee any interruption of service to power customers - even if the cooperative filed for bankruptcy.
Chris Tryba, a spokesman for Hoosier Energy, said, "I can't envision a situation where we would not continue to provide electric service."
And Hoosier's attorney, Reed Oslan, partner of Chicago-based Kirkland & Ellis LLP, said, "I don't ever expect any disruption of service.
"As a practical matter, if Hoosier Energy is required to go into Chapter 11 the central purpose of doing that would be to protect the consumers," he said.
The company has quite a few assets, Oslan said, and if it were required to file for bankruptcy, it would obtain debtor-in-possession financing and continue to operate the business during the bankruptcy.
"The practical reality of this is, power is going to continue to flow," Oslan said.
However, Tryba, Oslan and state and federal regulators could not say whether any state or federal statutes would protect Hoosier Energy's customers.
A spokeswoman for Indiana Utility Regulatory Commission, the state agency that regulates public utilities - but only some aspects of the nonprofit Hoosier Energy - said the agency is monitoring the situation closely.
State and federal regulators said they could not say what exactly would happen, partially because of the situation's rarity.
Neither state nor federal regulators nor a state-funded consumer advocate are involved in the proceedings.
Hoosier Energy withdrew from Indiana Utility Regulatory Commission IURC jurisdiction in 1998, though IURC retains some oversight over issues such as power plant construction and location.
Federal Energy Regulatory Commission has no jurisdiction over electric cooperatives, and USDA's Rural Development office, which has some jurisdiction over such cooperatives, said it would not comment on ongoing litigation.
Similar case
A spokesman for National Rural Electric Cooperative Association said bankruptcies of electric cooperatives are rare, but that a reorganization of a cooperative in Louisiana early this decade caused no power interruptions.
Billy Gibson, director of communication for Association of Louisiana Electric Cooperatives, said that since Cajun Electric Power Cooperative went into bankruptcy in 1998, plants have never stopped producing power, and customers have not lost their electric provider.
The situation took five years to reconcile, Gibson said, but when the cooperative's assets were sold, a bidding war among three parties ensued, which ultimately resulted in consumers paying about 40 percent less for the electricity than before the bankruptcy.
David Hamilton, chief judge of U.S. District Court for the Southern District of Indiana, granted Hoosier's request to stop the $120 million payment, and said a bankruptcy by Hoosier Energy could force it to "default on a host of other loans and supply contracts."
"The public interest also is served by Hoosier Energy continuing to deliver power to its member cooperatives, which in turn provide power to Indiana homes, farms, businesses and industries," the judge wrote.
"If Hoosier Energy's ability to do so is imperiled, so may be its ability to fulfill its mission to the public." The case is on appeal with U.S. Court of Appeals, 7th District, in Chicago. Oslan said a ruling is expected any day.