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Amid disconnection pause, rural co-ops seek federal funds to plug cash shortfall


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Essential Energy Insights - January 2021

Amid disconnection pause, rural co-ops seek federal funds to plug cash shortfall

As many businesses and manufacturers cease operations and states mandate pandemic-related moratoria on utility disconnections, rural electric cooperatives say they are having a tough time paying their employees without timely payments amid a related downturn in commercial and industrial power demand.

To overcome those coronavirus-related shortfalls, cooperatives are seeking federal assistance.

In a letter dated April 6 and addressed to top U.S. lawmakers, Jim Matheson, the CEO of the National Rural Electric Cooperative Association, or NRECA, wrote that his group's members need help if they are to "continue delivering safe, reliable and affordable electricity to more than 20 million American homes, farms and businesses."

"Electric bill nonpayment is increasing nationwide and electric load from commercial and industrial users has dramatically decreased," Matheson told Sen. Mitch McConnell, R-Ky., Sen. Charles Schumer, D-N.Y., Rep. Nancy Pelosi, D-Calif., and Rep. Kevin McCarthy, R-Calif.

One feature of the co-op structure is particularly problematic in this situation, Matheson said. Because such utilities "routinely return excess revenues to their members," he said, some cooperatives are left with "limited reserve margins to sustain high rates of nonpayment."

Matheson accordingly requested an unspecified amount of federal funding to help the co-ops address operational challenges that result from the financial shortfalls. He noted that some utilities still are waiting to be reimbursed by the Federal Emergency Management Agency, or FEMA, for expenditures related to recovery from previous crises.

"Many electric co-ops in Florida still have not received FEMA reimbursements for devastation caused by Hurricane Michael in 2018," the CEO wrote. "The current crisis comes on top of these ongoing efforts to rebuild systems and communities from prior natural disasters."

Almost half a million in revenue on pause for 1 co-op

Exacerbating the problem is the dramatic dip in power demand in the commercial and industrial sectors caused by coronavirus-related business closures and stay-at-home orders.

In a March 31 press teleconference with cooperative sector leaders, including Matheson, Cherryland Electric Cooperative general manager Tony Anderson said his Michigan-based co-op's current financial reserves are tight.

"We've made payment arrangements with a lot of our commercial accounts ... seven or eight of them are shut down and not operating," Anderson said. "That has the effect of almost half a million dollars a month in revenue that I won't see until they start up again."

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Matheson in his letter to the lawmakers also recommended that the government increase the amount of lending available under the U.S. Department of Agriculture's Rural Utilities Service guaranteed underwriter program, which the association leader called "an essential part of the financing portfolio for [NRECA's] members."

"Nearly half of all electric cooperatives depend on RUS to finance their operations," the CEO wrote. "Collectively, electric cooperatives hold over $40 billion in RUS electric program loans."

Refinancing those RUS loans to the current "unprecedented low interest rates" would allow electric cooperatives holding older debt with higher interest rates to retain more cash, Matheson added.

Some cooperative officials in recent weeks have been wringing their hands over how fiscally sustainable halting service disconnections would be without their usual cash flow. In March, Halifax Electric Member Corp., based roughly 70 miles northeast of Raleigh, N.C., said it could not stop service disconnections without a government mandate because of the financial hardship it would face.

Since then, North Carolina's governor has ordered a temporary utility shut-off stoppage, and the co-op already has seen an uptick in nonpayments from members, Brady Martin, Halifax's manager of marketing and economic development, wrote in an April 9 email.

"While we are in the early stages of the disconnection moratorium on utility shutoffs in North Carolina, this is something we're watching closely and we are concerned about," Martin said. "A congressional safety net for us and our members would provide important certainty for the co-op."

'They're looking to us for information now'

NRECA's request comes as the roles and responsibilities of its member utilities' workers appear to be expanding. Due to the plethora of stay-at-home orders, many cooperatives are preparing in case they have to sequester essential workers onsite. During a March 31 press teleconference, Matheson said NRECA member co-ops have bought "a bunch of supplies," such as food and cots, in order to maintain proper living arrangements for essential workers if necessary.

"I talked to one co-op manager ... they've actually gone out and bought a washer and dryer, so they're ready to just lock folks in the room, I guess, and not let them out," Matheson said.

Some rural co-ops even seem to be acting as something of a more general community resource.

On that same teleconference, Anderson said although Cherryland call center employees — all of whom now are working from home have not seen the volume of calls rise amid the crisis, they have found that phone conversations are going on much longer than usual and are not limited to requests for utility-specific information.

"When we get a member on the phone, they want to know about stay-at-home orders, and where to get food, and up-to-date information on food pantries and community meal sites," Anderson said. "We've become kind of a community clearinghouse for information in a lot of cases that seems to be reassuring to our members."

"They've trusted us for years, and they're looking to us for information now," the general manager added.