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RUS regs amended to address cushion of credit and grid security

The 2018 Farm Bill amended the Rural Electrification Act of 1936, extending financing authority for RUS loans or guaranties, ending the Cushion of Credit Payment Program, and allowing loans to fund cybersecurity and grid security improvements.

Here is a summary of the changes from RUS:

Summary of Changes

The following is a discussion, by topic, of the changes made to comply with the 2018 Farm Bill.

Cybersecurity and Grid Security Improvements (§§ 1710.1, 1710.2, 1710.100, and 1710.106)

RUS is amending §§ 1710.1, 1710.2, and 1710.106 to include provisions for cybersecurity and grid security improvements as an eligible loan purpose for RUS EP loans as specified in section 6507 of the 2018 Farm Bill. Section 1710.1(a) is updated to expressly reflect that loans for cybersecurity and grid security improvements may now be financed; § 1710.1(b) establishes refinancing policies for loans made for these improvements and other purposes as described in § 1710.1(a). Section 1710.2 now has additional definitions, including those for cybersecurity and grid security. Section 1710.106 describes the specific uses that funds may finance regarding cybersecurity and grid security improvements as well as for purposes which funds may not be used.

This new purpose authorizes the Secretary to make or guarantee loans for cybersecurity and grid security improvements. Additionally, this new regulatory language allows borrowers greater flexibility when seeking funding from RUS to assess and mitigate the risk from known and emerging security threats and risks. Cybersecurity and grid security investments relate to resources for prevention, protection, and restoration of computers, electronic communications systems, electronic communications services, wire and electronic communication, and physical assets. The purpose of cybersecurity and grid security investments is to mitigate the risk to critical infrastructure or the financial condition of RUS’s borrowers by physical means or cyber measures from intrusions, attacks, or the effects of natural or manmade disasters. Prior to the 2018 Farm Bill, RUS approved financing for cybersecurity and grid security infrastructure investment as eligible purposes when incorporated in larger infrastructure projects. With the changes outlined in section 6507, these purposes can be combined as a single project specifically designed for *74494 cybersecurity and grid security purposes. The changes contained in section 6507 explicitly incorporate cybersecurity and grid security investments as within the RUS EP’s lending authority under Titles I and III of the RE Act.

Refinancing (§§ 1710.1, 1710.53, and 1710.100)

Section 6501 of the 2018 Farm Bill amended section 2 of the RE Act to authorize, subject to availability of funding for such purposes, RUS to refinance loans made or guaranteed by the Secretary under the RE Act for rural electrification, furnishing and improving electric and telephone service in rural areas, and assisting electric borrowers in implementing demand side management, energy efficiency and conservation programs, and on-grid and off-grid renewable energy systems.

RUS is amending §§ 1710.1 and 1710.100 and is adding § 1710.53 to recognize its refinancing authority as authorized by section of 6501 of the 2018 Farm Bill. Through these amendments, RUS sets the parameters for exercising said authority. Section 1710.1 is updated to briefly summarize these changes. Specifically, § 1710.1(b) includes additional language establishing refinancing policies. The new section, § 1710.53, describes the refinancing of loans and the requirements of refinancing, including the information required of borrowers seeking refinancing. Section 1710.100 now expressly includes cybersecurity and grid security as eligible projects. RUS will be able to offer new loans to pay off previous RUS loans made or guaranteed pursuant to the RE Act. New loans made under this authority must be used to repay previous loans made by RUS when the Administrator determines that such action is in the interest of rural consumers, taxpayers, rural economic development or otherwise in the public interest.

When funds become available for the refinancing of existing loans, RUS will issue a public notice specifying the amount of funds available under this authority. The notice will contain additional application procedures specific to the amount of funds available and new loan application periods related to the availability of funds. The notice may also include Administration priorities, such as directing benefits to disadvantaged communities and reducing greenhouse gas emissions. The Administrator, in setting funding priorities and application periods, may consider the amount of available funds, RUS resources, RUS priorities and policy goals, and any other factors related to the efficient operation of the agency. Such notices, at a minimum, will require applicants to provide the information set forth in § 1710.53.

Guarantees for Bonds and Notes Issued for Utility Infrastructure Purposes (§§ 1720.1, 1720.2, 1720.3, 1720.4, 1720.5, 1720.6, 1720.7, 1720.8, 1720.11, and 1720.12)

RUS is amending part 1720 to incorporate the statutory amendments as provided by section 6505 of the 2018 Farm Bill. Part 1720 implements the provisions of section 313A of the RE Act, also known as the 313A Program. Section 1720.1 describes the purpose of the regulation. Section 1720.2 will be removed and reserved as the information contained in the section is no longer necessary. In § 1720.3, definitions are added as a result of 2018 Farm Bill changes while some defined terms have been renamed for clarification. Section 1720.4 describes the changes in the general standards and requirements as RUS is now authorized to guarantee bonds or notes issued to make utility infrastructure loans. This section also now contains other changes to terms of financing and refinancing RUS loans. Section 1720.5 is updated to reflect changes in eligibility requirements. Section 1720.6 updates the application process by including requirements for credit ratings. Section 1720.7 now has additions to the application process. Section 1720.8 adds preconditions to RUS’s issuance of guarantees and the release of loan funds, such as evidence of creditworthiness. Section 1720.11 adds the requirement that the Secretary may inspect the assets and facilities of the guaranteed lenders. Section 1720.12 provides additional reporting requirements of the guaranteed lenders.

Specifically, section 6505 of the 2018 Farm Bill amended section 313A of the RE Act, which authorizes RUS to guarantee bonds or notes issued to make utility infrastructure loans or refinance bonds or notes for those purposes pursuant to section 313A of the RE Act, as amended, for a term of 30 years or for another term that the Secretary determines appropriate.

RUS is also including regulatory changes that include guaranteed lenders’ reporting requirements, such as the contact information for the borrowers whose notes have been pledged and terms and conditions for all notes pledged as collateral, and the development of an action plan by the guaranteed lender in the event of default. The amendments to part 1720 also allow the proceeds of bonds guaranteed under section 313A of the RE Act to be used to make broadband loans, or to refinance broadband loans, made to a borrower that has received, or is eligible to receive, a broadband loan under Title VI of the RE Act. As a result, to the extent that the proceeds of bonds guaranteed under section 313A are to be used to fund or refinance broadband loans that were not made by RUS (“Non-RUS Broadband Loans”), such proceeds may only be used for Non-RUS Broadband Loans that would meet the amended eligibility requirements of Title VI of the RE Act pursuant to the 2018 Farm Bill. The 2018 Farm Bill also modified the 313A Program to allow the proceeds of guaranteed loans to be used by the Guaranteed Lender to fund projects for the generation of electricity. Furthermore, it has increased the maximum term of the bonds or notes that RUS can guarantee from 20 years to 30 years.

Cushion of Credit Payment Program (§§ 1785.66, 1785.68, 1785.69, and 1785.70)

RUS is amending §§ 1785.66 and 1785.68 through 1785.70 to discontinue cushion of credit accounts and make other changes to the existing accounts as specified in section 6503 of the 2018 Farm Bill. Section 1785.66 describes the discontinuation of the Cushion of Credit Payment Program, which occurred on the date of enactment of the 2018 Farm Bill, December 20, 2018. Section 1785.68 provides specific information on the reduction of interest rates. Section 1785.69 shows the changes in the computations of the interest paid to these accounts. Section 1785.70 includes additional information about drawing down balances by the borrower and ending the Cushion of Credit Payment Program when all balances have reached zero.

Prior to the 2018 Farm Bill, each borrower who made a payment after October 1, 1987, in excess of the required amount due on a RUS note was provided with a cushion of credit account. All payments on these notes which were in excess of required payments and not otherwise designated were deposited in the borrower’s cushion of credit account. This account bore an interest rate of 5 percent per annum. Beginning on December 20, 2018, the date the 2018 Farm Bill became law, no new deposits to the program were allowed. From the date of enactment until September 30, 2020, cushion of credit balance holders were permitted to transfer money from their cushion of credit accounts for the purpose of prepaying their RUS debt or Federal Financing Bank debt without a *74495 prepayment penalty. Existing balances continued to earn 5 percent interest until September 30, 2020. This interest rate decreased to 4 percent on October 1, 2020. Beginning on October 1, 2021, interest paid on fund balances will be fixed at a floating 1-year Treasury rate. These changes were made to § 1785.69. RUS will no longer have to maintain the cushion of credit accounts after the remaining balances are depleted. This change will result in savings to the Government in an amount equal to the amount of interest that would have been paid by the Government to the account holders had this section of the 2018 Farm Bill not been implemented.