Beating Back the Coal Rush: Feds Suspend Subsidized Loan Program for Rural Coal Plants

In another big victory in the fight against the coal rush, the feds apparently suspended a major loan program that provided rural electric cooperatives with subsidized loans to construct new coal-fired power plants. An official with the US Department of Agriculture's Rural Utilities Service (RUS), which manages the loan program, cited the uncertainties of climate change and rising construction costs as the reasons for the programs suspension.

"This is a big decision. It says new coal plants can't go to the federal government for money at least for the next couple years, and these are critical times for companies to get these plants built," said Abigail Dillen with the environmental law group Earthjustice.

Earthjustice, the Sierra Club, the Montana Environmental Information Center and other environmental groups filed suits to block RUS financing for new coal-fired power plants last summer, arguing that RUS did not consider the impact of greenhouse gas emissions spewing from the pulverized coal plants the program is financing and the impact those emissions will have on global warming.

The program's suspension marks the end of a reliable source of financing for new coal plants. The RUS program, established in 1935 as a New Deal-era program to finance rural electrification, has been a major funding source for the coal rush. The Seattle Times reported last May that "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 RUS program provided $1.3 billion in loans to build new coal plants since 2001, according to the Minneapolis Star-Tribune.

The suspension of the subsidized loan program means that no loans will be issued to rural electric cooperatives this year and likely none in 2009, James Newby, assistant administrator for the Rural Utilities Service, a branch of the Department of Agriculture, said Tuesday.

According to the Star-Tribune, at least four utilities are currently lined up for RUS loans totaling $1.3 billion — for coal-fired power plants in Kentucky, Illinois, Arkansas and Missouri. Another project in Montana was denied funding last month and two more recently withdrew their requests for RUS loans: last October in Wyoming and earlier this week in Missouri. All seven plants will now have to look for private financing to move forward, and at least two of the plants are suspending development after this announcement.

"This decision means one more nail in the coffin of new coal plants," said Alice McKeown, coal analyst for the Sierra Club. "There have already been a handful of plants affected by this news, including the indefinite delay of a plant in Missouri."

The Star-Tribune reports:

Associated Electric Cooperative Inc. announced this week it was "delaying indefinitely" its proposed plant in Norborne, Mo., after receiving word of the loan program suspension.

At least one developer, the East Kentucky Power Cooperative, is hoping to wait out the suspension of the loan program rather than seek more expensive loans on the open market, spokesman Nick Comer said.

Other projects, like the embattled Highwood Generating Station proposed by Southern Montana Electric, Basin Electric Power Cooperative's Dry Fork plant in Wyoming, and East Texas Power Cooperative's proposed plant in Plum Point, Arkansas, must now try to secure private funding - a difficult task given the typically poor credit ratings of rural cooperatives and increased scrutiny of coal investments from Wall Street.

"The move by RUS to take a time out on coal is part of a larger story," says McKeown. "We're seeing different sectors coming together to make sure that we are looking before we leap into 50+ years of serious global warming pollution. From carbon principles out of Wall Street to ending taxpayer subsidies, financial uncertainties are turning up the heat on energy investors to look to solutions rather than following a business as usual mentality."

The suspension of the loan program is only temporary, but should hold at least through the end of 2009. It comes at a critical time in the coal rush and again signals growing (and appropriate) nervousness about new coal investments in the financial sector.

"Coal is not the best investment for our future. Dozens of states, major Wall Street banks, and now even the federal government, have all now said no to new coal," says MacKeown. "It’s becoming increasingly clear that energy efficiency and renewables are the way of the future.”

Hear hear to that!