No Title 1808
Guest Opinion: Financing the future of electric co-ops
State homeland security group meeting will focus on transportation
Co-op Postcard: Thousands cooperating
Build a robot
Nine- to 14-year-olds can have fun building a robot at a weeklong camp this summer, and at the same time learn about gear ratios and motor torque. Thirteen sessions of Robotics I or Robotics II will be offered during June and July by the Elizabethtown Community and Technical College. The classes, which cost $85, will be held in Elizabethtown, Greensburg, Mt. Washington, Leitchfield, and Bardstown. The robots will be built using Lego Mindstorms, based on a curriculum from Carnegie Mellon University. The camp also provides preparation for participation in state and national competitive Lego robot building leagues. For more information about the robotics camps, schedules, and registration, phone (270) 706-8702 or e-mail awoodward0011@kctcs.edu.
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Guest Opinion: Financing the future of electric co-ops
A leader in lending to electric co-ops describes a path through today’s turbulent economy
by Sheldon C. Petersen
The electric utility industry as a whole—and electric cooperatives in particular—are going to need enormous capital infusions to meet the energy demands of their consumers during the next 20 years.
One of the most important things we at the Cooperative Finance Corporation do is listen—and heed—what the three most important credit rating agencies say. Because ratings, to a great extent, determine what the cost of capital will be.
Most electric cooperatives do not have their own credit, or debt, ratings. CFC’s ratings from the agencies are based primarily on the credit worthiness of our members. As one analyst once said, “We view CFC as one big utility.” So the ratings CFC receives could be viewed as a report card for the electric cooperative sector as a whole.
Up until last summer, times were superb for borrowers and bond issuers. Just about anyone could get cheap money.
Recently, however, problems in the U.S. housing market, whose growth was fueled by extremely low interest rates and low-quality, subprime loans, have spilled over into our economy.
When capital markets are in turmoil and economic conditions are uncertain, credit ratings matter, especially for a capital-intensive industry such as electric utilities.
A company’s credit rating affects a company’s ability to borrow, and the cost of capital it borrows.
The first challenge we face is the huge uncertainty associated with government action—both at the state and federal levels—on greenhouse gas emission restrictions and renewable power mandates.
Second, there are tremendous inflationary pressures on everything we buy and use to run our businesses. This raises the cost of doing business and puts upward pressure on rates. Third, there is the related problem of insufficient generating capacity and inadequate transmission infrastructure.
As the National Electric Reliability Council pointed out in a recent report, all of this puts us at real risk of growing unreliability, including brownouts and blackouts.
Coal-fired generation is angrily attacked by some, including elected officials. There are calls to use carbon capture and sequestration—but that is a technology that will take years to become commercially viable.
With regard to renewable energy and conservation, yes, we must push ahead aggressively in both of these areas. But it is unrealistic to think these efforts will meet all of our future needs.
The greatest challenge is probably co-ops’ heavy reliance on coal. Coal has been a strength for co-ops in the past. And even though coal prices have risen recently, it is still attractively priced in relation to other fuels. And it provides dependable generation.
But today there is uncertainty about government action on climate change, and particularly how this will impact coal.
Even with this uncertainty, co-ops have unique strengths.
First, electric cooperative members tend to be loyal and supportive. This is due to the cooperative business model, which emphasizes reliable service at the lowest possible cost.
This, in turn, gives cooperatives political strength at the state and federal levels. Electric co-ops are well-known in state capitals and in Washington for their grassroots support.
In addition, electric co-ops are in very strong financial shape. Data show that for important financial ratios—such as debt service coverage, equity, and general fund level—the electric cooperative sector maintains a strong and healthy financial position.
Electric cooperatives have another important advantage and that is access to affordable capital—from both public and private sources—including CFC.
Because of all these plusses that co-ops have, I would have to give cooperatives a positive ratings outlook in the short-term, in 2008.
What about the longer-term outlook for electric cooperatives, three to five years down the road? So much of it really comes down to the costs of new generation and regulation of greenhouse gases.
The major Wall Street bond rating agencies are going to implement stricter standards that require borrowers to prove that any new coal-fired generating plants will be financially viable—even under potentially stringent federal caps on carbon dioxide. And these standards are being imposed now before any federal limitations have been defined.
Yet despite the statement of these large banks, we are not currently seeing any shortage of capital for state-of-the-art, coal-fired generation. Our normal bond issuances continue to be oversubscribed.
My analysis, therefore, is that if coal-fired generation cannot be built, it will not be because of a lack of financing. It will be because of an inability to get federal or state government approvals.
I believe there are three things that electric co-ops can do to maintain their positive outlook.
First, maintain equity levels and general financial strength as high as possible. Electric co-ops have been good at this.
Second, be brutally honest with rates. Postponing needed rate increases helps neither the co-op nor its members. Realistic rates allow co-ops to recover costs and send correct price signals to consumers.
Third, be an advocate for member-consumers. This is an important part of the cooperative business philosophy and one of electric co-ops’ greatest strengths. Co-op members need to know that their co-ops will do everything possible to protect them.
Sheldon C. Petersen is governor of the National Rural Utilities Cooperative Finance Corporation (CFC), which provides financing for the nation’s consumer-owned electric co-ops. This essay was excerpted from a speech Petersen delivered at the CFC annual meeting in February.
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Festival for local wineries The 2008 Kentucky Wine & Vine Fest, presented by Toyota on Nicholasville, will be held May 8-10 in downtown Nicholasville. The festival will celebrate its fifth year by adding Kentucky Wine Country Tours and a Commercial Wine Competition. The festival will also include a Grape Growers Barbeque & Dance, the KY Wine Fest Golf Tournament, an Amateur Wine Competition, Dinner & Dance, arts and crafts, a Run for the Merlot, and live music. Phone (859) 881-3820 or visit www.kywineandvine.com for more information.
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State homeland security group meeting will focus on transportation
A group to develop cooperation between the government and private sector on homeland security issues has invited the public to its upcoming quarterly meeting Friday, May 30, in Louisville. The Kentucky InfraGard Members Alliance is part of a national effort supported by the FBI to exchange information on protecting the nation’s infrastructure, and to promote awareness of security issues. National InfraGard membership consists of about 20,000 owners and operators of different segments of the national infrastructure such as agriculture, energy, and telecommunications. The Kentucky chapter works with the state office of the FBI. The May 30 meeting will focus on transportation issues and will include a chapter business meeting. People interested in attending are asked to register in advance in order to plan meeting space. You can register for the meeting and get more information on InfraGard at www.infragardky.org. The meeting will be held from 1:30 to 3:30 p.m. in Louisville. Meeting location and directions will be provided to registrants.
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Co-op Postcard: Thousands cooperating
