March 5, 2008
BILLINGS, Mont. - The federal government is suspending a major loan program for coal-fired power
plants in rural communities, saying the uncertainties of climate change and rising construction costs
make the loans too risky.
After issuing $1.3 billion in loans for new plant construction since 2001, none will be issued 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.
The program's suspension marks a dramatic reversal of a once-reliable source of new coal plant
financing. It follows the announcement last month that several major banks will require plant developers
to factor in climate change when seeking private funding.
"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. The group filed a federal lawsuit last year seeking
to block the loan program.
At the time of the suspension, at least four utilities had been lined up for loans totaling $1.3 billion — for
projects in Kentucky, Illinois, Arkansas and Missouri. A project in Montana was denied funding last
month. Two more were recently withdrawn: last October in Wyoming and earlier this week in Missouri.
Newby said material and labor costs for new coal plants have been rising 30 percent a year, even as
utilities struggle to pinpoint future costs of controlling greenhouse gas emissions. The 2 billion tons of
those gases produced annually by coal-fired plants in the United States exceed the emissions of any
other source.
Newby said those uncertainties prompted the White House's Office of Management and Budget to ask
that new loans be put on hold until risks can be better quantified.
Rural utilities provide power to about 40 million customers across the nation. More than 60 percent of
that electricity comes from coal.
Whether the plants that were awaiting federal loans can find alternative financing remains to be seen.
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.
Two more projects — Southern Montana Electric's Highwood Generating Station and Basin Electric
Power Cooperative's Dry Fork plant in Wyoming — already are seeking private funding.
A representative of the East Texas Power Cooperative, which has proposed a plant in Plum Point, Ark.,
also said his utility would seek private financing if the loans are not resumed.
"We'll have to look elsewhere for funding, which will increase the interest expense, which will increase
the electric bill for the consumers at the end of the line," said the cooperative's Ryan Thomas.
Newby, with the Rural Utilities Service, said his agency is considering imposing upfront fees on coal plant
developers as a way to mitigate taxpayer exposure through the loan program. Initial discussions have
centered on a 0.2 percent fee — equivalent to $2 million on every $1 billion in loans.
Newby added he was confident the government would work through the concerns over risk and resume
issuing loans possibly as soon as 2010.
Glenn English, chief executive of the National Rural Electric Cooperative Association, said the program's
suspension was a sign of "nervousness" among lenders anxious over the potential ramifications of
climate change legislation now before Congress.
Depending on what policies are adopted, retail electricity prices could increase sharply once the costs of
reducing greenhouse gases are factored in, he said. Utilities that drop coal-fired power proposals will be
forced to shop for more expensive electricity on the open market.
"What you're seeing (with the Rural Utilities Service) is a general reflection of the attitude we find in the
financial community, mainly this apprehension about what the future holds and what can be expected out
of government," English said.
