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Authority of REA To Finance Construction and Operation of Electric Generating Plants

B-195437 Published: Feb 15, 1980. Publicly Released: Feb 15, 1980.
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Highlights

The Rural Electrification Administration (REA) requested an opinion on whether it had the authority to approve an application from the Big Rivers Electric Corporation for a loan guarantee. The loan would be used to cover certain expenditures associated with construction of a proposed coal-fired electrical generating plant and would include cancellation charges if contracts for two components of the plant were terminated. Big Rivers determined that the construction was necessary to satisfy the future wholesale power needs of its member systems. In the past, REA had provided financial assistance to electrical cooperatives such as Big Rivers only when it determined that the assistance would lead to the completion of facilities to serve Rural Electrification Act beneficiaries. Even though in this case it would have to assume that the project might be canceled, it felt that it should grant the loan guarantee. Not to do so could have threatened earlier loan commitments to Big Rivers. Also, it believed that the guarantee of funds for the cancellation charges was essential for Big Rivers to construct the generating plant by 1984. GAO held that: (1) the construction proposed by Big Rivers would provide electrical service to people in rural areas not receiving central station service as required by the Act, and (2) financing of initial expenditures associated with the proposed plant, including cancellation charges, were allowed under the Act. The cancellation charges were held to be necessary and proper charges because construction would not begin without them. Accordingly, GAO held that REA had the authority to guarantee the loan to Big Rivers for the purposes presented.

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