Senators press for rural electric cooperative eligibility for small business protection as losses mount

Electric co-ops could lose as much as $10 billion in revenue, new research by the National Rural Electric Cooperative Association (NRECA) showed this week, as senators rush to guarantee rural co-ops have access to small business funding secured by the Paycheck Protection Program.

The revenue losses cover through 2022 and include both a $7.4 billion decline in operating revenues and an increase in the balance of unpaid electric bills by $2.6 billion. This is expected to be brought about by a 5 percent drop in electric sales, a wave of unemployment, and mandatory or voluntary moratoriums on service disconnections that have become the norm in 46 states facing down the pandemic.

“The economic health of electric co-ops is directly tied to the wellbeing of their local communities,” NRECA CEO Jim Matheson said. “As the economic impact of this pandemic spreads, electric co-ops will be increasingly challenged as they work to keep the lights on for hospitals, grocery stores, and millions of new home offices. Policymakers should be mindful of the economic threat facing rural communities and their electric cooperatives by taking steps to prevent the possibility of significant disruptions.”

At the moment, 43 U.S. senators have heard that call. The bipartisan collection of lawmakers urged both the U.S. Department of the Treasury and the U.S. Small Business Administration (SBA) to clarify language and guarantee cooperatives are eligible for the Paycheck Protection Program, created by the Coronavirus Aid, Relief and Economic Security (CARES) Act last month. That program was meant to shore up small businesses and keep their payrolls alive long enough to cover expenses during the pandemic.

The problem is, while some lenders have approved loans for these cooperatives, others are holding back until they know they can.

“The CARES Act, and the Paycheck Protection Program, in particular, was designed to provide support to small businesses across the country, many of which face significant challenges retaining employees, maintaining payroll, and covering daily expenses during the COVID-19 pandemic,” the senators wrote in a letter to Treasury and SBA. “The program is generally available to “any business concern” that meets SBA size standards (as well as other eligible entities). Nearly all electric cooperatives are classified as “small” businesses under SBA’s size standards, with the average distribution cooperative employing under 50 people. As these electric co-ops face the same challenges as many other small businesses, we believe the Small Business Administration should ensure they are eligible for the Paycheck Protection Program.”

These cooperatives are not-for-profit, owned by their communities, and, more than other electric providers, can face greater constraints when lost revenue mounts. Such co-ops face high fixed costs already — NRECA notes that the more than 900 currently operating maintain 42 percent of the nation’s electric distribution lines but serve just 13 percent of U.S. electric consumers.

“Electricity powers the American economy and a stalled economy uses less energy,” NRECA Chief Economist Russell Tucker said. “As GDP growth falls in the wake of COVID-19, co-op electricity sales are projected to decline. We expect reductions in electric co-op sales of 6.1% in 2020, 6% in 2021, and 3% in 2022, for an overall drop in sales of 5% over the period when compared to pre-COVID-19 projections.”

NRECA has called on Congress to establish a safety net for ongoing operations, including federal assistance to compensate for utility operational shortfalls, reprice U.S. Rural Utilities Service debt without penalty, increase the amount of lending available under the RUS Guaranteed Underwriter Program, providing internet service vouchers to families in need and small businesses alike, continue investing in broadband capability in areas lacking access to a certain quality fixed terrestrial service and guarantee FEMA pays victims of past disasters.