Members of Congress introduced a bipartisan bill Thursday in both the House and Senate that could save electric cooperatives more than $10 billion by allowing them to reprice loans from the Rural Utilities Service at current low interest rates.
The legislation allows co-ops to receive rate adjustments on their existing RUS loans simply by asking the U.S. Department of Agriculture within 180 days of the bill’s enactment. The Flexible Financing for Rural America Act would waive any prepayment penalties normally associated with refinancing.
The new interest rate available to co-ops would be the U.S. Treasury rate that most closely matches the remaining term on the loan being repriced, said NRECA lobbyist Hill Thomas, who is leading the association’s efforts. Co-ops would receive that rate starting on the date they notify USDA of their repricing request, no matter how long it takes the government to process it.
Based on current interest rates, NRECA estimates that co-ops could realize a net savings of $10.1 billion from repricing $42 billion of direct and guaranteed RUS loans held by about 500 co-ops. An average co-op with typical RUS debt could save $2 million a year in interest payments if they could take advantage of today’s rates.
If approved by Congress, RUS loan repricing would provide much-needed relief to co-ops that have been hit hard by the financial impact of COVID-19. NRECA economists estimate that co-ops could lose up to $10 billion in revenue through 2022 as out-of-work consumer-members struggle to pay their electric bills and commercial and industrial customers buy less electricity because of sharp declines in areas like oil, agriculture and tourism.
“Economic development has been part of electric co-ops’ DNA for decades and that element of community leadership will be critical as communities rebound from the public health emergency,” NRECA CEO Jim Matheson said. “This essential legislation will give co-ops the flexibility to manage financial shortfalls and focus on the long-term stability of the communities they serve.
“America’s electric cooperatives face significant financial shortfalls due to the ongoing pandemic,” he said. “Despite that, electric cooperatives are working to help their communities by working with co-op consumer-members on extended payment plans, accelerating cash back programs, and expanding broadband access.”
NRECA lobbyists have worked to ensure electric cooperatives were included in the various COVID-19 relief packages that federal lawmakers have approved in recent months. The $2 trillion CARES Act, passed in March, included $900 million for the Low-Income Home Energy Assistance Program, which helps low- and moderate-income consumers pay their utility bills.
The lead sponsors of the bills introduced Thursday are: Reps. Tom O’Halleran, D-Ariz., and Vicky Hartzler, R-Mo., and Sens. John Hoeven, R-N.D., John Boozman, R-Ark., Tina Smith, D-Minn., and Kyrsten Sinema, D-Ariz.
“Electric cooperatives and telecommunications providers are critical to the quality of life in rural areas,” Hoeven said. “The restrictions on RUS loans hamper the ability of these organizations to cope with the challenges of COVID-19.”
O’Halleran said co-ops’ financial stability is crucial to rural America.
“Rural electric utility and telecommunications providers are working around the clock to keep families across America connected to telehealth, education, and loved ones during these difficult times,” he said.
Erin Kelly is a staff writer at NRECA.