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Rural Electric Tries a Little English

Fortnightly Magazine - March 15 1996

$9.7 billion, S&P noted that managers are competent, understand competitive issues, and have become more efficient by accelerating debt

payments and renegotiating fuel contracts. Most of these co-ops have coal generating systems. Excess capacity doesn't hurt their business position because the plants are efficient. Excess power can be sold at attractive rates. Least vulnerable to competition, these G&T's set a standard for the rest of the industry. Other G&T's aren't as appealing because of nuclear assets that hurt their rate base, Fox notes. Overall, she says S&P is comfortable with co-ops' market position.

English points to other areas where co-ops have parted with their past (em a past dotted with names like Cajun Electric and Wabash Valley Power Association, two bankrupt nuclear power G&Ts. NRECA's CEO blames the failed nuclear plants on government and misguided legislation like the Fuel Use Act, which prohibited the use of natural gas as a boiler fuel. Co-ops, in the past, were invited to share ownership in what turned out to be some of the most expensive electric generation anywhere. Some co-ops have filed cases against IOU partners, alleging fraudulent inducement to buy into plants they mismanaged.

"I'm not sure we have any nuclear power plants (em I don't care who's running them (em that are competitive," English says. "That, again, is impacted by government. ... You didn't have the natural process evolve to where the market price was allowed to work its will."

One area where the market is working its will is in the Rural Utilities Services (RUS), responsible for bringing universal service to rural areas and securing government loans. The federal budget cost of these loan programs for fiscal 1995 was $72.9 million, down from $169.1 million in 1993. Co-ops, fed up with the paperwork and able to get competitive private financing, are paying off their loans quicker, English says. According to NRECA, since 1986 co-ops and other RUS borrowers have prepaid 65 loans. Eighteen more have prepaid part of their debt, and 35 applications for prepayment were pending at the end of 1995.

Side-stepping government financing gives a co-op a slight competitive edge: It no longer would need to file an environmental impact statement on new construction. However, in some cases, co-ops, by forgoing RUS financing, could become regulated by the Federal Energy Regulatory Commission (FERC). (The FERC doesn't have authority over G&T wholesale transactions and distributive cooperatives that borrow from the RUS.) Systems in 16 of the 46 states where co-ops do business are subject to rate regulation by state commissions. And the FERC can order rural electric systems to offer wholesale transmission service. Furthermore, FERC regulation of IOU power-supply sales to co-ops is quite significant.

Federal subsidies or loan programs are delicate areas for NRECA. English contrasts the $12 billion in outstanding RUS loans with the $75 billion IOUs charge ratepayers, portions of which they hold back due to investment tax credits and accelerated depreciation. He puts the annual cost of this IOU "subsidy" at around $5 billion.

"What's the difference?" English asks. "We've got $12 billion, they've got $75 billion.