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Tuesday, May 22, 2007

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.


    Anonymous said...

    And how exactly are rural cooperatives supposed to firm the wind power you want them to invest in? Increasing constraint on the FCRPS and retiring thermal plants demand new sources of generation simply to maintain existing power supply. As for your characterization of the co-ops as face down in federal subsidies, try to remember that as non-profits and ngos they can not easily turn to the standard capital markets to finance projects, nor should they given the power at cost, not at financed rates of cost, ethos and laws that govern co-ops. So turning to the federal government which is repayed on time for any and all financing supported by the feds. The Clean Renewable Energy Bonds (CREBs) program has financed development of the admittedly small Coffin Butte landfill gas facility and should be expanded on a permanent basis to allow co-ops to further develop renewables.
    Also, a perusal of employment statistics, median family income, highest education attainment figures, will quickly reveal that by any definition most co-ops can be characterized as poor and far from serving the lamentable waste of subdivision expansion. In Oregon most co-ops have fewer than 9 meters/accounts per distribution line mile, hardly suburban much less rural. One last nit to pick, almost all rural co-ops participate in conservation programs with BPA and do as much that is cost effective to maintain affordable rates. COU opposition to Oregon's RPS is based on its presumption that the load shape of all utilities are the same, it fails to account for how firming power will provided to all the wind farms that the PTC has SUBSIDIZED into existence. The Oregon RPS also essentially eliminates even the possibility of clean coal technology, which as the recent, much talked about, MIT coal study indicates is absolutely essential for the forseable future to maintain existing economic activity and standards of living.

    Jesse Jenkins said...

    Thanks for the well thought out comment. (Care to identify yourself?).

    You are of course correct that increasing constraints on the Federal Columbia River Power System (that's the FCRPS the anonymous commenter mentioned) that serves most of the public power load in the Pacific Northwest makes finding new baseload power generation a concern for some northwest public power utilities. However, in this day and age, subsidies for new pulverized coal plants is simply poor forward thinking and counterproductive to efforts to tackle climate change. We can't afford to turn to new power generation sources that dramatically increase greenhouse gas emissions, and that applies to public power as well as investor-owned utilities.

    Every sector that contributes to greenhouse gas emissions needs to be part of the solution. Special exemptions for public power are simply not practicable, and it's time public power got used to the idea.

    I can't argue with the fact that in Oregon, most rural coops serve areas that are certainly poorer than the urban and suburban areas served by investor-owned utilities and some municipal utilities. Keep in mind though that this program is not simply about the Northwest, but rather the rest of the country. The point I was making in the article above, is that many of the coops elsewhere in the country taking advantage of this program now serve suburban areas, just one sign of how much has changed since this subsidy was originally enacted in 1935.

    You are also right that coops often have no access to traditional financing options and must turn to the government. That's fine. My argument is that federal loans should not be directed towards carbon-intensive generation sources, particularly pulverized coal.

    If the publics do need new baseload generation (and I would argue that they can certainly afford to include more energy-providing resources like wind in their mix and can decrease this need for baseload generation through increased conservation and efficiency), then their resources should be directed towards new combined cycle natural gas plants, or IGCC plants that will sequester their emissions. Many should also explore geothermal generation options (particular coops in western states who often serve the areas where geothermal resources are the greatest).

    The CREBs program helps Coops and other publics invest in renewables, but its funding is tiny compared to this federal loan program. My argument is that the federal loan program should no longer allow loans for generating resources with emissions greater than a combined cycle natural gas plant at the very least, and significant portions (if not all) of this fund should be redirected to fund the CREBs program or other programs that support clean energy generation.

    As I said in the post, if publics want to remain subsidized by the government, they're going to have to accept certain provisions aimed at protecting the public good - fighting global warming, decreasing our reliance on depleting fossil fuels, etc. Federal subsidies for public power should be redirected to clean and preferably renewable energy sources.

    As for Oregon coops' opposition to SB 838, the Oregon Renewable Energy Act, which establishes a 25% by 2025 renewable portfolio standard (RPS), I would first like to point out that all Oregon coops are exempt from the full standard. Those that serve less than 1.5% of the state's load only have to meet a 5% by 2025 standard (hardly burdensome) while those serving between 1.5% to 3% of state load only need to meet a 10% by 2025 standard. This was designed to offer extra leeway to small utilities, which include all Oregon cooperatives.

    Also, if the standards in the Act would require a utility to acquire generation exceeding their load growth, forcing them to divest existing resources, including FCRPS power as well as any other renewable energy generation, the standards will be reduced for that utility. This is specifically designed to protect slow-growing public utilities' access to low-cost hydropower resources.

    Second, I don't see how it fails to recognize the different load shapes of utilities. The standard is based on energy, not capacity, meaning that utilities are free to chose from a robust list of qualifying renewable resources that best fit the utility's particular load shape, system requirements and other particular needs.

    As far as addressing how power from increased wind generation in the region will be firmed and integrated, that issue is being addressed by a robust regional dialog, known as the wind integration action plan. Renewable Northwest Project, where I work, has been an active participant in this process as has BPA, and the region's utilities, both public and private. This issue is both independent of and greater than the scope of the Oregon RPS and will be addressed in other forums.

    Finally, as far as the Oregon RES "essentially eliminating the possibility of clean coal technology," I don't see how this is the case. Can you please elaborate how you see the Oregon RPS policy prohibiting investment in clean coal technology?

    Again, thanks for the comment.

    (By the way, the Oregon RPS, SB 838, is being debated on the House floor as I write this comment.)

    Anonymous said...

    I have to admit that my comments about SB 838 were not based on changes and amendments made to the bill on 4/6, 5/9 and 5/18. Having just read those changes and amendments I would have to say that the bill will not hurt co-ops the way I had originally argued it would. Specifically there is more leeway with hydro qualifying, and co-ops held to the lesser standard, are not subject to being held to the higher standard if they invest in a new coal facility (with restrictions) or invest to clean up and upgrade an exisiting one, such as the Boardman Station. The original bill had language that was targeted specifically at the only group of co-ops in Oregon that already own a coal plant. The fear for these co-operatives was/(is ?) that through their aggregation they would become subject the higher RPS standard.

    I believe that the Central Electric Cooperative and Consumers would have been subject to the higher RPS as they (I think) represent 4% and 3.25% of total retail load in the state. For an aggregating organization if any member were forced to a more expensive resource this would unfairly shift the burden to all of the members. This could have forced either the larger members to leave which means the smaller ones would lose the might of the larger ones or the smaller ones to leave and become full requirements customers of BPA, either scenario would shift the load shape of the whole, the balance of which is one of the major benefits of aggregation.

    As many different studies have shown, sequestration and other clean-coal technologies are not really developed enough, yet, to be reliably deployed on a utility scale (cost, efficiency etc.) So if one must build plants now or in the near future, they need to be able to build a best of breed now with the ability (and requirement) to improve them as the technology allows.

    But this is not what the co-ops, or even the IOU's are likely to do. They are going to go back to natural gas which will place generation squarely in the hands of merchant power providers who went on a buying spree after the natural gas price hikes rendered most plants in construction uneconomical to build. It also pushes the region into reliance on a fairly volatile fuel just as the more stable FCRPS is increasingly constrained (and of course once climate change effects kick in the capacity of the FCRPS will be further decreased).
    All of this means spiraling cost.

    I think we can agree, however, that no one should be building plants just to get in under a looming federal RPS or severely restricted emissions regime.

    I would also agree that the program you criticize should be altered to focus on developing CLEAN resources. I believe that the focus of everyone's effort should be on CLEAN resources. The empahsis on renewables in the electricity sector and the biofuels sector can have some sever unitended consequences (such as, intolerable shifts in world agriculture as corn grown for ethanol displaces other crops and becomes to expensive to buy as a stable) and only indirectly addresses the Carbon foot print issue. Rather than creating an abritrary % standard for renewables let emissions standards rule the economics of resource development. Green house gasses are the issue.

    As for the specific loan program (subsidy these programs are not, interest is charged, true at sub commercial rates but the government needs no profit and only needs to repaid what has been borrowed in equivalent dollars.

    The qualifying projects for the loan program under disccusion should probably be changed but most COUs are, rightfully, afraid on congress revisting any of their organic foundations for fear that once the process is opened up they will lost the access they have to government financing. Look at how OMB is constantly trying to get a portion of secondary sales away from BPA. The feds are, currently, hostile to public power. (Much to the consternation of many NW co-ops which are managed almost exclusively by Republicans).

    I guess we have to disagree on the conservation front to meet load growth. I would even argue that the increasing pressure for demand control is not going to yield much in the way of predictable, shapable, load savings. I just can't imagine squeesing 3-5% out of conservation and demand.

    An RPS that over focuses on wind will have a great deal of impact on load shape. Winds are seasonal *(strong neither during cold or hot peaks) and even more specifically diurnal. An aggregator could deal with such changes but with a significant increase in operations costs.

    As for wind integration I should have been more specific. As Steve Wright has pointed out more than once in the last year, while it is technically possible to incorporate excisting wind into the firming and transmission constraints the region faces, the scale of planned and in construction deployments of wind will require a substantial amount of new baseload and a truly epic effort to reshape, modernize, and increase transmission capacity.

    Let me in closing say that I appreciate the thoughtful tone of your response, but I find that the public pronouncements of the public interest group crowd is just as shrill and frequently not relying on science as that of those in the energy industry.

    I appreciate your blog and read it daily. I prefer to post without attribution it keeps me honest.

    Jesse Jenkins said...

    Yes, considerable attention has been paid to the particular needs of rural cooperatives and other small generators and several amendments were made along the way to increase flexibility for small coops.

    I would take issue with the statement that the original bill language was "targeted specifically at the only group of co-ops in Oregon that already own a coal plant." The intent of the provision relating to new coal purchases was always to discourage new investments in coal-fired power generation, not penalize those with existing coal-fired generation assets. I will agree that the original language was sloppy (I didn't write it, it was written by Senator Avakian's staff) but we worked to clarify that language over time (I did help write the clarified language).

    I'm not sure if Central Electric and Consumers Electric Cooperatives are subject to the full standard. I was pretty certain that it now only applied to PGE, PacifiCorp and EWEB, but I could be wrong (I'll have to go dig up my Oregon DOE stats that are around here somewhere).

    You do make a good point about an aggregating organization with one or more members in the higher standard and others in the lower standard, one that I have not heard or considered before. Thank you for bringing it up. The scenario you described could be on unintended consequence of this bill, but one that I hope we can avoid.

    Yes, "clean" coal may not yet bet be ready for prime time, which is why I would advocate a program of aggressive conservation and efficiency (yes, we will have to disagree that 3-5% demand reduction from conservation, efficiency and demand response programs is impossible, I think we can do far more) while meeting load growth with a combination of renewables will help delay the need to acquire new large generating assets for quite some time. And given that most Oregon coops currently have no wind resources in their existing resource mix, I don't see how they can argue that having to acquire some intermittent resources will be overly burdensome. And there's no reason they have to purchase wind to comply. There's a long list of other resources including some that provide much more baseload generation, including biomass, micro-hydro, landfill gas, and upgrades to existing hydro facilities.

    I also agree that we should not focus overly on acquiring simply renewable resources. They need to be clean as well (as you astutely point out is NOT the case for some biofuels especially). That is why I often speak of "clean, renewable resources." It's not enough to simply be one of the two, although that is certainly still preferable to dirty AND non-renewable, as pulverized coal clearly is. (To complete the triumverate I also often speak of, they should also be homegrown resources. It makes less sense to import biofuels from Indonesia than grow and produce them here, for example).

    You write, "Rather than creating an abritrary % standard for renewables let emissions standards rule the economics of resource development. Green house gasses are the issue." I certainly agree, but I also think that renewable energy is also an issue. We don't want to be overly reliant on a depleting resource, even if it is clean burning (nuclear fuel for example, or depending on your definition of clean, natural gas or coal for IGCC plants). An RPS accomplishes many goals, including GHG reductions, economic development benefits, resource diversification and stabilization of electricity rates. That is why we should adopt both renewable energy standards as well as emissions standards or regulations. Both policies are complimentary.

    This is also a fair point: "The qualifying projects for the loan program under disccusion should probably be changed but most COUs are, rightfully, afraid on congress revisting any of their organic foundations for fear that once the process is opened up they will lost the access they have to government financing. Look at how OMB is constantly trying to get a portion of secondary sales away from BPA. The feds are, currently, hostile to public power." A wholesale revision of some of public power's original foundations could be disastrous for rural electricity providers.

    However, that does not mean that we should not make specific revisions to the subsidies and support public power receives to reflect changing priorities over time. Our priorities today are clearly not the same as they were in the 1930s, or even the 1980s, and concern about rising greenhouse gas emissions and attendant global warming are a prime example. Public power needs to stop opposing regulations to address this crucial national (and international) issue.

    You write, "Let me in closing say that I appreciate the thoughtful tone of your response, but I find that the public pronouncements of the public interest group crowd is just as shrill and frequently not relying on science as that of those in the energy industry." Well, we are all prone to rhetoric sometimes. I try to avoid it as much as I can (especially here on this blog), but in some venues a little rhetoric goes a long way.

    "I appreciate your blog and read it daily." Thank you. "I prefer to post without attribution it keeps me honest." Fair enough. (Are you by chance in Jeff Hammurland's course?)

    Thanks for the very thoughtful discussion.

    By the way, SB 838 just passed the Oregon House of Representatives about an hour and a half ago, 41-19! A post on the subject is to follow soon...