Phyllis. K. Fong
March 9, 2010
Dear Ms. Fong, As ratepayers and members of the Alaskan electric cooperatives who also work closely with the Golden Valley Electric Association (GVEA), an electric cooperative supported by the United States Department of Agriculture’s (USDA) Rural Utilities Service (RUS), we support our fellow cooperative members in the East Kentucky Power Cooperative (EKPC) who have requested that you formally review and make recommendations for the safe-guarding and improvement of RUS procedures, financial and environmental due diligence, and decision-making regarding loans, loan guarantees, and lien accommodations for the purpose of financial support for electric utilities developing coal burning power plants. We also applaud RUS for maintaining its March 2008 decision not to approve direct loans for new coal-fired power plants because of the financial risks involved. However, RUS’s decision to grant loan guarantees and lien accommodations to electric cooperatives developing or investing in dirty facilities contradicts its 2008 decision, and should be reconsidered for the good of the co-op and its members like us. We believe that RUS has unwisely provided financial support in the form of loans, loan guarantees, or lien accommodations to EKPC for the purpose of supporting coal-fired power plants without proper fiscal and environmental due diligence. Specifically, RUS’s financial support for EKPC’s proposed J.K. Smith coal fired Circulating Fluidized Bed Unit #1 has placed hundreds of millions of dollars in taxpayer resources at risk, and may result in unnecessary and expensive increases in our electric rates and more pollution of our air, water, and climate. We in Alaska feel this could parallel our situation as GVEA is pushing to restart the Healy Unit #2 coal-fired power plant and may also be looking to RUS for similar financial backing. As part of the “Railbelt” in Alaska, our electric association is greatly affected by GVEA. These decisions have placed hundreds of millions of dollars in public ratepayer resources at risk. These unintended outcomes directly contradict the mission of the USDA, RUS, and federal government policies to promote economic development in rural areas, encourage reliable electric service at reasonable rates, and ensure transparency and public participation in efforts to protect the environment. Through conversation with our colleagues in Kentucky, Georgia, and other states we know that these concerns are widely shared, and our situation appears to be an egregious example of irresponsible financial support. In the spirit of RUS’s mission and based on the following considerations, we urge you to take swift, decisive action to review RUS procedures and recommend remedies to ensure these problems are resolved and do not recur. Our concerns about RUS’s financial support of EKPC are based on several factors. It lacks a credit rating and its TIER rating is far below most other cooperative utilities. EKPC depends on coal for more than 90% of its electricity, and is therefore vulnerable to changing federal regulations necessary for protecting public health and welfare. The cost of the Smith power plant rose by 54% since it was first proposed and is estimated by EKPC to go even higher. EKPC’s electricity demand has not increased as much as they originally projected, which further questions EKPC’s justification for a new unit. Also, EKPC is undergoing a management audit, mandated by the Kentucky Public Service Commission (KPSC) to address the utility’s decision-making processes. The timeline for completion of the audit has been postponed to April 2010 yet in that timeframe EKPC plans to move ahead with planning for the Smith plant. In Alaska, GVEA also faces an uncertain financial future. While other co-ops like the Homer Electric Association (HEA) withdrew any ownership in the experimental Healy Unit #2 coal plant, GVEA has taken on the restart of this risky and expensive project. As much as $95 million more may be needed to restart the plant even as the plant had already cost $320 million, nearly half of which has been public funds. GVEA has not come clean about the true costs of Healy Unit #2, such as any added costs to revamp the plant to comply with new EPA mercury emissions standards. Because of these additional costs, GVEA’s debt per ratepayer is expected to double to $10,000 from 2003 to 2010, which is almost certainly an unstable level of debt. As RUS has been helping EKPC go forward with uncertain plans, it also may enable utilities in Alaska to take that same route. In the past, RUS approved a $65,328,000 loan guarantee for GVEA. Now that GVEA is looking to head a plant restart and is not disclosing its full costs, what happens in Kentucky can certainly affect Alaska. RUS’s decision to proceed with financing and building this unnecessary coal plant will force EKPC to seek approval for electric rate increases at a time when many Kentucky families and businesses are already struggling to pay utility bills. This could eventually lead EKPC, which is already financially unstable, to default on its debt obligations. Alaskans already pay some of the highest energy costs in the country so a similar scenario here could be devastating. Enabling this over-dependence on coal makes little sense in Kentucky, Alaska, and throughout the US. Any effective financial and environmental diligence on the part of RUS should have uncovered these glaring financial problems with the EKPC. But there has been no evidence that RUS did any such substantial review as part of its approval process. Therefore we are asking you for an immediate review by the USDA Inspector General’s office of RUS procedures before the financial future of any other co-ops and their members is jeopardized. Unfortunately there is no public evidence that RUS conducted a critical diligence process. Therefore we are asking you for an immediate review by the USDA Inspector General’s office of RUS procedures regarding loans, loan guarantees, and lien accommodations for new and existing coal plants like the proposed Smith plant, before the financial future of any other co-ops and their members is jeopardized. We eagerly await your actions in response to this request. The KPSC is presently considering EKPC’s request to issue the $921 million in debt to build Smith Unit #1, and RUS approval of the lien accommodation request was a prominent piece of evidence entered by EKPC in that proceeding. Federal ratepayer resources, our electric rates, and our environment may hang on the balance of whether or not RUS is conducting substantial and proper fiscal and environmental diligence in its decisions. Sincerely, Nancy Kuhn, Fairbanks spokesperson Gary Newman Tim Leach, President Jim Sykes, Director Mike O’Meara, Homer spokesperson
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