The Farm Credit System (FCS) has a duty to support America’s farmers, ranchers and producers, with a specific mandate to help young, beginning and small farmers. Though it has failed to follow through on this mission, it hasn’t been inactive.
In February 2019, CoBank, the largest Farm Credit institution, entered into a financing deal with esVolta LP, which “develops, owns and operates utility-scale energy storage projects across North America.” CoBank extended “an approximately $140 million senior secured credit facility to finance a portfolio of its utility-scale battery energy storage projects.” $140 million for utility-scale battery energy storage projects sounds like a great investment – is it an investment that Farm Credit should make?
CoBank is the largest Farm Credit institution with $145 billion in total assets, and of the FCS’ four constituent banks, only CoBank can lend to “cooperatives and other agricultural and rural infrastructure businesses.” This is for good reason: Farm Credit has a limited and defined mission, and while it must have some flexibility to support services adjacent to agriculture, that license should face significant restriction. Not every Farm Credit institution should have that authority because it should only be exercised in special circumstances.
The original justification for this authority was to support utilities that farmers need through cooperatives, utilities like telephone access, water and electricity. But anyone looking at this latest deal from CoBank can see that esVolta LP isn’t a cooperative, it isn’t agricultural and doesn’t provide rural infrastructure. esVolta LP’s bases its centers in medium to large cities, and not all of them are even in the United States! How can CoBank possibly justify this loan?
Farm Credit lenders often deploy the “similar entity” lending authority excuse to shield their out-of-scope financing deals. Similar entities are those which aren’t expressly eligible for financing, but provide services “that are ‘functionally similar’ to activities that are conducted by FCS-eligible borrowers.” But in the case of esVolta LP, anyone can see that its functions are not similar to any electric utility cooperative. If anything, this company bears more similarity to CyrusOne LP, a publicly-traded real estate investment trust (REIT) which invests in “server farms.” CoBank extended CyrusOne LP $1.55 billion in financing in 2016.
Should CoBank lend $140 million to a company that isn’t a cooperative, doesn’t explicitly operate in rural areas and doesn’t appear to serve any agricultural purpose? If Farm Credit had its way, this wouldn’t be a controversial loan and it wouldn’t need to hide behind “similar entity” lending authority. But for now, it must. The House and Senate Committees on Agriculture need to look into this deal to consider whether esVolta LP is a “similar entity.” If it isn’t, then Farm Credit shouldn’t lend to it. If it is, then Congress needs to carefully examine whether “similar entity” lending authority should be kept on the books.
