Transcript Rural Development Utilities Programs

Rural Utilities Service
DIANA C ALGER
Chief, Technical Accounting and Auditing Staff
Program Accounting and Regulatory Analysis
Florida Finance and Accounting Meeting
Ocala, Florida
May 21, 2010
1
Topics
• Electric Program
• Telecommunications Program (as it applies to
Electric borrowers)
• Broadband Stimulus Funding (ARRA)
• Accounting Issues
• RUS CPA Seminars
2
Electric Program
3
Electric Portfolio Overview
As of 12/31/2009
682 Active Borrowers
• 626
• 56
Distribution
Power Supply
RUS Principle Outstanding
FFB Principle Outstanding
Total
$12,587,698,358
$28,230,575,896
$40,818,274,254
4
LOAN PROGRAM VERSUS SUBSIDIES
BILLIONS
$8
$7
$6
$5
$4
$3
$2
$1
$0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Approvals
Subsidy
5
-$10
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
LOAN SUBSIDIES
MILLIONS
$140
$90
$40
Summary of Loan Program
Electric Programs Budget
(Dollars in Million)
Loan
Program:
2008
Actual
2009
Actual
2010
Budget
Direct 5%
Municipal Rate
Direct Treasury Rate
FFB Guaranteed
Non-FFB Guaranteed
99.3
0.0
0.0
6,500.0
0.0
100.0
0.0
0.0
6,500.0
0.0
100.0
0.0
0.0
6,500.0
0.0
Total Loan Program
6,599.3
6,600.0
6,600.0
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Loan Programs
FY 2010 – As of 5/4/10
Loans Approved
63
$1,171,110,000
Loan Applications In House
77
$8,143,118,403
FFB Approved
59
$1,071,110,000
FFB Applications In House
76
$8,139,398,403
4
$100,000,000
Hardship Applications In House 1
$3,720,000
Hardship Approved
http://www.usda.gov/rus/electric/loans/loan_types041118.pdf
8
Loan Programs FY 2010
Loan Levels
Hardship
$ 100,000,000
FFB Guaranteed
$6,500,000,000
313A Guaranteed Underwriter
$ 500,000,000
High Cost Energy Grants
$
17,500,000
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Geographic Information Systems
Rural Development recognizes the importance
of GIS in managing digital data and mapping
systems, so that our borrowers can achieve
greater efficiencies and capabilities in the
future.
10
GIS Applications
FY
Number
Applications
Amount
2007
2
$2,445,698
2008
6
$5,398,197
2009
10
$6,373,919
2010
5
$3,269,570
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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
• 79% 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.
13
US Power Generation by Fuel Source
• US EIA
Projections
• Annual Energy
Outlook 2009
14
ALTERNATIVES
Renewables
• Critical, but space limited, low energy density,
and cannot be scaled up rapidly.
• Biofuels have their own environmental issues.
• Manufacturing Photovoltaic (PV) panels requires
heavy metals, gases and solvents that are
carcinogenic and must be disposed of in certified
landfills
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ALTERNATIVES
Renewables (continued)
• 1,000 MW solar farm requires 50 square
miles of land.
• 1,000 MW wind farm requires about 60,000
acres.
• Studies suggest that efficiency and
renewables together can meet between 17 to
25% of demand.
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ALTERNATIVES
Nuclear
• Nuclear sources are not expected to increase
proportionally very much, but can provide
scalability and energy density.
FACTOID
One fuel pellet, size of little finger nail, contains
the same amount of energy as 149 gallons of
oil, 157 gallons of gas, 17,000 cubic feet of
natural gas, and 1,789 pounds of coal.
17
Energy Efficiency Program
Provide loan guarantee to rural electric utility for
energy efficiency projects.
Goals:
• Ensure energy efficiency at the end user level
• Increase electric system reliability by reducing overall system
demand
• Increase load factors, allowing for efficient utilization of existing
electrical distribution systems
• Use existing electric capacity more efficiently at distribution,
transmission, and generation levels
• Attract new businesses and create new jobs to rural communities
by providing energy efficiency jobs
18
Smart Grid
• RUS is an active participant on the Smart Grid
Task Force, established under Title XIII of the
Energy Independence and Security Act of 2007
• Task Force includes experts from seven
different federal agencies
• The Smart Grid Task Force mission is to
ensure awareness, coordination and integration
related to Federal Government activities in
Smart Grid technology
19
RUS and the Smart Grid
RUS:
• Monitors the standards making process related to the National
Institute of Science and Technology (NIST) Smart Grid
Interoperability Standards Project to ensure that the resulting
standards are relevant to the electric systems owned and
operated by the rural electric cooperatives.
• Reviews and evaluates smart grid related materials and
equipment that borrowers propose to use in upgrading their
power grids.
• Provides loan funds to eligible borrowers to purchase and
integrate smart grid equipment into their existing utility plant.
20
Telecommunications Programs
Loan and Grant Programs
• Infrastructure Loan Program: Loans to local telecoms in rural
communities
• Broadband Access Loan Program and Community Connect Grant
Program: Loans and grants for local telecoms and other providers
who offer broadband services in eligible communities
• Distance Learning/Telemedicine (DLT) Loan and Grant Program:
Loans and grants for providing Distance Learning and Telemedicine
services to rural residents
• American Recovery and Reinvestment Act of 2009 (ARRA)
Broadband Initiatives Program: Loans, grants and loan/grant
combinations for broadband in rural communities
21
Telecommunications Program Budget Levels
2009 Obligations
Infrastructure Loans
2010 Budget
$690.0 million
$690.0 million
$6.0 million
$532.0 million
Distance Learning and
Telemedicine Grants
$36.3 million
$29.7 million
Community Connect
Grants
$13.4 million
$13.4 million
N/A
$2.5 billion (budget
authority; approx $3-4B
in funding available)
Broadband Loans
Recovery Act (ARRA)
Loans and Grants
22
Community Connect Grant Program
• Nationally competitive grant program to provide service
to the most rural and economically challenged
communities
• Since inception, program has provided 197 grants and
invested $88.2M
• One community, recognized by US Census or Rand
McNally, currently unserved
• 20,000 population or less
• Minimum $50,000 – Maximum $1,000,000
• 15% matching funds required
23
DLT Loan and Grant Program
• Provides rural communities with
opportunities to obtain educational and
medical services from distant locations
using communications technologies
• $403 M in DLT loans and grants have been
awarded since the inception
of the program
24
Distance Learning and Telemedicine
Program (modification)
• Re-authorized through 2012
• Places emphasis on ensuring that
“libraries” are included as eligible
purposes/entities
• $29.7 Million available in DLT Grants
for FY10 (including carryover)
25
American Recovery and Reinvestment Act of
2009 Broadband Funding
National Telecommunications
Information Administration (NTIA) $4.7 Billion
Rural Utilities Service (RUS)
$2.5 Billion
Total
$7.2 Billion
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American Recovery and Reinvestment Act of 2009
Broadband Funding
USDA RUS:
$2.5 billion total budget authority authorized under the
ARRA in the form of loans, grants and loan/grant
combinations for broadband infrastructure – the
RUS Broadband Initiatives Program (BIP)
First NOFA: $2.4 billion program level funding
• Up to $1.2 billion for Last Mile projects
• Up to $800 million for Middle Mile projects
• Up to $325 million for a National Reserve
27
ARRA Broadband Funding
RUS BIP Project Requirements
• 75 percent of the areas to be served by a project
receiving funds from such grants or loans shall be in a
rural area without sufficient access to high speed
broadband service to facilitate rural economic
development;
• Priority shall be given to:
– Projects that will deliver end users a choice of more than one
service provider;
– Projects that provide service to the highest proportion of rural
residents that do not have access to broadband service;
– Current or former RUS Title II borrowers
– Projects that commence immediately upon approval.
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Announced Rural Broadband Projects
Announcement Number
States
Date
of Projects Covered
Project
Amounts
12/17/2009
8
9
$ 53.8M
1/25/2010
14
11
$ 309.9M
2/17/2010
11
9
$ 277.3M
3/4/2010
22
18
$ 254.6M
3/23/2010
12
8
$ 150.0M
3/31/2010
1
1
$ 10.9M
68
$ 1,067.0M
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Projects Taking Place in
32 States or Territories
Alabama
Kansas
New York
Alaska
Kentucky
North Dakota
American Samoa
Louisiana
Ohio
Arizona
Michigan
Oklahoma
California
Minnesota
Oregon
Colorado
Mississippi
South Dakota
Georgia
Missouri
Tennessee
Hawaii
Montana
Texas
Idaho
Nebraska
Virginia
Indiana
New Hampshire
West Virginia
Iowa
New Mexico
30
ARRA Broadband Funding
RUS expects to use approximately $2 billion to provide grants,
while the remaining funds will finance loans, for potential total
investment in rural broadband of around $3-$4 billion, which
may vary depending on the demand for grants versus loans.
RUS will award all funds no later than September 30, 2010.
Two rounds of funding:
Round 1: window has closed; $1.067 B in awards have
been announced
Round 2: window has closed; $2.2 billion is available
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ARRA Broadband Funding
Round 2 Funding (“NOFA 2”):
AVAILABLE FUNDS
Last Mile:
Middle Mile:
Satellite:
TA & Library:
Reserve:
TOTAL
$1,700,000,000
300,000,000
100,000,000
5,000,000
95,000,000
$2,200,000,000
Repooling: RUS retains the discretion to divert funds from one
category of projects to another.
SEE NOFA FOR COMPLETE DETAILS ON PROGRAM FUNDING AND REQUIREMENTS
NOFA=Notice of Funds Availability. Please visit www.broadbandusa.gov for more information.
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RUS-NTIA Joint Public Workshops
•
•
•
•
•
Portland, OR
Reno, NV
Denver, CO
San Antonio, TX
Eureka, MO
•
•
•
•
Sioux Falls, SD
Dearborn, MI
Fayetteville, NC
Atlanta, GA
Total of more than 2,500 participants attended.
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ARRA Broadband Funding
NOFA 2 FUNDING OPPORTUNITIES
1. Last Mile Projects
Must predominantly provide broadband service directly to the
premises or to end users. Only those applications whose proposed
funded service area contains 75 percent or more rural areas, within
which not more than 50 percent of the premises in the rural areas
have High Speed Access will be considered for funding.
2. Middle Mile Projects
RUS strongly encourages applications for Middle Mile projects from
current RUS loan and grant recipients. Applicants must propose
that at least 75 percent of the interconnection points be in rural
areas with no more than 50 percent of the premises having High
Speed Access. The communities in which the interconnection
points terminate shall be used to determine the percentage of High
Speed Access.
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ARRA Broadband Funding
NOFA 2 FUNDING OPPORTUNITIES continued
3. Satellite Projects
Applicants must propose to serve only unserved rural premises in
any of 8 regions. Applicants may propose to serve more than one
region; however, Applicants must submit applications which are
broken out for each region. Only 1 Applicant will be selected to
serve a region.
At a minimum, an application must commit to providing
broadband service, to providing customer-premises equipment
(CPE) to subscribers at no cost (including no costs for installation,
activation, or other hidden fees) and to providing to such
subscribers at least a 25 percent reduction in the Applicant’s
service rates as of 12/1/2009, for a term of at least one year.
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35
ARRA Broadband Funding
NOFA 2 FUNDING OPPORTUNITIES continued
4. Technical Assistance Grants
Awardees under the First Round NOFA or Applicants under this NOFA
may submit a request for an additional grant for funding for the
purpose of developing regional broadband development strategies in
rural areas. Technical Assistance grants may be used for the
development of a USDA-recognized regional strategy.
5. Rural Library Broadband Grants
Awardees from the First Round NOFA or Applicants under this NOFA
may submit a request for a grant to reimburse the associated costs
for connecting any rural library in their proposed funded service area,
being constructed, or to be constructed, with funding from an award
from USDA’s Community Facilities program of the Rural Housing
Service. Such costs need not have been addressed in the original
application submitted under the First Round NOFA or Second Round
NOFA.
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Accounting Issues
• Grant Accounting
• Tax Treatment of Grants
• 2010 CPA Seminars
37
The Basics – Accounting for the
Grant Proceeds
Letter Guidance issued January 7, 2010
Note: This guidance applies only to nonregulated entities and the non-regulated
activities of regulated entities.
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Grants Related to Expenses
Dr. Cash
$XXX,XXX
Cr. Expense Accounts $XXX,XXX
To record the receipt of a government grant
related to current expenses.
39
Grants Related to Expenses in
Future Periods
In the year the grant is received:
Dr. Cash
$XXX,XXX
Cr. Deferred Credits
$XXX,XXX
To record the receipt of a government grant related to expenses
in future periods.
In the future period when expenses are incurred:
Dr. Deferred Credits
$XXX,XXX
Cr. Expense Accounts
$XXX,XXX
To properly offset the grant received against expenses
incurred.
40
Grants Related to Fixed Assets
In the year the grant is received:
Dr. Cash
$XXX,XXX
Cr. Deferred Revenue
$XXX,XXX
To record receipt of a government grant related to the
purchase or construction of fixed assets.
In the year the fixed asset is put into service and each year
after during the useful life of the fixed asset:
Dr. Deferred Revenue
$XXX
Cr. Grant Revenue
$XXX
To record the grant revenue earned by the passage of time
(the amount of revenue earned is calculated as 1/nth of the
original grant where n equals the useful life of the asset
purchased or constructed).
41
Taxability of ARRA Grants?
• Requests for Guidelines
– NARUC Request – March 10, 2010 Letter
– Department of Commerce Request
42
Response to ARRA Taxability Question
• IRS Letter dated March 4, 2010, to Dept of
Commerce dealing with tax treatment of
ARRA Broadband Grants
• “Taxpayers other than nonprofit or
governmental entities must include
governmental grants in gross income absent
a specific exclusion.”
43
Response to ARRA Taxability Question
• Only exclusion that could apply, in some circumstances,
is Section 118 of the Internal Revenue Code.
• Section 118(a) of the Code provides that, in the case of a
corporation, gross income does not include any
contribution of the capital of the corporation.
• Section 118(a) applies to contributions to capital made
by a person other than a shareholder, for example,
property contributed to a corporation by a governmental
unit for the purpose of enabling the corporation on
expand its operating facilities.
44
Response to ARRA Taxability Question
In United States v Chicago, Burlington &
Quincy Railroad Co. the Supreme Court
adopted a two-part inquiry to identify a
nonshareholder contribution of capital:
1. The intent or motive of the transferor; and
2. The economic effect on the transferee
corporation
45
Response to ARRA Taxability Question
• The transferor’s intent must be to enlarge
the transferee corporation's capital to
expand its trade or business for the benefit
of the community at large and not to
receive a direct or specific benefit for the
transferor.
46
Response to ARRA Taxability Question
• The following five factors must be present for the
requisite economic effect on the transferee
corporation:
1. The contribution certainly must become a permanent
part of the transferee's working capital structure,
2. The contribution must not be compensation, such as a
direct payment for a specific, quantifiable service
provided fo the transferor by the transferee,
(Cont’d)
47
Response to ARRA Taxability Question
3. The contribution must be bargained for,
4. The contributed asset, foreseeably, must result in
benefit to the transferee in an amount commensurate
with its value; and
5. The contributed asset ordinarily, if not always, will be
employed in or contribute to the production of
additional income and its value assured in that respect.
48
Response to ARRA Taxability Question
A grant payment that is made to a corporation
restricted solely to the acquisition of capital assets to
be used to expend the corporate grant recipient’s trade
or business and that satisfied the five factors is
exclude from the corporation’s gross income as a
nonshareholder contribution to capital under section
118(a). A grant payment made to a corporation that
may be used for operating expenses, however, will not
qualify as a section 118(a) contribution to capital and
so must be included in the corporation's gross income.
49
Response to ARRA Taxability Question
Another limitation on section 118(a) is that it applies only
to corporation, including Limited Liability Companies
(LLCs) treated as a corporation for federal income tax
purposes. Section 118(a) does not apply to noncorporate
entities such as partnerships, including LLCs treated as a
partnership for federal income tax purposes. In the case of
an LLC treated as a “disregarded entity” for federal
income tax purposed, we would look to the owner of the
disregarded entity, i.e. a corporate owner could qualify for
the exclusion while a disregarded LLC owned by a
partnership would not.
50
Response to ARRA Taxability Question
If a grant recipient must include a grant
payment in gross income, the grant
recipient is allowed to deduct against the
grant proceeds and other gross income all
deductible business expenses, net
operating losses, and other allowable
deductions for that year.
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2010 RUS CPA Seminars
Locations
Dates
Denver, CO
August 16 – 17
Oklahoma City, OK
September 20 – 21
St. Petersburg, FL
October 18 – 19
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http://www.usda.gov/rus/
[email protected]
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Questions
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