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Reconsidering Funding From the Rural Utilities Service

Reconsidering Funding from the Rural Utilities Service, Adam Young

Recently, the Rural Utilities Service (RUS) approved $1.6 billion in long-term financing for rural utility projects across 21 states. This included more than $700 million for a new, greenfield natural gas-fired power plant — a rarity in today’s market. And while the entirety of that $1.6 billion fund has already been allocated, it serves as an important reminder to rural utilities who are looking for a source of funding for their critical infrastructure projects.

A typical utility cooperative can borrow anywhere between $1 million and $100 million every few years. The RUS was established by the Rural Electrification Act of 1936 to provide a source of low-cost financing to keep the cost of electrical services down in rural areas.

Today, however, electric cooperatives throughout the rural U.S. generally have a few options when it comes to organizations that provide outside funding. Private banks offer low interest options with fewer filing and application requirements. RUS — part of the U.S. Department of Agriculture — is a financing entity that provides loans to cooperatives who have put together large project plan packages to support their requested need.

Applying for funding through RUS requires a large amount of time and effort to put together the necessary application and associated documents. From financial models and load forecasts to the overall construction work plan, gathering, assembling and organizing the documents and various appendices for the application package is a big lift and can take a year or more to complete.

Fortunately, cooperatives understand the process and have likely been doing it for years as the RUS funding process operates on a two- to four-year cycle depending on the project funding type. But the reality is that the process can be burdensome. Working with a private bank, on the other hand, requires fewer reporting requirements but may result in a higher interest rate on the loan. For instance, the interest rates may be a half to a full percentage point lower — depending on the source — and on big projects the cost of financing may prove to be significantly less.

For cooperatives seeking funding for necessary critical infrastructure projects, assistance in financial planning and document preparation for RUS can go a long way. An experienced team can effectively put together the work plan and develop the financial package, gathering the necessary documents from trustees and bond attorneys, as well as develop the various studies needed to justify the cost of upcoming projects.

RUS funding is nothing new. But it is ongoing, and new funding becomes available on a regular basis. Utility cooperatives in rural areas who need this support should reconsider the effort in relation to the lost cost of debt to complete upgrades and new projects. In this way, these organizations can continue to provide affordable, reliable power to customers.

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Adam Young
Written by Adam Young
Adam Young is director of financial analysis and rate design at 1898 & Co., part of Burns & McDonnell. He has worked in the electric utility industry for more than 15 years and has broad experience in financial modeling, energy market analysis, project financing, utility cost-of-service analysis and retail electric rate design. In addition to providing consulting to electric utilities, he has also provided various engineering consulting services to private, federal, industrial, commercial and institutional clients in support of developing, planning and funding their power generation and distribution systems, with an emphasis on vehicle charging and distributed energy resources. He has a Bachelor of Science in mechanical engineering from the University of Missouri-Columbia and a Master of Business Administration in finance from the University of Missouri-Kansas City.

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