Rural Utilities Service:

Status of Electric Loan Portfolio

AIMD-99-264R: Published: Aug 17, 1999. Publicly Released: Aug 17, 1999.

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Pursuant to a congressional request, GAO provided information on the Rural Utilities Service's (RUS) generation and transmission (G&T) borrowers and assessed the likelihood of the federal government incurring losses in the future on loans to G&T borrowers.

GAO noted that: (1) G&T loans declined from $22.5 billion as of September 30, 1996, to $20.1 billion as of September 30, 1998, while the number of G&T borrowers increased from 55 to 56; (2) the dollar amount of these G&T loans represents approximately 70 percent of the RUS' total loan portfolio as of both dates; (3) the number of financially stressed G&Ts has declined from 13 as of September 30, 1996, to 8 as of September 30, 1998, and their outstanding loan balances have declined from $10.5 billion to $6.3 billion in the same period; (4) this decline is due to RUS: (a) reclassifying as financially viable 4 borrowers with $2.4 billion in outstanding debt as of September 30, 1996; (b) reducing accrued interest on a loan to a borrower by $1.1 billion as a result of a bankruptcy proceeding; (c) providing $300 million of partial write-offs to two borrowers, one of which paid off the remaining loan balance of approximately $152 million and is no longer a RUS borrower; and (d) approximately $200 million of other payments net of interest accruals; (5) stressed G&T loans as of September 30, 1998, represented 31 percent of the total G&T electric loan portfolio; (6) most of the financially troubled borrowers' problems stem from their investment in nuclear-generating plants that were completed late and over budget or in coal-fired generating plants that were built to satisfy anticipated industrial growth that did not materialize; (7) according to RUS officials, the reasons the plant investments became uneconomical included rapidly increasing construction and material costs, changing Nuclear Regulatory Commission regulations, and soaring interest rates; (8) this resulted in the G&Ts incurring high levels of debt and debt-servicing requirements; (9) several states denied some of these borrowers' requests for rate increases to recover increasing costs; (10) several G&T borrowers have been unable to service their debt and have asked RUS to restructure their loans; (11) it is probable that the federal government will continue to incur losses from loan write-offs relating to RUS borrowers that are bankrupt or otherwise financially stressed; (12) the number of financially viable G&T borrowers has increased from 33 as of September 30, 1996, to 37 as of September 30, 1998, and their outstanding loan balances have increased from $11.7 billion to $13.0 billion in the same period; and (13) this increase can be primarily attributed to the reclassification of the four stressed G&T borrowers discussed above.

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