Washington (Platts)--25Sep2008

East Texas Electric Cooperative filed suit in a federal court Thursday
against the Sierra Club and the US Department of Agriculture's Rural Utilities
Service, seeking to make the RUS process loan applications and other approvals
for the co-op to participate in building coal-fired power plants.

The lawsuit, filed in the US District Court for the Eastern District of
Texas in Marshall, is aimed at forcing RUS to process what the ETEC calls
approvals that have always been routine.

"During the past year, the Sierra Club has launched an assault against
RUS -- using litigation, communications to Congress and threats of
lawsuits -- which is designed to stop the construction of all coal plants
nationwide," the co-op said in announcing its suit.

ETEC's attorney, William Burchette of Brickfield Burchette Ritts &
Stone, said that, in taking various actions through the years, "RUS has done
nothing but comply with the law and we vigorously intend to prove that in our
suit. Our objective is to bring to an end the Sierra Club assault and enable
RUS to resume productive operations with rural cooperatives," he added.

In the petition for declaratory and injunctive relief, ETEC said RUS'
refusal to act on applications for loans and lien accommodations involving two
projects violates the Rural Electrification Act and the Administrative
Procedure Act.

ETEC is a generation and transmission co-op that serves about 350,000
customers in Texas and Louisiana. Like other co-ops, it has borrowed from the
RUS and has undertaken through the years to amend existing loan agreements to
accommodate new needs.

In recent times, however, the Sierra Club has "launched a wide-ranging
assault on virtually all RUS action" to stop all coal plants, "regardless of
the level of RUS involvement and irrespective of the degree to which the
facilities are either wholly, or principally, owned by non-RUS borrowers," the
co-op said.

Among numerous other actions against coal plants, the Sierra Club has
filed suit against RUS approvals in connection with the coal plant project of
Sunflower Electric Power in Kansas. With respect to ETEC and other co-ops,
Sierra Club pressure has moved RUS to change dramatically the way it considers
requests for lien accommodations and other "previously routine approvals" for
much smaller activities than Sunflower's major coal plant proposal, and has
simply returned them without assessing their merits, ETEC said in the suit.

Without RUS-guaranteed loans, the co-ops are forced to pursue other kinds
of much more expensive financing. At the Plum Point Energy Station in
Arkansas, for example, ETEC probably will incur about $30 million more in
financing costs in connection with its 7.5% ownership stake. The co-op also
has approval requests at RUS in connection with its 8.3% stake in the John W.
Turk Jr. plant, also in Arkansas.

Construction of the Plum Point switchyard is finished, ETEC said, and it
is ready to be conveyed to transmission owner Entergy Arkansas, but RUS has
refused to act on ETEC's subordination agreement, under which RUS' existing
lien would become subordinate to the rights of the transmission owner.

According to ETEC's suit, RUS said September 17 that it would not
act on the subordination agreement "because doing so would likely provoke suit
by the Sierra Club."

The Sierra Club did mention the Plum Point and Turk projects in an August
letter to RUS saying the agency was violating the National Environmental
Policy Act by taking any approval actions with respect to a number of coal
plants. ETEC said in the suit that RUS had in earlier years said its
participation in the projects was so small as not to require NEPA review.

--Kathy Larsen, kathy_larsen@platts.com