The transmission and generation parts of vertically integrated rural electric cooperatives are enjoying strong credit ratings in the midst of the more turbulent private-sector electricity industry with its political and financial crunch. And proposed farm legislation in Congress eventually could strengthen the rural utilities’ financial positions as they enter somewhat of a generation building boom era, according to Standard & Poor’s latest analysis out of its energy finance team in New York.

The pending legislation potentially could provide additional loan guarantees for lenders to the co-op sector that could be important to the growing move to build more generating plants. “We’re still exploring what the ultimate outcome of that might be,” said Christopher Loop, a member of S&P’s utility/energy rating team, noting that the extent to which less expensive debt is available to the co-ops they would be allowed to borrow more cheaply to create added capacity. The legislation ultimately may have specific financing guarantees for generation.

The coops’ strengths of integration, focus and flexibility outweigh any inherent negatives, Loop said during a conference call with the financial community Thursday.

“Co-ops are member-owned, -controlled and -operated so the interests are very well aligned” among customers, providers and owners, Loop said. “Not all, but most co-ops are allowed to set their own rates, so that is another important consideration. This allows a lot of flexibility and responsiveness to react to changing price environments.”

An example of a co-op taking advantage of this flexibility, Loop said, is Alabama Electric which raised its rates several times during the wholesale price spikes last year, as did the Colorado-based Tri-State Generation/Transmission Association in March of this year. Old Dominion in Virginia has also raised its rates.

Generally, the co-op transmission and distribution operations have long-term contracts with the distribution co-ops, providing an assured market for their power.

Nevertheless, co-ops nationally face three major challenges, according to Loop:

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