Rural Development Utilities Programs

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Rural Development Utilities Programs

• KENNETH M. ACKERMAN
• Assistant Administrator
• Program Accounting and Regulatory Analysis
• NARUC Staff Subcommittee on
• Accounting and Finance
• Lexington, Kentucky
• October 14, 2008

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Topics

• Electric Program
• Telecommunication Program
• Farm Bill
• Water Environmental Program
• Accounting Issues
• Other Issues

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Electric Program
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Program Overview

• 670 borrowers
• 617 distribution
• 53 generation transmission
• RUS Loans 12,964,636,000
• FFB Loans 21,185,569,000
• Total 34,150,205,000

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Loan Programs FY 2008
Loan Levels
Hardship......... 99,300,000
Municipal 0 Treasury
........... 0 FFB Guaranteed
(Generation Transmission) 3,200,000,000 FFB
Guaranteed (Distribution) 3,300,000,0
00
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Loan Programs FY 2008
Hardship 99,300,000
12 99,300,000 Municipal
Not Funded 0
- 0- Pending 4
25,943,000 FFB Guaranteed 6,500,000,000
177 6,500,000,000 Treasury Not Funded
0 - 0 - Pending 9
157,851,000
http//www.usda.gov/rus/electric/loans/loan_types0
41118.pdf
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Electric Program Funding 2008 Budget( Millions)
Discretionary Budget Authority
Program Level
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Summary of Historical Electric Programs Loan
Budget (Dollars In Million)


Loan
2004 2005
2006 2007 2008 Program
Actual Actual
Actual Actual Actual Direct 5
240 119 99
99 99 Municipal Rate
1,000 104 101 101
0 Direct Treasury Rate 750
1,000 990 990
0 FFB Guaranteed 1,900
2,100 2,700 2,700
6,500 Non-FFB Guarantee 99 0
100 0 0
Section 313A 0
1,000 1,500 0
500 Total Loan Program 3,989
4,323 5,400 3,889 7,099


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GT Loans 1971-2007 (Actual) 2008-2018
(Projected)
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Counties Impacted by Power Supply and
Distribution Loan Programs FY07
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USDA, Rural Development has several financing
options available for financing Renewable Energy
projects. FFB Loan Program for
RenewablesSection 9006, Renewable Energy and
Energy Efficiency Grants and Loan Guarantees.
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RENEWABLE ENERGY

• Rural Development, Electric Programs has
• typically set aside 200 million of
• FFB loan funds to finance renewable energy
• projects, with priority processing.

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Generation and the Future of Baseload
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COAL FIRED GENERATION

• 50 of the electricity in this country
• 80 for rural electric cooperatives
• WHY? Fuel Use Act of 1978
• Prohibited the use of natural gas and oil to
  generate electricity.
• Forced the industry into coal and nuclear to meet
  demand.

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COAL FIRED GENERATION

• 51 of cooperative generation
• 80 of MWhs generated
• Trend is not likely to be reversed any time soon.
  
• Strong track record in owning and operating coal
  fired plants.
• Meaningful options are limited.

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The Future is Dark(Black Actually)

• US Projections
• Annual Energy Outlook 2008 March 2008 (Revised)

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World Electricity GenerationBy Fuel Type - 2004
and 2030
Sources 2004 Derived from EIA, International
Energy Annual 2004, www.eia.doe.gov/iea. 2030
EIA, System for the Analysis of Global Energy
Markets (2007)
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Many Challenges Ahead For The Electric Program

• Funding availability for baseload projects and
  related cost of capital
• Effects related to the control of greenhouse gas
  emissions
• State and local support for power plant projects
• Legal Challenges
• Trajectory of construction costs
• Forecast of wholesale fuel prices
• Demand effects of increased energy efficiency,
  conservation, and prices

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NRECA GT Survey vs AEO 2008
Construction Cost By Generation Type
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CLIMATE CHANGE IS REAL

• Coal is the key problem and the key to solutions.
• Technology will provide acceptable solutions.
• Energy Efficiency, Renewables, and Nuclear,
  although very critical, cannot do the job alone.

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WHAT IS RUS DOING?

• CO2 Sequestration
• RUS is committed to financing a demonstration
  project at an existing plant owned and operated
  by Basin.
• The project will add carbon capture technology on
  the back of an existing plant.

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WHAT IS RUS DOING?

• CO2 Sequestration
• Capture 90 of the flue gas devoted to this
  technology, clean it up some more and inject it
  into the pipeline already delivering CO2 for
  enhance oil recovery in Canada.
• A portion of the output will also be diverted for
  injection into a non recoverable coal seam and
  another portion into a saline formation for
  permanent sequestration. These sites will be
  monitored continuously.

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WHAT IS RUS DOING?

• Recognize the need to reduce emissions
• Recognize the need for pollution control systems
• Prepared to finance, advanced power generation
  systems
• IGCC (integrated gasification combined cycle)
• CFBC (circulating fluidized bed combustion)

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Telecommunications Program
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Loan Budgets

• (millions) 2008 2009(proposed)
• Broadband 792.0 297.0
• Infrastructure 685.2 690.0
• Total 1,477.2 987.0

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Telecom Loan Investment
Infrastructure Broadband

• 86 loans have been made, for 1.7 billion, in
  more than 1,900 communities
• More than 1.1 million households will receive
  broadband access under loans made

• 376.7 million in loans made in FY 2007
• 3.7 billion in principal outstanding 550
  borrowers
• 92 of borrowers are providing Broadband service

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Infrastructure Program

• Trends
• Lending Levels
• FY 2007 only 55 of loan funding available was
  obligated
• Higher demand was anticipated in FY 2008 AND has
  materialized
• Typically funding requests are heavier in 3rd and
  4th quarters of the fiscal year

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Infrastructure Program

• Trends
• Competition
• From multiple fronts (Cable, ISPs, other LECs,
  Satellite)
• Decrease in subscriber lines
• Continued reliance on Universal Service Funds
• Offering of Non-regulated Services

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Infrastructure Program

• Challenges
• Impact of Competition
• Regulatory requirements
• Proposed Changes in USF
• Upgrades and expansion of service offerings
• Un-liquidated Loan Obligations (ULOs)

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Infrastructure Program

• Proposed Changes
• Feasibility Study and Toll Forecasts
• Toll forecast model is becoming outdated
• Moving to 5-yr pro forma analysis
• More accurate projections based on business model
  assumptions

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Broadband Program

• Trends
• Trend toward larger, more complex loans
• Substantial private equity financing to
  supplement loan
• Complicates loan security arrangements
• Third party agreements (i.e., stock pledge)

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Broadband Program

• Challenges
• Projections do not include entire borrower
  operation
• Projections do not reconcile with system design
• Assumptions not supported by market survey
• Assumptions do not reconcile with financial
  statements
• Assumptions too general or only cover the
  financed project.

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Broadband Program

• Challenges (continued)
• Validate financial forecast
• Determine reasonableness of assumptions based on
  submitted data
• Reconcile with system design, construction
  schedule, and budget
• Assess feasibility and risk
• Can be extremely complex

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Broadband Program

• Proposed Changes (Proposed Rule/Statutory)
• Promote deployment to rural areas with little or
  no service
• Limit funding in urban areas and areas where a
  significant share of the market is served by
  incumbent providers
• Clarify equity and marketing survey requirements

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Broadband Program

• Proposed Changes (continued)
• Increase the transparency of the application
  process
• Promote a better understanding of application
  requirements
• Ensure that projects funded are keeping pace with
  increasing demand for bandwidth

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2008 Farm Bill

• Title VI, Rural Development
• RE Act Amendments
• Non-Act Amendments

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What it is

• A five year law that sets farm policy for
  agriculture producers, agribusinesses, etc.
• Contains 15 Titles (including Commodity,
  Conservation, Trade, Nutrition, Credit, Energy,
  etc.)
• We are Title VI Rural Development

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What it did

• Title VI amended the Re Act
• Sec. 306 Elimination of FFB Loans
• Sec. 306F Initiative to better serve
  underserved trust areas (new)
• Sec. 313A Authority for the Guarantee of Other
  Lenders Financing of Telecom or Electric
  projects (modified)

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What it did

• Title VI amended the RE Act
• Sec. 315 Expansion of 911 access (modified)
• Sec. 318 Bonding Requirements (new)
• Sec. 601 Broadband (modified)
• Sec. 602 National Center for Rural
  Telecommunications Assessment (new)

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What it did

• Other Provisions (non-RE Act amendments)
• Comprehensive Rural Broadband Strategy (new)
• Distance Learning and Telemedicine Program
  (re-authorization/modification)
• Weather Radio (re-authorization)

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Sec. 601 Broadband (modified)

• Broadband Definition
• Requires the Secretary to, as advances in
  technology warrant, review and recommend
  modifications to the transmission rate
• Prohibition
• The Secretary shall not establish a speed that
  has the effect of precluding the use of evolving
  technologies appropriate for rural areas

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Sec. 601 Broadband (modified)

• Rural Area means any area, which is not located
  within
• A city, town, or incorporated area that has a
  population of greater than 20,000 inhabitants
  and
• An Urbanized Area contiguous and adjacent to a
  city or town that has a population of greater
  than 50,000 inhabitants

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Sec. 601 Broadband (modified)

• Eligible Projects
• 25 un-served in proposed application (one or
  none un-served)
• There are less than 3 incumbent service providers
  providing broadband in the proposed service area

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Sec. 602National Center for Rural
Telecommunications Assessment (new)

• The Secretary shall designate an entity to serve
  as the National Center for Rural
  Telecommunications Assessment
• Assess effectiveness of this program
• Work with other rural development centers to
  promote effective broadband deployment strategies
  and policy for rural areas
• Managed by Board of Directors issues annual
  report

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Comprehensive Rural Broadband Strategy (new)

• Chairman of the FCC in coordination with the
  Secretary of Agriculture must report on
• Recommendations (interagency cooperation and
  coordination of agencies) to implement policies,
  streamline processes, target resources
• Address short- and long-term needs assessments on
  all levels (state, local, Federal)
• Set goals and timeframes

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Distance Learning and Telemedicine Program
(modification)

• Re-authorized through 2012
• Places emphasis on ensuring that libraries are
  included as eligible purposes/entities

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Next Steps

• Farm Bill Implementation
• Broadband Provision a Priority
• Interim Rule and Proposed for Comment
• Team in place
• New rule by the end of the year

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Water and Environmental Programs
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Water and Environmental Programs( Millions)

• FY 2007 FY 2008 FY09 Proposed
• Actual Actual
• Direct Loans 990.00 1,261.52
  476
• Guaranteed Loans 75.00 18.4
  75
• Grants 451.44 426 353
• 2005 Hurricanes 29.90 0
  0
• Solid Waste Mgmt Grants 3.50 3.5
  3.5
• Individually-owned water well 0.99 .05
  0.50
• Grants for Water and 0.50 .5
  0.99
• Wastewater Revolving
• Total 1,551.33 1,709.97
  908.99

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HWWS Grant Program

• The loan limit is 11,000 at 1 percent for 20
  years
• A NOFA for FY 2009 will be published in March 2009

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Electric Uniform System of Accounts

• Published May 27, 2008
• Provides alternative presentations for audited
  financial statements for balances in the Cushion
  of Credit account
• Long term debt or Long term investment
• Implements recent FERC orders
• Acct 209, Accumulated Other Comprehensive Income
• Clarifies Rural Development Utilities Programs
  specific guidance
• Storm Damage
• Record Retention
• Consolidated Financial Statements

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Renewable Energy Credits

• Original proposal treated RECs as intangible
  assets.
• Defer accounting guidance until further
  information is available
• Creation of working group to recommend
  appropriate accounting treatment

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Renewable Energy Credits

• REC Working Group (RECWG) participants
• Diana Alger, Chief, TAAS, Chair
• Staff from several GTs
• NRECA
• CFC

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RECWG

• First conference call held on June 9, 2008
• Goal is to recommend the accounting treatment and
  record keeping requirements related to RECs

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Part 1773-Audit Policy

• Revisions being planned
• Update Independence Standards
• Consider electronic filing of audits
• Redefine users to include both for-profit and
  not-for-profit grant recipients
• Update sample letters to reflect an adoption of
  SAS 112, Communicating Internal Control Related
  Matters Identified in an Audit

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Novinium

• Novinium Inc., is requesting its Perficio and
  Ultrinium products be treated as an addition to
  electric utility plant
• Perficio extends useful life for 20 years
• Ultrinium extends useful life for 40 years
• Advancement to the silicone dielectric
  enhancement fluid used in CableCURE

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Vacancies

• Field Accountants
• Northwest (Alaska, Washington, Idaho, Western
  Montana)
• Indiana
• South Carolina
• Tennessee
• Iowa
• Washington D.C.
• Staff Accountants
• System Accountant

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http//www.usda.gov/rus/ kenneth.ackerman_at_wdc.usda
.gov
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Questions
?