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Tuesday, June 2, 2020  Spokane, Washington  Est. May 19, 1883
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Rural Electric Co-Op Bailout Brewing Nuclear Power Investments Breed Bad Loans

By Associated Press

Rural electric cooperatives, encouraged by Congress in the 1970s to invest in nuclear power, now hold more than $9 billion in troubled government loans. And it’s beginning to hit taxpayers.

The Rural Utilities Service, an arm of the Agriculture Department that helps ensure electric service to 26 million Americans, has already written off $1.75 billion of the bad loans, with possibly more to come.

To some, it’s all reminiscent of the savings and loan bailout, though the possible costs are much smaller. And members of Congress are worried about anything that might jeopardize efforts to balance the federal budget and cut taxes.

“I’m still concerned about how much of a hit we have yet to take,” Sen. Dick Lugar, R-Ind., chairman of the Agriculture Committee, said Tuesday.

The bad loans stem from poor past investments by rural cooperatives in nuclear power, an industry that now faces widespread troubles.

The government is negotiating with five cooperatives to avoid more write-offs, and four are resolving their debts and getting out of the program, said Wally Beyer, administrator of the rural agency.

Four other cooperatives are in bankruptcy proceedings, meaning the government is in line for at least some of its money. And two have restructured debts and remain in the program, he said.

“We don’t, at this point, think there’s going to be a need for huge write-offs,” Beyer said.

Still, in the 60-year history of the Rural Utilities Service, there had only been two defaults until the 1980s, and those two defaults combined were only about $44,000.

The loans are primarily to nonprofit electric cooperatives to generate, transmit and distribute electricity in the nation’s vast rural areas, which on average have just 5.8 consumers a mile compared with 35 a mile in more populated areas.

Because of that sparsity, rural electric systems make just over $7,000 a mile in average annual revenues, compared with more than $59,000 a mile for other utilities.

In 1978, Congress passed a law encouraging cooperatives to invest in nuclear power plants by limiting the burning of oil and natural gas. Some cooperatives borrowed huge sums from the government to become minority investors in these plants.

Then came the accident at Pennsylvania’s Three Mile Island, in 1979, and the nuclear industry began a downward spiral that saw many projects canceled because of safety concerns or high costs.

Demand for energy also was lower than expected, and, the cooperatives say, the Treasury Department refused to refinance loans.

“Now, some rural electric systems are caught between a rock and hard place, and not entirely of their own doing,” said former Oklahoma Rep. Glenn English, now chief of the cooperatives group.

The poor investments in nuclear power cost the investor-owned utilities $259 billion through 1995, most of it passed on to consumers in higher electric bills, English noted. The cooperatives were unable to recover their losses.

The troubled loans are gaining even more intense scrutiny because of efforts in the states and in Congress to deregulate the electric industry, which could allow investor-owned utilities to compete with rural cooperatives.

The $9.3 billion in loans considered troubled are held by only 15 borrowers, but the amount makes up more than a quarter of the $32.3 billion in outstanding loans owed to the Rural Utilities Service.

Defenders of the Rural Utilities Service say the vast majority of its loans are on solid ground and that government has a vital role in ensuring affordable and reliable electricity in rural America.

“When you look at the whole system - this is a pretty darn useful system,” said Sen. Tom Harkin, D-Iowa. “We want to be able to keep this strong underpinning.”

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