The rural cooperatives that provide power to 25 million Americans are massing a defense against Bush administration attempts to cut off the billions in federal dollars that subsidize them.
Administration strategists, looking for ways to trim the mushrooming budget deficit, are quietly trying to pull the plug on federal subsidies to electric cooperatives.
But powerful rural interests and their congressional supporters are marshaling forces to keep those subsidies in place. Without federal help, they argue, some of the nation's 1,000 or so electric co-ops could go under.
"We'll go to the Congress and we'll open political fire on" President Bush, said Bob Bergland, executive vice president of the National Rural Electric Cooperative Association, the industry's lobbying group.
The focal point of the fight is the Rural Electrification Administration (REA), the federal agency that funnels billions of dollars in low-interest loans and loan guarantees to electric cooperatives across the country.
A handful of the co-ops are in default on $2.3 billion in loans from the REA. Three of them are in Chapter 11 bankruptcy reorganization: Colorado-Ute Electric Association Inc., Wabash Valley Power Association Inc. and Eastern Maine Electric Cooperative Inc.
The REA is working with another seven troubled cooperatives to help restructure their debts.
While only a small fraction of the co-ops are in serious trouble, nearly all of them have borrowed from the federal agency, which they collectively owe about $36 billion. REA Administrator Gary C. Byrne said recently the agency's lending program must be tightened to make it more responsible.
Cheap federal loans and loan guarantees have been the backbone of the rural electrification program since it began 50 years ago. The program changed the face of American agriculture by providing cheap power that allowed farmers to modernize.
But critics -- including strategists in the White House Office of Management and Budget (OMB) -- say it has outlived its purpose and should no longer be subsidized by taxpayers.
Roughly 98 percent of U.S. farms had electricity by 1964, compared with only 9.5 percent in 1929, before the REA was established.
"The program has long since achieved its goals and . . . the continued federal assistance is both costly and unjustified," economist Ronald Utt asserted in a study published in June by the conservative Heritage Foundation. He said the electric co-ops should become "entirely reliant on private-sector sources of credit."
The OMB recently sent a memo to the Energy Department outlining a proposal to cut federal subsidies to the big public power marketers, such as the Tennessee Valley Authority and the Bonneville Power Administration. Included in the memo was a recommendation to phase out all REA subsidies to electric cooperatives over 10 years.
That recommendation is likely to be the flashpoint early next year when Bush submits his annual budget proposal to Congress, where rural Democrats sympathetic to the co-ops control REA's funding. Observers believe there is a strong chance the OMB proposal will be included in the budget package. OMB spokesman Tom Bruce declined comment on the matter.
Joelle Ziemian, a spokeswoman for the Energy Department, would only say that the recommendations had been forwarded to Bush.
OMB's idea isn't new. The Nixon and Reagan administrations, espousing a free-market approach, tried to gut the REA and force the co-ops to borrow in the private market. But the attempts were roundly defeated by the power of the co-ops' lobby and their congressional supporters.
Many observers expect the Bush administration's initiative to meet the same fate.
"It's not going to happen; the Congress won't go for it," said David Freeman, a former TVA head who now is general manager of the Municipal Utility District in Sacramento, Calif.
Bergland, who was agriculture secretary in the Carter administration, is considered a highly effective lobbyist. He has led the National Rural Electric Cooperative Association since 1984.
The association "is one of the most powerful lobbies in the world," said Fred Smith, president of the Competitive Enterprise Institute, a Washington think tank.
Through its political action committee, it contributed a total $577,975 to the congressional campaigns of 242 Democrats and 126 Republicans who ran in last month's elections. Most of the money went to incumbent senators and representatives, Federal Election Commission records show.
"We take a very hard, uncompromising view on maintaining the REA," Bergland said in an interview.
While acknowledging that the REA's original mission of electrifying farms has long been accomplished, Bergland and congressional supporters insist that subsidies are still needed to maintain the service. They say some bankers are reluctant to make loans to electric co-ops.
Most rural cooperatives buy electricity in bulk from other companies and distribute it to customers. But those sustaining the biggest losses have been larger co-ops that built plants to generate their own power.
If the government stops making and guaranteeing loans to cooperatives, the generating co-ops would be crippled, Bergland said. "There isn't a chance in the world they can survive," he warned, adding that $20 billion in REA loans to generating co-ops would be put at risk.
If that happened, taxpayers likely would have to bail out the REA, as they did when the federal Farm Credit System lost billions of dollars in the agricultural slump of the mid-1980s and as they will have to do in the much more expensive rescue of the savings and loan industry.
The REA program has potent supporters on Capitol Hill, most notably Rep. Jamie L. Whitten (D-Miss.), chairman of the House Appropriations subcommittee on rural development.
Whitten declined to be interviewed until he had been briefed on current developments by the subcommittee staff, his spokesman Steve Burtt said.
But Rep. Glenn English (D-Okla.), chairman of the House Agriculture subcommittee on conservation, credit and rural development, said "Congress will ask very deep and probing questions" of the administration on the REA budget issue.
English said the administration "might be able to pull a fast one" with REA funding on the House floor. He contends that the opposition to co-op aid is really ideological but has been disguised as concern about the federal budget deficit.