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Updated farm bill moves in 'better direction' for US rural utilities

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Updated farm bill moves in 'better direction' for US rural utilities

A compromise farm bill from the U.S. Congress includes "less onerous" terms for rural utilities to repay government loans but still will affect financing of energy projects, the head of the National Rural Electric Cooperative Association said.

Agriculture committee leaders in the U.S. House of Representatives and U.S. Senate released a bipartisan, bicameral farm bill conference report Dec. 10.

The National Rural Electric Cooperative Association, or NRECA, largely was pleased with the final legislation, saying it took "meaningful steps" to advance rural broadband deployment and would enable electric cooperatives to invest in grid modernization. The bill also eased language that NRECA feared would make repaying government loans more difficult, thereby raising costs for rural energy consumers.

The Senate's version of the farm bill proposed to restrict future deposits into "cushion of credit" escrow-like accounts that electric cooperatives use to repay loans for infrastructure development and other projects.

The cushion-of-credit accounts now earn 5% interest on deposits and can only be used to pay debt owned by the U.S. Department of Agriculture's Rural Utilities Service. The Senate bill would have immediately limited the interest rate on those escrow accounts starting in fiscal year 2019 to the average interest rate used to make payments on five-year U.S. Treasury notes for the most recent calendar quarter, so long as that average rate does not exceed 5%.

That change would have retroactively reduced interest rates on those accounts, likely increasing costs for rural energy consumers, according to NRECA. The Senate farm bill would also prevent future deposits into the cushion of credit.

The bicameral conference report "moved in a better direction," NRECA CEO Jim Matheson told S&P Global Market Intelligence. The compromise bill would maintain the 5% interest rate on deposits through fiscal year 2020, rather than ramping down that rate immediately, as called for in the Senate proposal. The conference report would also allow rural utilities to use the cushion-of-credit accounts to prepay debt without penalty, Matheson said.

But as in the Senate proposal, the final legislation will prevent future deposits into the Rural Utilities Service escrow accounts.

"It's not perfect for all of our members but a step in the right direction," Matheson said, calling the conference report "less onerous" than the Senate's bill.

The compromise farm bill included other energy-related items. The conference report will maintain funding for the Rural Energy for America Program, known as REAP, which provides guaranteed loan financing and grant funding for farmers and small rural businesses to invest in renewable energy or energy efficiency improvements. The legislation adopted the Senate's proposal to reauthorize REAP appropriations at $50 million annually for fiscal years 2019 through 2023.

"We're pleased to see continued bipartisan support for the Rural Energy for America Program, which enables the spread of renewable energy and energy efficiency improvements throughout America's heartland," Solar Energy Industries Association President and CEO Abigail Ross Hopper said.

The legislation would also amend the Rural Electrification Act of 1936 to allow for loans or loan guarantees for cyber- and grid-security projects.

The Senate voted Dec. 11 to adopt the conference report; the House is set to consider the measure Dec. 12. Ahead of the Senate vote, President Donald Trump said the farm bill was "moving along nicely" and voiced support for the legislation, indicating he likely will sign the proposal into law.