NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORP /DC/

Our rural electric cooperative members operate primarily in the energy sector, which is one of 16 critical infrastructure sectors identified by the U.S. government because the services provided by each sector, all of which have an impact on other sectors, are deemed essential in supporting and maintaining the overall functioning of the U.S. economy. Rural electric cooperatives are an integral part of the U.S. electric utility industry, a sub-sector of the energy sector. According to a report published in April 2026 by the National Rural Electric Cooperative Association (“NRECA”), electric cooperatives serve as power providers for approximately 42 million people, including over 23 million businesses, homes, schools and farms across 48 states. Electric cooperatives provide power to approximately 56% of thenation’s land mass.

CFC was established by electric utility cooperatives to serve as a supplemental financing source to RUS loan programs and to mitigate uncertainty related to government funding. CFC aggregates the combined strength of its rural electric member cooperatives to access the public capital markets and other funding sources. CFC works cooperatively with RUS; however, CFC is not a federal agency or a government-sponsored enterprise. CFC meets the financial needs of its rural electric members by:

•providing financing to RUS-eligible rural electric utility systems for infrastructure, including for those facilities that are not eligible for financing from RUS;

•providing bridge loans required by borrowers in anticipation of receiving RUS funding;

•providing financial products not otherwise available from RUS, including lines of credit, letters of credit, guarantees on tax-exempt financing, weather-related emergency lines of credit, unsecured loans and investment products such as commercial paper, select notes, medium-term notes and member capital securities; and

•meeting the financing needs of those rural electric systems that repay or prepay their RUS loans and replace the government loans with private capital.

Regulatory Oversight of Electric Cooperatives

There are 11 states in which some or all electric cooperatives are subject to state regulatory oversight of their rates and tariffs by state utility commissions and do not have a right to opt out of regulation. Those states are Arizona, Arkansas, Hawaii, Kentucky, Louisiana, Maine, Maryland, New Mexico, Vermont, Virginia and West Virginia. Regulatory jurisdiction by state commissions generally includes rate and tariff regulation, the issuance of securities and the enforcement of service territory as provided for by state law.

The Federal Energy Regulatory Commission (“FERC”) has regulatory authority over three aspects of electric power, as provided for under Parts II and III of the Federal Power Act (“FPA”):

•the transmission of electric energy in interstate commerce;

•the sale of electric energy at wholesale in interstate commerce; and

•the approval and enforcement of reliability standards affecting all users, owners and operators of the bulk power system.

In addition, FERC regulates the issuance of securities by public utilities under the FPA in the event the applicable state commission does not.

Our electric distribution and power supply members are subject to regulation by various federal, regional, state and local authorities with respect to the environmental effects of their operations. Since there are only 11 states in which some or all electric cooperatives are subject to state regulatory oversight of their rates and tariffs, in most cases any associated costs of compliance can be passed on to cooperative consumers without additional regulatory approval.

Electric Cooperative Industry Trends and Developments

Emerging developments and trends in the electric cooperative sector continue to present opportunities and challenges for our electric cooperative members and influence the demand for capital and credit products we provide. These trends include (i) changing federal regulatory and financing landscape; (ii) increased electricity demand, large-load development and capital investments; (iii) supply chain and equipment constraints; and (iv) grid reliability and resiliency.

Changing Federal Regulatory and Financing Landscape

Recent federal actions have, on balance, been supportive of the baseload generation resources our members rely on. The One Big Beautiful Bill Act, enacted in July 2025, phased out or terminated several clean energy tax credits established under the 2022 Inflation Reduction Act, particularly for wind and solar, while largely preserving incentives for battery storage, clean fuels and carbon capture. The Department of Energy has tailored several loan programs to bolster coal, natural gas and nuclear generation, and the current administration has announced significant funding initiatives intended to keep existing coal generation assets in service to support electric reliability needs.

In addition, recent federal policy actions have reflected a broader emphasis on domestic energy production, electric reliability, and energy infrastructure development. On February 12, 2026, the U.S. Environmental Protection Agency repealed existing limits on greenhouse gas emissions from coal and gas-fired power plants promulgated under Section 111 of the Clean Air Act. This action may reduce compliance requirements for certain generating facilities, affect generation resource planning and retirement decisions, and influence the economics of existing and future generation assets. Cooperative leaders have also engaged with the current administration through initiatives such as the Energy Dominance Council, which may provide additional opportunities for cooperative priorities to be considered in future policy discussions.

Efforts to enact comprehensive permitting reform have continued, although a comprehensive legislative package has not been enacted and permitting timelines for major transmission projects remain largely unchanged. The current administration and Congress have also continued to evaluate potential reforms to the Federal Emergency Management Agency (“FEMA”), including proposals to restructure the agency, streamline disaster assistance programs and accelerate the delivery of federal aid. Electric cooperatives rely on FEMA reimbursement programs to recover a large portion of the costs incurred to restore and strengthen infrastructure following severe weather events. While broader reforms remain under consideration, cooperatives continue to receive FEMA reimbursements for eligible restoration and infrastructure hardening expenditures.

Federal financing programs, including traditional RUS electric loan programs and the Empowering Rural America (“New ERA”) and Powering Affordable Clean Energy (“PACE”) programs, continue to represent a significant source of capital for electric cooperatives. While many projects have received approvals or funding commitments, program implementation continues to evolve, and timing gaps between award and disbursement are expected to continue to generate demand for interim and bridge financing from CFC.

Increased Electricity Demand, Large-Load Development and Capital Investments

According to S&P Global Inc., electricity demand is forecasted to grow substantially across all U.S. regions through 2040, driven primarily by new data centers and manufacturing, followed by broader electrification.

According to the North American Electric Reliability Corporation (“NERC”) 2025 Long-Term Reliability Assessment that was published in January 2026, summer peak demand is projected to increase by approximately 224 gigawatts (“GW”) over the next 10 years, 69% higher than the prior year’s projection of 132 GW. Winter peak demand is projected to grow by approximately 245 GW over the same period, continuing to outpace summer and exceed prior-year projections. New data centers for artificial intelligence (“AI”) and the digital economy account for most of the projected increase in North American electricity demand over the next 10 years.

While a number of electric cooperatives currently serve data centers or cryptocurrency mining facilities, many proposed large-load projects remain in evaluation or negotiation and have not yet resulted in definitive service agreements. Cooperatives are managing associated risks through upfront infrastructure contributions, prepaid service arrangements, deposits, minimum revenue commitments and other contractual protections. Management does not believe data center-related development has, to date, materially contributed to recent loan growth, although successful project development could drive significant future infrastructure investment and corresponding demand for capital from CFC.

Generation and transmission (“G&T”) cooperatives are experiencing one of the largest capital investment cycles in recent decades, driven by native load growth, reserve margin requirements, resource adequacy needs and reliability concerns. These investments are primarily intended to serve existing member load rather than support data center development. Many G&Ts are financing these projects through a combination of CFC, the capital markets, commercial lenders and RUS, and often require interim financing to bridge RUS approval and funding timelines.

Supply Chain and Equipment Constraints

Many electric cooperatives continue to face extended lead times for gas turbines, transformers, switchgear and other critical equipment, which have increased project costs, delayed construction schedules and lengthened the duration of financing our members require.

Grid Reliability and Resiliency

The 2026 Long-Term Reliability Assessment by NERC highlights reliability concerns across portions of the United States driven by growing electricity demand, the retirement of certain dispatchable generation resources and challenges associated with bringing new resources online. Extreme weather events, including hurricanes, winter storms, heat waves and wildfires, continue to strain electric infrastructure and have required substantial investment to repair, replace and upgrade affected assets. In response, electric cooperatives are increasing investments in system hardening, grid modernization and other resiliency measures, which may increase demand for capital from CFC.