Federal Loans for Coal Plants Clash With Carbon Cuts

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By Steven Mufson
Washington Post Staff Writer
Monday, May 14, 2007

A Depression-era program to bring electricity to rural areas is using taxpayer money to provide billions of dollars in low-interest loans to build coal plants even as Congress seeks ways to limit greenhouse gas emissions.

That government support is a major force behind the rush to coal plants, which spew carbon dioxide that scientists blame for global warming.

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 Office of Management and Budget wants to end loans for new power plants and limit loans for transmission projects in the most remote rural areas. But the powerful National Rural Electric Cooperative Association deployed 3,000 members on Capitol Hill last week to push Congress to keep the program intact, arguing that the loans for new coal plants are needed to keep electricity cheap and reliable in rural areas.

Environmentalists have also targeted the program. They say it removes any pressure for the rural co-ops to promote energy efficiency or aggressively tap renewable resources. Rural co-ops rely on coal for 80 percent of their electricity, compared with 50 percent for the rest of the country, and electricity demand at rural co-ops is growing at twice the national rate.

The money comes from the Agriculture Department's Rural Utilities Service, an outgrowth of the Rural Electrification Administration created in 1935 by President Franklin D. Roosevelt to bring electricity to farms. More than 70 years later, the goal of providing electricity to rural areas has long been accomplished, but the federal government is still making the subsidized loans.

Rural-utility cooperatives are owned by their customers; they are nonprofit organizations. There are more than 800 co-ops that distribute electricity and more than 50 that own power-generating plants.

James R. 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.

But many of the utility co-ops that are considered rural provide electricity to expanding suburbs, such as the Dallas-Fort Worth metropolitan area, the Atlanta area and parts of Northern Virginia. Others are expanding to meet growing commercial, residential and tourism demands. And some are facing demands from the growing number of ethanol plants, blunting the climate-related benefits of producing ethanol.

"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 D. 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 said. Many of the areas served by co-ops are densely populated and do not need help, critics say.

James J. Jura, chief executive of Associated Electric Cooperative, a co-op that has both government and commercial loans, said much of his region's growth comes from retirement and recreational developments near lakes around Branson in southwest Missouri. The town's Web site boasts of a 17-story luxury condominium complex, a new shopping mall, 17,000 hotel rooms and dozens of theaters. "No, this isn't Manhattan or Las Vegas; it's Branson, Missouri," the site says.


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