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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. Topics. Electric Program Telecommunication Program Farm Bill

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rural development utilities programs
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

topics
Topics
  • Electric Program
  • Telecommunication Program
  • Farm Bill
  • Water & Environmental Program
  • Accounting Issues
  • Other Issues
slide4

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
loan programs fy 2008

Loan Levels

Loan Programs FY 2008

Hardship…………………………………………….........$99,300,000

Municipal ………………………………………………… $0

Treasury ……………………………………………........... $0

FFB Guaranteed (Generation & Transmission) ……$3,200,000,000

FFB Guaranteed (Distribution) …………………………$3,300,000,000

loan programs fy 20081

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_types041118.pdf

electric program funding 2008 budget millions
Electric Program Funding 2008 Budget($ Millions)

Discretionary Budget Authority

Program Level

slide8

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 5,4003,889 7,099

slide11

USDA, Rural Development has several financingoptions available for financing Renewable Energy projects. FFB Loan Program for RenewablesSection9006, Renewable Energy and Energy Efficiency Grants and Loan Guarantees.

slide12

RENEWABLE ENERGY

Rural Development, Electric Programs has

typically setaside $200 million of

FFB loan funds to finance renewable energy

projects, with priorityprocessing.

coal fired generation
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.
coal fired generation1
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.
the future is dark black actually
The Future is Dark(Black Actually)
  • US Projections
  • Annual Energy Outlook 2008 March 2008 (Revised)
world electricity generation by fuel type 2004 and 2030
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)

many challenges ahead for the electric program
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
climate change is real
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.
what is rus doing
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.
what is rus doing1
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.
what is rus doing2
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)
loan budgets
Loan Budgets

(millions) 2008 2009(proposed)

  • Broadband $792.0 $297.0
  • Infrastructure $685.2$690.0

Total $1,477.2 $987.0

telecom loan investment
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
infrastructure program
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
infrastructure program1
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
infrastructure program2
Infrastructure Program

Challenges:

  • Impact of Competition
  • Regulatory requirements
  • Proposed Changes in USF
  • Upgrades and expansion of service offerings
  • Un-liquidated Loan Obligations (ULOs)
infrastructure program3
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
broadband program
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)
broadband program1
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.
broadband program2
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
broadband program3
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
broadband program4
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
2008 farm bill
2008 Farm Bill
  • Title VI, Rural Development
  • RE Act Amendments
  • Non-Act Amendments
what it is
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
what it did
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)
what it did1
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)
what it did2
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)
sec 601 broadband modified
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
sec 601 broadband modified1
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
sec 601 broadband modified2
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
sec 602 national center for rural telecommunications assessment new
Sec. 602:National 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
comprehensive rural broadband strategy new
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
distance learning and telemedicine program modification
Distance Learning and Telemedicine Program (modification)
  • Re-authorized through 2012
  • Places emphasis on ensuring that “libraries” are included as eligible purposes/entities
next steps
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
water and environmental programs millions
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

hwws grant program
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
electric uniform system of accounts
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
renewable energy credits
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
renewable energy credits1
Renewable Energy Credits
  • REC Working Group (RECWG) participants:
  • Diana Alger, Chief, TAAS, Chair
  • Staff from several G&Ts
  • NRECA
  • CFC
recwg
RECWG
  • First conference call held on June 9, 2008
  • Goal is to recommend the accounting treatment and record keeping requirements related to RECs
part 1773 audit policy
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
novinium
Novinium
  • Novinium Inc., is requesting it’s 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
vacancies
Vacancies
  • Field Accountants
    • Northwest (Alaska, Washington, Idaho, Western Montana)
    • Indiana
    • South Carolina
    • Tennessee
    • Iowa
  • Washington D.C.
    • Staff Accountants
    • System Accountant
slide58

http://www.usda.gov/rus/

kenneth.ackerman@wdc.usda.gov