MARCH 19, 2010

By Bruce MacNeil, Assistant Treasurer, Short-Term Funding

At the conclusion of its rate-setting meeting on March 16, the Federal Reserve’s Federal Open Market Committee (FOMC) reiterated its intention to keep interest rates low for an extended period of time. Specifically, the FOMC will continue to maintain the federal funds rate between zero percent and 0.25 percent. The fed funds rate is the rate banks charge each other for overnight loans and is a key benchmark in credit markets. The rate has been unchanged since December 2008.

Read More »

MARCH 19, 2010

February Retail Sales Increase Despite Bad Weather

Retail sales increased 0.3 percent in February despite severe winter weather that crippled several areas of the country. Sales growth was relatively broad with 10 of the 13 industry sectors tracked experiencing improvement. Sectors that are usually heavily affected by bad weather, such as restaurants and building supply stores, actually posted gains during the month.

February’s gain was the fourth in five months, a welcome development given that consumer spending was not projected to contribute heavily to the economic recovery.

Despite the sales improvement, there are some reasons for concern. January’s gain was revised downward from 0.5 percent to 0.1 percent. Some economists believe February’s figures also could be revised downward once a larger sampling of retailers is surveyed. Two more areas of concern are the labor market, which is still sluggish, and consumers’ household budgets, which are still tight. This will dampen consumer spending until the labor market improves.

Read More »

MARCH 19, 2010

The deployment of carbon capture and storage (CCS) technology for power plants and other industrial facilities could significantly increase the use of enhanced oil recovery (EOR) in the United States, according to a report released last week by consulting company Advanced Resources International (ARI). That would facilitate greater domestic oil production and reduce imports—in addition to reducing emissions of carbon dioxide (CO₂).

The process of injecting CO₂ into wells to enhance the recovery of oil is proven technology, ARI said. Commercial-scale CO₂-EOR projects have been in place for more than 30 years and today 105 CO₂-EOR projects provide nearly 250,000 barrels per day of U.S. incremental oil production. Since 1986, more than 1.3 billion barrels of incremental oil has been recovered using the technology, with another 1 billion barrels identified as proved reserves.

Read More »

MARCH 19, 2010

Last week, the Federal Energy Regulatory Commission (FERC) released a draft of its “National Action Plan on Demand Response” for public comment.

The plan is a follow up to a June 2009 FERC report submitted to Congress that was a national assessment of demand response potential. That report indicated more extensive use of demand response could cut peak demand 20 percent by 2019, and action should be taken to expand demand response programs.

Read More »

MARCH 19, 2010

CFC announced this week that, for the second consecutive year, it will not seek member contributions to the Cooperative System Integrity Fund.

“The CFC Integrity Fund provides substantial support to electric cooperatives to defend their territorial integrity and their right to provide energy services to consumers,” said Rich Larochelle, CFC senior vice president, Corporate Relations, in a memo sent to managers and CFOs of all CFC member systems.

The decision not to seek contributions this year was based on the strong balance of nearly $7 million in the Integrity Fund, relative to annual outlays of about $1 million, and the fact that many electric cooperatives are experiencing slower or negative growth combined with cost pressures.

“CFC continues to strongly support the Integrity Fund and recognizes its enormous value,” Larochelle said. The CFC Board of Directors will evaluate the adequacy of the available balance of the Integrity Fund on an annual basis and requests for contributions will resume when necessary to ensure that the Integrity Fund has sufficient resources to continue to assist member cooperatives.

MARCH 19, 2010

Improvements in energy efficiency, along with the expanded use of renewable energy and increased vehicle efficiency, will offset increases in U.S. carbon dioxide (CO₂ ) emissions due to economic growth, according to a study by Bloomberg New Energy Finance. Meeting the Obama administration’s goal of a 17-percent reduction in emissions by 2020 and 30 percent by 2030, however, would require significant—and comparatively costly—increases in the use of clean energy technology.

“Many energy efficiency improvements will happen as a result of trends already in place,” said Milo Sjardin, head of U.S. carbon markets at Bloomberg New Energy Finance. “Others will require consumers to reconsider how they use energy, and there are genuine costs associated with convincing them to rethink their ways.”

Read More »

MARCH 12, 2010

Bank of America, JP Morgan Chase and other large banks are facing increasing demands by Fannie Mae and Freddie Mac to buy back defectively underwritten mortgages, which could undermine the banks’ continued recovery, according to the Wall Street Journal. Investors holding mortgages can force lenders to take back the loans if borrowers lied about their income, relied on a fraudulent home appraisal or other reasons. Fannie and Freddie, which were taken over by the U.S. government 18 months ago, claim that many loans they bought or guaranteed were made improperly and are forcing the banks to buy them back at par. Last year, lenders bought back about $20 billion of loans, according to Barclays Capital, and about half of this amount was written off because the loans were delinquent.

•  •  •  •  •

Read More »

MARCH 12, 2010

By Dwight Brown, Derivatives Supervisor

The number of banks on the Federal Deposit Insurance Corporation’s (FDIC) “problem” list climbed 27 percent to 702 in Q4 2009, marking the highest level in 17 years. According to FDIC Chairman Sheila Bair, the pace of bank failures in 2010 could exceed 2009, in which 140 banks were shut down—a significant jump from the 28 banks shut down over the previous two years.

The banking industry is still on the mend after the worst financial crisis since the Great Depression. Industry lending declined drastically when credit markets collapsed and the economy went into recession. Banks have since experienced modest improvements, but it remains clear that the industry has a long way to go before it is fully healed.

Read More »

MARCH 12, 2010

Labor Market Shows Signs of Life

The U.S. economy continued to shed jobs in February as non-farm payrolls declined by 36,000 jobs, following a drop of 26,000 in January. It is possible, however, that the February job report would have been positive if it had not been for the winter snowstorm that struck the East Coast during the survey week. The employment data show that approximately 1 million workers missed work in February during the survey week due to the weather—more than three times the historical average of about 300,000.

Despite the drop in net payrolls, the unemployment rate remained unchanged at 9.7 percent and the market viewed the report as a sign of improvement in the economy after factoring out weather-related issues. Economists still expect a weak job market for 2010, but the pace of job losses is expected to slow and return to positive territory in the next couple of months. It will likely be many more quarters, however, before hiring begins to increase at a significant pace.

Read More »

MARCH 12, 2010

Last week, the U.S. Department of Energy (DOE) formally applied to the U.S. Nuclear Regulatory Commission (NRC) to withdraw its license application for a nuclear waste repository at Yucca Mountain, Nev., putting the federal government’s plans for dealing with the nation’s spent fuel in limbo. A few days earlier, a federal court made it clear that the delay is not without consequences, when it ordered DOE to pay Energy Northwest $57 million in damages for the 12-year delay in taking its spent fuel.

The award to Energy Northwest, which operates the Columbia Generating Station in Richland, Wash., was ordered by the U.S. Court of Federal Claims. It followed the court’s 2006 judgment that DOE was in breach of contract with the utility for failing to accept the spent fuel in 1998. The award reflects the costs incurred by Energy Northwest to construct an onsite storage pad for the spent fuel in 2001, including the costs of licensing, design, construction, security, storage casks and other items.

Read More »