Cooperatives fear impact of Rural Utilities Service loan changes

The organization for national rural electric cooperatives says an Agriculture Department proposal to modify federal loan rules for power infrastructure, could carry negative side effects.

The National Rural Electric Cooperative Association (NRECA) filed comments Aug. 5 expressing concerns about the proposal from the Agriculture Department’s Rural Utilities Service (RUS).

In June, RUS Administrator John Padalino unveiled regulatory reforms related to “project financing” requirements and to clarify how RUS determines eligibility for financing renewable energy and smaller projects.

NRECA fears the government is about to expand RUS lending beyond the authority granted in the Rural Electrification Act (REAct). In addition, the association says the RUS proposal, outlined in a June 5 Federal Register filing, does not appropriately implement the preference for not-for-profit borrowers required by the act.

In addition, appropriations and credit subsidy calculations for loans to entities that are not entitled to preference under the REAct should be separate from appropriations and credit subsidy calculations, NRECA said in its filing.

NRECA is the national service organization for more than 900 not-for-profit rural electric utilities that provide electric energy to over 42 million people in 47 states or 12% of electric customers.

The last annual RUS appropriation probably had $4bn earmarked for rural electrical service loans, NRECA Director for Tax, Finance and Accounting Policy Russell Wasson told GenerationHub Aug. 9.

Proposed changes by RUS could conceivably force rural electric cooperatives to compete with investor owned utilities, independent power producers and renewable energy developers, Wasson said.

Over the years electric cooperatives have proven to be a sure bet for repayment of government loans. “We are actually making money for the government,” Wasson said. The same might not be true if RUS starts making more loans to less credit-worthy entities, Wasson said.

NRECA also fears that an RUS effort to encourage more renewable power generation and transmission infrastructure could take RUS too far of its core mission to help financial key infrastructure.

“NRECA appreciates RUS’s efforts to make its loan requirements more transparent. This new Rural Determination rule addresses one of the most fundamental aspects of the RUS program – the scope of RUS’s lending authority,” the group said in the filing.

“The changes proposed to Part 1710.253 would eliminate any requirement that engineering and cost studies for generation using renewable fuel proposed to meet a renewable portfolio standard include consideration of system reliability, alternative unit sizes or alternative types of generation,” the association said.

“NRECA also notes that most state RPS requirements enable electric utilities to comply with the mandate by either self-generating renewable energy, or buying renewable power from units owned by others. “There is no reason to abandon a prudency review of a borrower’s decision to build its own renewable generator, rather than purchase renewable energy from a third party,” NRECA said.

RUS has not published a timeline on when it might issue any final rule, Wasson said.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.