Kentucky Coal Plant Funding Challenged

Late Tuesday, regional and national organizations challenged a
decision by the federal Rural Utilities Service (RUS) to allow the East
Kentucky Power Cooperative (EKPC) to waive federal debt obligations and
seek private financing for a new 278-MW coal-fired power plant at the
J.K Smith Power Station in Clark County, Kentucky. The Sierra Club and
Kentuckians For The Commonwealth are represented by Earthjustice in this
matter.

EKPC already owes over $1.3 billion for older power plants; more than
$1 billion of this debt is held, or guaranteed, by the Rural Utilities
Service -- and the American taxpayers.

"Coal plants are financially risky in today's market, especially
given the host of new pollution regulations in the pipeline," said Tom
Sanzillo, Senior Associate of TR Rose Associates, a New York based
financial consulting firm (and author of an April 2009 report of the
credit condition at EKPC). "Recognizing this, RUS has stopped putting
federal dollars at risk into new coal plants. Yet the agency continues
to rubber stamp approval for cooperatives like EKPC to get deeper in
debt and to assume ratepayers will continue to pay endless rate
increases for bad deals."

According to Billy Edwards, Sierra Club member and business owner
living near the proposed plant, "East Kentucky Power has the opportunity
to lead by investing in cost saving energy efficiency and renewable
options, but they're not willing to evaluate any options beyond coal --
the most risky of their options."

Before EKPC can seek private financing the cooperative needs RUS to
sign off on the debt request, much in the same way a homeowner would
need bank approval before taking out a second mortgage. RUS gave this
approval without thoroughly analyzing EKPC's perilous financial
situation or environmental impacts and risks of the new coal plant -- a
decision that leaves taxpayers exposed to unnecessary financial risk.

Under the terms of the RUS's $900 million lien accommodation, if the
cooperative fails to pay back its debt, the private lenders get paid out
of the share that was the government's, and if there is not enough
money to satisfy all the debt, the government (and the taxpayers) will
bear the loss.

"The government has proposed to overlook massive outstanding debt by
the East Kentucky Power Cooperative and allow the cooperative to take on
even more debt with the proposed coal plant," said Amanda Goodin of
Earthjustice, a lawyer in the case. "When the U.S. taxpayer essentially
owns the debt of a regional power provider, it must abide the same laws
of the land that apply to the granting of all federal permits."

By failing to consider the environmental impacts of the plant before
granting the lien accommodation, RUS is in violation of the National
Environmental Policy Act. The failure to consider the environmental
consequences of the lien accommodation also violates the Rural
Electrification Act.

A similar case is pending in Holcomb, Kansas where plans to expand
the Sunflower Coal Plant also face dubious debt arrangements under the
federal RUS program.

Read
the complaint (PDF)

A similar case is pending in Holcomb, Kansas where plans to expand
the Sunflower Coal Plant also face dubious debt arrangements under the
federal RUS program.