Another View on Co-Op Subsidies

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In his column for Multichannel News' Viewpoint page (“Co-Ops Need New Pole Position,” Access, May 11, 2009, page 25), Daniel Brenner presents the sort of misinformation and disinformation that only serves to aggravate and distort a situation while contributing nothing of value to the discussion.

I realize that opinions are just that, opinions. However, valuable opinions are based on facts. Those opinions such as Mr. Brenner's that provide little value are at best just that, of little contributory value.

I must ask for what reason does Mr. Brenner state early on that “electrical co-ops alone own over $100 billion in assets?” Without giving me, the reader, any reference point it seems to be an irrelevant fact inserted strictly for emotional impact. Do his clients have no assets? The National Cable & Telecommunications Association reports cable-industry capital expenditures alone from 1996 to 2008 as totaling $146.8 billion and yearly gross revenues (with reported profit margins of 10% to 25%) of $79.1 to $112.9 billion (depending on which of their published numbers you look at) in 2008.

Here is some easily discovered information:

  • With $112 billion in assets (at 11% of the $992 billion electric asset total in the US) electrical cooperatives serve 9% to 12% of U.S. consumers — the fewest customers per mile.
  • Electrical cooperatives provide 42% of U.S. distribution (and therefore only 42% of pole attachments?) with the least revenue per mile.
  • Electrical cooperatives provide only 6% of U.S. transmission (for 24% of total possible pole attachments?).

How do Mr. Brenner's clients' compare?

Mr. Brenner goes on to say that “Co-ops and rural telcos, long recipients of [Rural Utilities Service] loans (italics mine), have received well over $1 billion for broadband since 2000.” Again, without any meaningful reference points those comments have no value.

Seriously, does he mean for us to believe that cable companies and larger telcos have not received any loans for broadband since 2000? Where did that $146 billion plus in capex for cable companies come from — profit margins? Or, is Mr. Brenner intentionally muddying up the water for demagoguery's sake?

The later would seem to be the case as he takes his demagoguery to new heights by further asserting that the additional $2.5 billion in RUS loans in the Recovery Act are a “$2.5 billion subsidy” (and therefore, by inference, the other $1 billion in RUS loans was a subsidy also?). Again, seriously, he expects the reader to accept his apparently intentional misrepresentation of a loan as a subsidy?

For the record, subsidized interest rates (which provide very little net value to electric co-ops) do not make an entire loan a subsidy. Only the difference between the actual rates charged and the rates available on the “open” market counts as the subsidy — and certainly none of the principal. In regards to whom gets government subsidies through low interest rate loans and other means, further research (U.S. Energy Department/Energy Information Administration data) uncovered verifiable taxpayer-paid subsidy numbers (see table).

I wonder where Mr. Brenner's clients would rank in this type of comparison?

And those “many co-op broadband loans defaulted” he references with a backhanded swipe — I found evidence of three. The RUS reports an enviable loan default rate involving all its cooperative utility borrowers that I doubt any other comparable financial institution, including his clients' lenders, can match. More research reveals that the RUS Rural Development program reported a loan delinquency rate of around one percent for its $103 billion loan portfolio in 2008.

What is truly unacceptable here is the intent along with the expected acceptance of the use of regulatory capture to confiscate those assets of his fellow American citizens that Mr. Brenner's clients are not willing to pay compensation for.

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