rural development utilities programs kenneth m. ackerman assistant administrator program accounting...
TRANSCRIPT
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Rural Development Utilities Programs
KENNETH M. ACKERMANAssistant Administrator
Program Accounting and Regulatory Analysis
NARUC Staff Subcommittee on Accounting and Finance
Lexington, KentuckyOctober 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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670 borrowers670 borrowers•617 distribution617 distribution•53 generation & transmission53 generation & transmission
RUS Loans RUS Loans $12,964,636,000$12,964,636,000FFB LoansFFB Loans $21,185,569,000$21,185,569,000
TotalTotal$34,150,205,000$34,150,205,000
Program Overview
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Loan Programs FY 2008
Hardship……………………………………………......... $99,300,000$99,300,000
Municipal ………………………………………………… $0$0
Treasury ……………………………………………........... $0$0
FFB Guaranteed (Generation & Transmission) …… $3,200,000,000$3,200,000,000
FFB Guaranteed (Distribution) ………………………… $3,300,000,000$3,300,000,000
Loan Levels
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Loan Programs FY 2008
http://www.usda.gov/rus/electric/loans/loan_types041118.pdf
Hardship $99,300,000$99,300,000 12 $ 99,300,000
Municipal Not FundedNot Funded 0 $ - 0- PendingPending 4 4 $ 25,943,000 $ 25,943,000
FFB Guaranteed $6,500,000,000$6,500,000,000 177 $6,500,000,000
Treasury Not FundedNot Funded 0 $ - 0 - PendingPending 9 9 $ 157,851,000 $ 157,851,000
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USDA, $20,226.00
RD, $2,066.03
RUS All, $866.02
RUS Electric Program, $7.13
RUS All, $10,623.27
RUS Electric Program, $7,099.30
RD, $21,322.50
USDA, $124,435.00
Electric Program Funding 2008 Budget($ Millions)
Program Level Discretionary Budget Authority
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Loan 2004 2005 2006 2007 2008Program: 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
Summary of Historical Electric Programs Loan Budget (Dollars In Million)
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G&T Loans 1971-2007 (Actual) 2008-2018 (Projected)
0
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
$(00
0)
1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
Electric Progam Loans for Generation and TransmissionActual 1971-2007 | Projected 2008-2018
Transmission
Generation
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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 Renewables
Section 9006, Renewable Energy and Energy Efficiency Grants
and Loan Guarantees.
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RENEWABLE ENERGYRENEWABLE 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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• 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.
COAL FIRED GENERATION
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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 G&T Survey vs AEO
2008 Construction Cost By Generation TypeNRECA Survey vs AEO 2008
Construction Cost by Generation Type
$0.00
$1,000.00
$2,000.00
$3,000.00
$4,000.00
$5,000.00
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G&T Survey
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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?
COCO22 Sequestration 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?
COCO22 Sequestration 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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• 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)
WHAT IS RUS DOING?
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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
• $376.7 million in loans made in FY 2007
• $3.7 billion in principal outstanding; 550 borrowers
• 92% of borrowers are providing Broadband service
• 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
• 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
Infrastructure: Broadband:
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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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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 Program
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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 Program
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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 Program
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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 Program
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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
Broadband Program
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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: 1. A city, town, or incorporated area that has a
population of greater than 20,000 inhabitants; and
2. 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. 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
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Comprehensive Rural Broadband Strategy
(new)
Chairman of the FCC in coordination with the Secretary of Agriculture must report on:
1. Recommendations (interagency cooperation and coordination of agencies) to implement policies, streamline processes, target resources;
2. Address short- and long-term needs assessments on all levels (state, local, Federal)
3. 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 RevolvingTotal $ 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 G&Ts
• 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 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
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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/[email protected]
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Questions