Federal Loans Finance New Coal Plants

An antiquated, Depression-era, federal loan program is using billions of tax-payer dollars to finance low-interest loans for new coal plants

In a perfect example of conflicting agendas, as Congress considers new legislation to battle global warming, a Depression-era program to help electrify rural areas is still providing low-interest loans to rural electric cooperatives to build new coal-fired power plants.

This government program, often the only source of financing for rural coops with less than perfect credit ratings, is a major force behind the rush to build dozens of new coal plants in the U.S. These new conventional, or pulverized coal plants spew carbon dioxide, the main greenhouse gas and contributor to global warming.

According to the Seattle Times, the beneficiaries of the government's largesse — the nation's rural electric cooperatives — plan to spend $35 billion to build conventional coal plants over the next 10 years, enough to offset all state and federal efforts to reduce U.S. greenhouse-gas emissions over that time.

The funding comes from the Agriculture Department's Rural Utilities Service, a program set up by the Rural Electrification Administration created in 1935 by President Franklin Roosevelt to bring electricity to farms in an era when established utilities were unwilling to bring power to rural areas. More than 70 years later, the goal of providing electricity to rural areas has clearly been accomplished, but the federal program is still in place and the government continues to use tax-payer dollars to make subsidized loans to rural cooperatives. Those cooperatives are now interested in using that money to construct new coal plants.

According to the Times, in a rare moment of agreement, both environmentalists and the White House's Office of Management and Budget want to end loans for new power plants and limit loans for transmission projects in the most remote rural areas.

However, the powerful National Rural Electric Cooperative Association is fighting to keep the program intact and recently deployed 3,000 members on Capitol Hill to lobby Congress in support of the program. The Cooperative Association argues that the loans for new coal plants are needed to keep electricity cheap and reliable in rural areas.

Environmentalists counter that the subsidized loans and artificially cheap power removes any pressure for the rural co-ops to promote energy efficiency or aggressively tap renewable resources. They also point out that rural coops already rely on coal for 80 percent of their electricity, compared with 50 percent for the national average, and electricity demand at rural co-ops is growing at twice the national rate.

Although technically private business (unlike their public utility district brethren), rural-utility cooperatives are non-profit and owned by their customers. There are more than 800 co-ops that distribute electricity in the United States and more than 50 that own power plants.

James Newby, assistant administrator of the Rural Utilities Service, estimates that federal loan rates are 2 to 2.25 percentage points lower than the rates for commercial loans. Some budget experts say the favorable federal loans have reduced the cost of new power generation by 15 percent, the Times reports.

In a clear sign that the original purpose of rural electrification has long-sense been perverted into a simple subsidy, many of the utility co-ops that are considered "rural" now provide electricity to expanding suburbs, such as the Dallas-Fort Worth metropolitan area, the Atlanta area and parts of northern Virginia.

"Rather than declare the mission accomplished and disband the expensive subsidy program, Congress continued it and allowed it to become even more generous," a 2004 Heritage Foundation report said.

Ronald Utt, co-author of the report and a former official at the OMB, calls the program a "remnant of the New Deal." "Poverty is no longer a characteristic of the agricultural community as it was during the Depression ... and as areas have grown, the basic clientele are well-to-do people who have nothing to do with agriculture," Utt told the Times.

Glenn English, chief executive of the National Rural Electric Cooperative Association, said rural areas still need help to meet growing power demands at reasonable costs and that burning coal makes sense. He said per capita income of co-op members and consumers is 15 percent below the national average.

English acknowledged that global warming has shifted the debate. But, he said, any climate-change legislation should show leniency toward the rural co-ops. "Rural electric generating cooperatives ... are in economic situations that make it very hard for them to invest in cutting-edge technologies," he wrote in a letter to the House Energy and Commerce Committee.

The key to the longevity of the Agriculture Department's programs for rural utilities has been powerful political voice of the rural coops lobbyists. More than 30,000 members gave an average of $41 last year to the coop association for political contributions. Given their geographic scope, the coops can mobilize letter-writing campaigns across a vast number of states and congressional districts.

English recently rallied the association's members to fight proposed laws on climate change that he alleges would hurt the rural coops. Such proposals would potentially mean higher electricity rates, he said, and that would anger voters.

"So are we supposed to tell members of Congress that you've got to be willing to sacrifice your seat for the sake of energy efficiency?" he said. "I don't think the political community wants to take out the knife and commit hara-kiri."

According to the Times, the list of utilities asking for federal loans includes:

The Seminole Electric Cooperative in Tampa, Fla., is planning a $1.8 billion, 750-megawatt coal plant that would boost the utility's generating capacity by 60 percent. The co-op applied for a $1.4 billion loan. If approved, the interest rate for the heavily indebted co-op, which Standard & Poor's says has less than a month's worth of cash, would be as low as the rates for the most rock-solid corporate bonds.

A group of rural cooperatives plans to build two, 700-megawatt plants in western Kansas.

The East Kentucky Power Cooperative, which is fighting the Justice Department over alleged violations of the Clean Air Act, has received approval for Rural Utilities Service loans to pay for new coal-fired capacity.

This program clearly has to die! There is simply no reasonable argument at this point in history that supports federal subsidies for the construction of new carbon-belching pulverized coal plants. The government should be seriously considering banning all new coal plants that do not sequester their greenhouse gas emissions, and certainly should not be subsidizing their construction.

Rural electricity cooperatives and their public power brethren have been face down in the public subsidy trough since their genesis during the New Deal era. At that point, the subsidies were clearly necessary to help bring electricity to America's rural poor. But while most everything else has changed since the 1930s, the coops' reliance on federal subsidies has not.

The National Rural Electric Cooperatives Association has been one of the major opponents of renewable energy standards at both state and federal levels as well as any climate change legislation or practically anything else that might add regulation to this almost entirely unregulated electricity sector.

It's time for things to change.

Global warming is a threat that far outweighs any concerns about stepping on the toes of rural coops and their tradition of local control and subsidy. Rural cooperatives, like all utilities and indeed all sectors of the economy that contribute to greenhouse gas emissions, are going to have to get used to the idea of increased regulation. We can't afford to simply leave coops out of climate change legislation, nor can we afford to continue to subsidize their construction of coal-fired power plants.

If rural coops want to continue receiving subsidies, they should be redirected towards construction of renewable energy projects and the deployment of energy efficiency technologies. $35 billion can buy a lot of wind turbines and can help weatherize a lot of rural homes, saving rural coop customers money.

It's time to end federal subsidies for power plants that contribute to global warming and redirect these subsidies to clean, sustainable, domestic energy sources.