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
• Salt Lake City, Utah
• September 19, 2005

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Topics

• Personnel Changes
• Electric Program
• Telecommunications Program
• Water Environmental Program
• Accounting Issues
• Other Issues

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Administrator - RUS

• The President announced on August 25, 2005 his
  intention to nominate James M. Jim Andrew as
  the new Administrator of the Rural Utilities
  Service

4
Staff Changes

• Deputy Assistant Administrator Electric, Nivin
  Elgohary
• Chief, Northern Regional Accounting Branch, Randy
  M. Allen
• Field Accountant New England, New York
  Pennsylvania, Tim Frantz

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Electric Programs Budget
(Dollars in Million)
Summary of Loan Program
2006 2007
Loan 2004 2005 Presidents
Agency Request Program Actual
Actual Budget And Final
Feedback Direct 5 240 119
100 100 Municipal
Rate 1,000 104 100
42 Direct Treasury Rate
750 1,000 700
700 FFB Guaranteed 1,900 2,100
1,620 3,600 Non-FFB Guaranteed
99 0 0
0 Section 313A 0
1,000 0
1,700 Total Loan Program 3,989 4,323
2,520 6,142
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RUS BOX SCORE

• Hardship Loans
• As of 8/31/2005
• FY Authority 119,040,000
• Approved (11) .. 77,302,000
• Remaining . 41,738,000
• Applications Pending (3) 41,738,000

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RUS BOX SCORE

• Municipal Rate Loans
• As of 8/31/2005
• FY Authority 103,608,888
• Approved (10) .. 56,593,000
• Remaining 47,015,888
• Applications Pending (8) 43,482,000

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RUS BOX SCORE

• Treasury Rate Loans
• As of 8/31/2005
• FY Authority 1,000,000,000
• Approved (37) .. 763,050,000
• Remaining . 236,950,000
• Applications Pending (14) 422,593,000

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RUS BOX SCORE

• Loan Guarantees
• As of 8/31/2005
• FY Authority 2,100,000,000
• Approved (25) .. 1,729,820,400
• Remaining . 370,179,600
• Applications Pending (32) 6,557,298,600

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Note Guarantee

• The Rural Utilities Service has signed a 1
  billion note guarantee agreement with the
  National Rural Utilities Cooperative Finance
  Corporation (CFC) and the Department of Treasury

• Through this agreement, CFC will pay 30 basis
  points to cover the cost of the guarantee and
  fund the cushion of credit program at a level of
  52 million for the Rural Economic Development
  Loan and Grant Program.

• http//www.usda.gov/rus/electric/fr2003/fr30de03-2
  0.htm

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Storm Damage

• On July 1, 2005, RUS issued Bulletin 1724D-106,
  Considerations for Replacing Storm-Damaged
  Conductors
• Provides guidelines for RUS borrowers to use
  during emergency system restorations when an
  immediate decision is required concerning whether
  to reinstall downed or damaged conductor or to
  replace with new conductor immediately after a
  major storm

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Electricity Modernization Act of 2005

• What does it mean to Co-ops?
• Co-ops with RUS financing are not subject to
  regulation under most of the FPA (Dairyland
  Exemption)
• Exempts small co-ops (less than 4 M MWH) even if
  they have no RUS financing
• Protects distribution facilities from FERC-lite
• Provides FERC cannot order RUS borrowers to join
  RTOs

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(No Transcript)
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Clean Energy Bonds

• Available for 2 years beginning 1/1/06
• Cap of 800 million over 2 years
• Secretary of Treasury will allocate the bonds
• No less than 300 million is reserved for
  electric cooperatives

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Clean Energy Bonds

• Qualifying projects include
• Wind
• Biomass
• Geothermal
• Solar
• Municipal solid waste
• Small irrigation hydro power
• Hydropower

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TELECOMMUNICATIONSProgram Budgets
Infrastructure Loan Programs Hardship
145 million 145 million Cost of Money
248 million 425 million RTB
175 million -0- FFB 125
million 100 million
2005
Program
2006 (proposed)
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Dissolution of the Rural Telephone Bank

• The Presidents Fiscal Year 2006 Budget proposes
  to establish the process and terms to implement a
  dissolution of the RTB due to insufficient demand
  for the banks loans and the availability of
  adequate financing from other sources.
  Stockholders of the RTB will receive cash payout
  for their stock at par value.

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TELECOMMUNICATIONSProgram Budgets
Broadband Loan and Grant Program
Program
2005
2006 (proposed)
Grants 17.8 M
-0- Loans 2.2 B 358.9 M
Unused appropriation carries over from prior year
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TELECOMMUNICATIONSProgram Budgets
Distance Learning and Telemedicine
Programs Loans 49.6 million
0 Grants 24.8
million 25 million
2005
Program
2006 (proposed)
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Broadband Loan Program FY2005 Budget

• 4 Funding 46 Million
• Treasury Rate Funding 2.032 Billion
• Guaranteed Funding 79 Million
• 556 Million 2 Year Funds FY 2006
• 1.601 Billion Good through FY 2007

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Broadband Program Statistics

• 147 Applications Received
• Totaling 2,059,000,000
• Applications Processed as of
• September 1, 2005
• 46 Approved 763,000,000
• 14 In Review 204,000,000
• 87 Returned 1,092,000,000

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Broadband Loan Program Type of Entity
Received
Approved
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Broadband Loan Program Technologies
Received
Approved
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Broadband over Power Lines (BPL)

• 1st RUS loan - 19,276,000
• International Broadband Electric Communications,
  Inc. (IBEC)
• Approved July, 2005

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Broadband over Power Lines (BPL)

• IBEC is partnering with
• Cullman Electric Cooperative
• Central Virginia Electric Cooperative
• South Central Indiana Rural Electric Membership
  Cooperative

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Broadband over Power Lines (BPL)

• Purpose of the loan is to expand the BPL network
  from the market pilot program (field trials) to
  the entire service area of each utilities
  system.
• Overall 103,753 households (total number served
  by the three utilities) and 2,616 businesses will
  be passed.

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Broadband over Power Lines (BPL)

• Service will be provided in
• Alabama 2 counties
• Indiana - 4 counties
• Virginia - 11 counties
• Many of these areas have no broadband service
  available
• All towns in the service area have less than
  20,000 in population (based on US census data

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Broadband Loan Program Why applications are
returned!

• Insufficient credit support
• Insufficient market survey
• Technology does not meet requirements
• Cannot meet minimum financial requirements
• Incomplete application

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Water and Environmental Programs ( Millions)
FY 2005 FY 2006 Actual Proposed
Direct Loans 921.0 1,000.0 Guaranteed
Loans 75.0 75.0 Grants
484.0 377.0 HTS 50.0 Solid
Waste Mgmt Grants 3.0 3.5
Total 1,533.0 1,455.5
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Accounting Issues
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FIN 47

• Accounting for Conditional Asset Retirement
  Obligations
• An Interpretation of FASB Statement 143
• Issued March 2005

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FIN 47

• Reiterates that an entity must record the ARO at
  the time the liability is incurred
• FIN 47 specifically addresses accounting for
  conditional AROs
• AROs are conditional when
• Timing and/or
• Method of settlement are conditional

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FIN 47

• COR is not always an ARO
• Example 1 Disposal of treated pole is separate
  from COR
• ARO is capitalized/COR per GAAP is a period
  expense
• FASB still leaves open the matching of COR to
  users of asset

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FIN 47

• RUS, FERC FCC have addressed matching
• Non-legal COR should be included in depreciation
  expense
• Systematically and rationally allocated over the
  life of the plant

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FIN 47

• If ARO will be at indeterminate time
• FIN 47 Example 4 allows for not recognizing an
  ARO if insufficient information is available to
  estimate the FV of the liability

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FIN 47

• Weve had questions as to applicability to
  transmission plant
• The company needs to determine if ARO exists
• Generally, ARO only exists on final removal of
  plant and this would be remote
• If there are conditions as to timing or method,
  these conditions will be considered in valuing
  the ARO

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FIN 47

• RUS believes transmission plant should be studied
  by itself
• Not required to be associated with specific
  generating plant
• RTO/ISO give independence to transmission plant
• Just as likely the transmission plant could be
  associated with distribution plant

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FIN 47

• There will be interim replacements and COR
• Those non-legal interim COR will be included in
  depreciation expense

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Business Combinations

• Exposure Draft issued June 30, 2005, a
  replacement for FASB Statement No. 141.
• For mergers of mutual entities, the acquirer
  shall recognize as a direct addition to capital
  or equity, an amount equal to the fair value of
  the acquiree.
• For regulated enterprises, the fair value is
  equal to net book value.

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FERC NOPR on RTO/ISO

• FERC issued NOPR on accounting requirements for
  public utilities including RTOs
• NRECA filed comments on behalf of the Cooperative
  community
• Objected to the requirement that settlements be
  reported on a net basis
• Requests a method of recording Non-RTO activities
  separately

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Other Issues
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Vacancies

• Needed in Fall, 2005, Field Accountant for Idaho,
  Washington Alaska
• Accounting Branch Chief, Washington, DC
• Senior Staff Accountant, Washington, DC

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RUS Field Accountants
E. Kaufmann (Idaho)
E. Kaufmann
Gustin
Mueller
Colberg
Dellavedova
Johnson
Henry
Frantz
Shewmake
Elam
Bellinger
Dotson
Benson
Clark
G. Kaufman
Johnston
Haas
Forman
Stover
Kirby
Bunch
Kinter
Partrich
Martin
Rich
Garrett
Haas (Kansas)
Stevens
Lacomb
Baker
Jergens
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http//www.usda.gov/rus/ Kenneth.ackerman_at_usda.gov
Kenneth.ackerman_at_wdc.usda.gov
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