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Financing for Utilities Serving Rural Areas

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Financing for Utilities Serving Rural Areas The Rural Utilities Service (RUS): A Strategic and Financial Partner for Municipal Electric Systems Presented by: Joseph S. Badin Deputy Assistant Administrator, Loan Origination & Approval, RUS Electric Program October 2019 RUS RE Act Electric Programs Furnishing and improving Electric Service in Rural Areas. • Provides leadership and capital to maintain, expand, upgrade, and modernize America's vast rural electric infrastructure. • To finance the construction of electric distribution, transmission and generation facilities, including system improvements and replacements. • Under the authority of the Rural Electrification Act of 1936 (RE Act), we provide direct loans and loan guarantees (FFB), as well as grants and other energy project financing to electric utilities (wholesale and retail providers of electricity) that serve customers in rural areas (rural beneficiaries). • FFB guaranteed loans provided under the RE Act: Treasury + 1/8% Up to 35 year loan term 3 Money $ale! APPROXIMATE FFB QUARTERLY RATES 3-mo 6-mo 1-yr 2-yr 3-yr 5-yr 7-yr 10-yr 20-yr 30-yr 2.00 1.88 1.76 1.60 1.53 1.50 1.55 1.61 1.82 1.91 Plus 1/8% 8/23/19 rates (rates set daily) 4 The Rural Utilities Service History The RUS of today evolved from the Rural Electrification Administration (REA) formed as part of the Federal government’s “New Deal” programs during the Great Depression, designed to help the neediest in America… Rural America Before Federal Programs Private utilities were unwilling to serve rural areas • No industry or large loads for electric, telephone, or sanitary water service in rural areas. • Low return on investment due to low population density. RUS Partners with Local Leaders Community involvement was a key to implementation then, and is still key for all RUS programs RUS RE Act Electric Programs Technical Standards • RUS Standards Used by borrowers and non-borrowers Important tool for risk and liability protection Quicker restoration List of approved materials maintained for distribution borrowers Agency Buy American Requirements Apply • Technical Standards We Maintain 49 Technical Bulletins 150 Material Specifications • Technical Subcommittees 7 NRECA Subcommittees 7 National Electric Safety Committees 8 Types of Eligible Borrowers (7 CFR § 1710.101) • Corporations, states, territories, and subdivisions and agencies thereof; municipalities; people’s utility districts; and cooperative, non-profit, limited-dividend, or mutual associations. Pretty much any entity! • However, to be an eligible borrower the entity must provide or propose to provide: The retail electric service needs of rural areas, or The power supply needs of distribution borrowers under the terms of power supply arrangements satisfactory to RUS. Rural Opportunity!! Municipal Utility Systems tend to be small and serve rural towns RUS Electric Program Definition of Rural is Population <20,000 Of the 2013 Public Power Utilities, 1692 or 84% have less than 20,000 Customers Large Opportunities Exist for Municipal Utility Systems to Take Advantage of RUS Electric Loan Programs 10 RUS Activities in the Public Power Sector The RUS Electric Program has 626 borrowers: primarily rural electric cooperatives. But also 22 LLCs - renewable energy project developers and a growing interest from the public power sector: Public Power Borrowers 19 system borrowers (17 current; 2 paid-in-full): 8 Municipalities (7 current; 1 PIF) 11 PUD/PDD (10 current; 1 PIF) Public Power Grantees 25 High Energy Cost Grants 17 Municipalities 8 Indian Tribe/Tribal Government Results of Underinvestment Over Time RUS RE Act Electric Program Loan Purposes Infrastructure Investments New Electric Generation Units: Fossil (NG & Oil), Renewables & Hydro Upgrades & System Improvements to Existing Electric Generation Units: Nuclear, Fossil (Coal, NG & Oil), Renewables & Hydro New Transmission & Distribution (T&D) Facilities: HVTL to residential connections, Smart Grid & Cybersecurity Upgrades & System Improvements to Existing T&D Facilities Energy Efficiency & Demand-side Management: On or Off-Grid Acquisitions: New and Used Facilities 13 RUS Electric Program – Financial Assistance Rural Utility System Infrastructure Loans Interest rate: Treasury + 1/8% (Federal Financing Bank note) Up to 35 year term (or useful life of asset) Security: Pledge of revenue Generation, transmission, distribution assets (incl. smart grid) Renewable Energy Project Loans Borrower can be Muni or project developer with a PPA with a Muni (enables a lower PPA price) Enhanced loan security (developers - reserve accounts) Rural Energy Savings Program (RESP) Relending program for energy efficiency measures (including replacement of old mobile homes) RUS lends to Borrower at 0%; Borrower can relend at up to 5% High Energy Cost Grants (HECG) For poverty areas with low income and high energy costs – competitively awarded 275% of national average energy cost Typically $10 million per year - Alaska, Hawaii, Pacific and Tribal typical awardeesd Tribal typical awardees Eligibility to Receive RUS Electric Program Loan Funds Rural Determination - Electric facilities must provide service to “RE Act Beneficiaries.” NEPA Requirements - The review & approval of the RUS environmental staff per 7 CFR Part 1970. Proven Technology – i) Commercially available; ii) new material & equipment unless otherwise approved by RUS Loan Feasibility – Reasonable assurance loan will be repaid in full as scheduled. (Long Range Financial Forecast) Loan Security – Reasonable adequate security RUS Renewable Energy Funding – Project Loans Project Loans for eligible renewable technologies include: Solar, Wind, Biomass, Geothermal, and Hydro The technology must be commercially available. Must provide for sale or resale to rural energy consumers. Crow Lake Wind – Basin/East River Kodiak Electric Hydro RUS Loan Funds Are Effective In Developing Renewable Projects With Affordable PPA Prices Simplified Project Finance Structure Debt - Equity Investors RUS Loan $ $ $ kWh Federal Renewable Project Incentives LLC $ Utility Power Purchase Agreement (PPA) 17 Relending: The Energy Efficiency and Conservation Loan Program (EECLP) Utilities relend RUS funds to the consumer for EE upgrades to homes, businesses or industry. Eligible investments: building weatherization, HVAC upgrades, ground source heat pumps, lighting, small scale renewable generation, energy audits, etc. Utilities may charge an interest rate above the FFB rate to the consumer. Loan terms are based on the aggregate useful life of the equipment. Mirrors existing loan process but adds: Business Plan Quality Assurance Plan Potential borrowers to reach out to GFRs for guidance on submitting an application. Available EECLP Toolkit. Relending: Rural Energy Savings Program (RESP) . Provides loans to entities that agree to make affordable loans to help consumers implement cost-effective, energy efficiency (EE) measures. Will help lower energy bills for rural families and businesses and will reduce barriers to investment in energy efficiency projects or activities. $100 + million available now! . NOFA open through this FY . 0% interest to borrower . Up to 5% interest to consumer . Manufactured Home Replacement eligible EE measure . Non-electric utilities now eligible (Gas, Water, Telco) . Significant Hill Interest . Compelling opportunity!! RUS EE Relending Loan RESP Overview Program Overview with the Agriculture Improvement Act of 2018 amendments incorporated RUS RE Act Electric Programs FFB Guaranteed Loan Funds Obligated from FY 2015 thru FY 2019 Includes Electric Infrastructure Loans & RE Act Sec. 313A Loans FY 19 FY 18 FY 17 FY 16 FY 15 # of Loans 110 120 115 91 107 $ Obligated $5.77B $3.71B $4.23B $3.92B $3.40B 21 FY 2018 Accomplishments • FY 18 Total loans obligated: 120 $3.71B FFB loans: 119 $2.95B Distribution loans 105 $2.17B G&T & Power Supplier loans 14 $0.78B Note Guarantees (313A): 1 $0.75B • FY 18 loan purposes: Transmission: $ 382M Generation: $ 245M . Distribution: $ 2,247M Acquisition: $ 68M ($48M for used coal power plant) Smart Grid: $ 460M ($260M for fiber) Renewable Projects: $ 77M (3 solar projects 83.6 MW) . RESP (Energy Efficiency): $ 22M (4 loans) Outlook for FY 2020 and Beyond Infrastructure “R” US! Continued Investments needed to address aging plants and electrical facilities New NGCC plants with advanced CT technology & new reciprocating engines More solar PV facilities and other renewables Energy Efficiency and Demand Response interest rising Smart Grid essential to modernize the electric infrastructure Grid Resiliency needed to address natural disasters, cyber and human threats Microgrids Energy Storage, Enhanced Control Systems Carbon Capture, Usage & Sequestration Thank You Contact Information Joseph S. Badin Deputy Assistant Administrator Loan Origination & Approval RUS Electric Program Office: 202-720-0409 [email protected] www.rd.usda.gov.
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