Members in Congress introduced a bipartisan bill in July that could potentially save Kansas electric cooperatives nearly $5 million per year, helping them to gain some flexibility in managing their cash flow and better cope with the economic challenges of COVID-19. As I write this column, U.S. Rep. Roger Marshall has agreed to sign on as a co-sponsor of the bill.
The Flexible Financing for Rural America Act (S-4152/H.R. 7483) would allow electric co-ops and small, rural telecommunications providers to refinance existing USDA Rural Utilities Service (RUS) loans at current market rates. The RUS Program offers essential financing to help electric cooperatives provide electricity in the poorest, most rural parts of the country. Unlike most private debt, co-ops cannot refinance RUS loans without incurring significant penalties. This bill would allow electric cooperatives to refinance these loans, giving co-ops significant interest savings to help them meet the immediate needs of the communities they serve and to be a part of the recovery in the long run.
Kansas’ electric cooperatives and their ratepayers would benefit significantly from loan repricing. Currently, having about $400 million in RUS and Federal Financing Bank debt, their estimated savings would be $100 million based over the life of the loans, resulting in annual savings of approximately $4.8 million. Repricing that amount of debt could have significant benefits and would be a step in the right direction in holding the line on electric rates in Kansas.
From a national perspective, the National Rural Electric Cooperatives Association estimates, based on current interest rates, that co-ops nationwide could realize a net savings of $10.1 billion from repricing $42 billion of direct and guaranteed RUS loans held by approximately 500 electric co-ops.
Rural electric cooperatives have struggled since the first days of the pandemic as a result of a drop in electrical consumption because of sharp declines in areas like agriculture, oil and gas, and tourism, and an increase in unpaid bills from consumer-members who have suffered financial hardships from job loss and business closures.
Despite those obstacles, electric cooperatives have worked with their consumer-members on extended payment plans, some have accelerated cash back/capital credit programs, and others expanded broadband access at no cost to ensure everyone in their communities could access school, work and health care resources online. The seventh cooperative principle — concern for community — means that co-ops work for the sustainable development of their communities. This will be even more critical as communities work to rebound from the ongoing public health emergency. 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.
Kansas electric cooperatives certainly appreciate those lawmakers agreeing to support the Flexible Financing for Rural America Act, which will give electric cooperatives more flexibility to meet current economic challenges facing our communities as a result of COVID-19.
Lee Tafanelli is Chief Executive Officer of Kansas Electric Cooperatives, Inc. in Topeka.