But just when those in the business of providing electricity to rural residents thought it couldn't get any worse, the U.S. Department of Agriculture's Rural Utilities Service announced in February that it was suspending its low-cost federal loan program for financing new coal-fired generation facilities.
"You can't find a worse time to build a coal plant," said Tom Sanzillo, the former first deputy controller for the state of New York, who is studying financing for coal-fired power in the United States.
A Missouri rural utility, citing rising construction and financing costs, announced this week that it is scrapping plans for a power plant in the wake of the RUS announcement.
A local coalition of rural utilities, Southern Montana Electric Generation & Transmission Cooperative, which is trying to raise capital to construct the coal-fired Highwood Generating Station east of Great Falls, is keeping a stiff upper lip in the face of the national and global developments.
SME, which was banking on an RUS loan, is now in talks with private lenders to finance the 250-megawatt power plant. The Highwood plant would serve 60,000 customers of five rural utilities between Great Falls and Billings, as well as commercial and government customers of Electric City Power, the utility arm of the city of Great Falls.
"I'm expecting we'll probably have to pay a higher interest rate, and we can't go higher without limit," said Jim Mullin of Tongue River Electric Cooperative, an Ashland-based SME member. "It could get so costly eventually that it would make the project not feasible. But we don't think we're coming to that place yet."
Since 2006, more than 30 coal-fired projects planned in the U.S. have been canceled because of the difficult construction and political climate, according to Platts, a division of The McGraw Hill Co., a leading provider of energy information.
The National Energy Technology Laboratory, in its latest report on coal-fired power plant construction activity, cites regulatory uncertainty regarding climate change and the escalating construction costs as factors in those cancellations.
Steve Piper, a Boulder, Colo.-based forecast economist for Platts, said environmental opposition, which has been fierce both locally and nationally, contributed to the slowdown.
"They can go after just about any coal plant they want to go after," he said. "They are definitely a force."
But opposition hasn't brought a complete halt to coal-fired power projects.
Across the country, there are more than 25 plants totaling at least 16,000 megawatts of power under construction, Piper said.
He predicts that construction of the plants will slow down after the current projects are completed, citing possible taxes on greenhouse gas emissions as the reason.
It's the scorching building pace of coal-fired power plants in other countries that's making construction in the U.S. particularly challenging, experts say.
Between 2005 and 2007, 30 coal-fired power plants were constructed each year in China, according to Platts.
"It's truly amazing what they're doing," Piper said.
The high demand for materials and labor overseas has driven up the cost of U.S. projects, experts said.
"That demand for all the parts, and the brains to put them together, are largely over there," said Sanzillo, who is conducting a review of coal-fired power plant financing for the Rockefeller Family Fund.
One example of the impact overseas building has on the U.S. construction market is the proposed 1,000-megawatt generation facility by AMP Ohio. The cost of construction has shot from $1.2 billion in 2005 to $3.3 billion, an increase of 275 percent.
The percentage increase for smaller plants, such as the one in Great Falls, could be higher still, he said.
RUS officials blamed rising construction costs when they notified SME officials in February that the agency would not finance the project.
SME officials, who began applying for RUS funding in 2004, say the 250-megawatt Highwood plant is estimated to cost $720 million to $790 million. The estimate once stood at $450 million.
The RUS made financing even more daunting when it announced last month it wouldn't be issuing its low-cost loans in 2008, a decision that could stretch into 2009.
Traditionally it was more difficult to raise capital for power facilities in rural areas, which prompted the federal government to offer subsidies through RUS. The agency made seven loans totaling $1.3 billion from 2001 to 2007 for new generation facilities.
Critics of the Highwood plant welcomed the news that RUS denied the funding.
SME was seeking a loan from RUS to finance 85 percent of the project.
"It's time for the co-op members and the city of Great Falls to take control and say, 'This thing is a dog. It is not going to happen. We need to figure out how to provide energy to our customers in a more financially and environmentally sound manner," said Anne Hedges of the Montana Environmental Information Center in Helena. The group is suing RUS over its environmental review of the Highwood project.
Arleen Boyd, who lives 75 miles from Billings, gets her power from the Beartooth Cooperative, which is part of the SME partnership.
It doesn't make sense to her for the government to give subsidies to greenhouse gas-producing coal-fired power plants while it considers new taxes on greenhouse gas emissions.
"The contradiction there seems enormous," Boyd said.
In the past, financing large power generation projects was less contentious, Piper said.
Back then, rural utilities figured out the cost of building new plants ahead of time, got the plans approved and then built the facility, Piper said. The cost was later spread across the base of ratepayers.
More up-front investment is required today, Piper said, and more scrutiny of the cost and financing has followed, particularly in the current, volatile construction market.
"Now, the cost of those facilities is adjusted in real time," he said.
News of RUS' funding pull-out led Associated Electric Cooperative Inc., a wholesale power supplier for 57 cooperatives, to announce Monday it was delaying indefinitely a 660-megawatt coal-fired plant proposed near Norborne, Mo. AEC cited rising construction costs and the added expense of private financing, plus the possibility of Congress enacting taxes on greenhouse gas emissions in the future, as reasons to delay the plant.
Though they said they were disappointed with the RUS decision, rural utility officials said it doesn't spell the end of coal-fired power projects.
"We still have to keep the lights on to the people out on the line," said Bob Walker, general manager of Beartooth Electric Co-op.
Spokesman Floyd Robb said Basin Electric, a large rural utility headquartered in North Dakota, withdrew its application for a loan before RUS' announcement.
Basin Electric is building Dry Fork Station, a 385-megawatt coal-fired generating station near Gillette, Wyo. Private financing came from $200 million in bonds issued through Goldman Sachs, a global investment banking and securities firm, and CoBank in Colorado, which bills itself as the country's largest lender to rural America and the agricultural industry.
Higher interest rates in the private sector do drive up the cost of building, Robb said. But Basin made the decision to withdraw its RUS application because it calculated that delays in construction caused by the loan process would cost $100,000 a year.
"At this point, it's not a barrier," Robb said of the private sector interest rates.
Spokesman Nick Comer said East Kentucky Power, which sought an RUS loan to build a 268-megawatt coal-fired facility, is preparing for the possibility it will need to seek private financing.
SME officials in Montana have used a circulating fluidized bed plant that East Kentucky constructed in 2005 as a model for the Highwood plant.
Sanzillo, the New York-based financing expert, said one alternative to public financing is tax-exempt bonds arranged through industrial or economic development agencies. The bonds have below-market rates but are still a bit higher than RUS loans, which range from 1 percent to 5 percent depending on the type of project, he said.
The other is traditional banking, which can carry interest rates ranging from 7 percent to 11 percent, he said.
"The banks are looking more carefully than they were before," Sanzillo said. "So overall, the loss of RUS financing adds additional interest rate charges and probably additional finance charges."
A combination of financing sources also is possible, he said.
Additionally, new regulations for carbon dioxide would have major impacts on construction and operation, he said.
Sanzillo advises against constructing coal-fired plants in the current climate, instead advising builders to weather the economic storm, unless they are facing a crisis in demand or capacity. In the meantime, he said, they could take another look at the gap between demand and capacity and study a combination of renewable energy, conservation measures or tapping into underutilized existing facilities.
"It's a terrible time," he said.
SME officials say the cooperative is facing a power crisis.
It will lose 80 percent of its electricity from the Bonneville Power Administration by 2011. More than 40 percent will be gone beginning in July of this year.
SME is proposing to build the Highwood plant so it can replace that power without having to buy electricity on the open market.
SME attorney Ken Reich compared buying electricity, as opposed to generating it, to renting a house versus owning. Those who rent are subject to yearly rent increases out of their control, just as SME would be if it were to purchase power on the market, he said. By owning its own generation facility, SME can guarantee reliable power and a stable price over the long term, Reich said, just like a homeowner who locks in on a long-term mortgage.
"In order to protect our customers from substantial rate increases, we continue to look to build our own source of generation," he said.