AUGUST 20, 2010

By John Suter, Vice President, Capital Market Funding

With the market outlook continuing to look tame for both short- and long-term interest rates, corporate bond issuance has gained momentum. Traditionally, September is heavily laden with bond issuance, and this year will be no different as corporations emerged from black-out earnings periods.

Companies are looking to solidify their balance sheets and lower their interest cost, which will help prop up profits and stimulate economic activity and hiring down the road. Large corporate issuers like Kimberly Clark, McDonald’s, IBM and Wal-Mart launched issuances at (or near) all-time lows. Interest rates on investment-grade corporate bonds recently averaged just 4 percent, according to Barclays Capital, the lowest in more than six years, and just 1.7 percentage points above relatively risk-free Treasury debt.

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AUGUST 20, 2010

A recent report by the U.S. Department of Energy’s Idaho National Laboratory found security holes in computer networks controlling the electric grid. Hackers could access the systems and potentially steal data, deny service or otherwise take control. Many of the vulnerabilities are basic problems such as a failure to install software security patches or poor password management.

The report, which did not list any individual companies, locations or software applications by name, catalogs results from 24 assessments of grid-related industrial control systems (ICS) performed from 2003 through 2009. “Well-known unsecure coding practices account for most of the ICS software vulnerabilities,” the report said.

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Consumer Prices Rise in July

The consumer price index (CPI) rose 0.3 percent in July—the first jump since March—meeting economists’ expectations.

Higher energy costs helped lift consumer prices: Energy prices increased 2.6 percent, on the heels of a 2.9-percent drop in June and a negative streak dating back to January. Food prices fell 0.1 percent, which was mainly the result of continued weakness in fruit and vegetable prices.

Source: Bureau of Labor Statistics

Year-over-year, CPI rose from 1.1 percent in June to 1.3 percent in July. Overall, inflation at the consumer level remains in check. There are, however, risks of deflation going forward as sluggish job and income growth will discourage businesses from raising prices. Deflationary expectations are likely to hold if the economy remains weak or worsens.

Producer Price Index Rises

Producer prices for finished goods rose 0.2 percent in July as prices for food and energy goods climbed 0.7 percent, easing deflation concerns. July’s producer price index (PPI) gain matched expectations and follows two consecutive declines of
0.5 percent and 0.3 percent in June and May, respectively.

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AUGUST 13, 2010

U.S. wind energy projects are using a growing percentage of domestically manufactured parts, according to a U.S. Department of Energy (DOE) wind market report authored by Lawrence Berkley National Laboratory researchers. The study also found that 2009 U.S. wind power additions shattered old records, although a number of factors could slow growth in 2010.

When measured as a fraction of total wind turbine equipment-related costs, domestically manufactured materials increased to roughly 60 percent in 2009, up from 50 percent in 2008. In 2004, General Electric was the lone utility-scale wind turbine manufacturer in the United States. Today, seven of the 10 wind turbine manufacturers with the largest share of the U.S. market have at least one domestic manufacturing facility; two others have plans for future stateside plants.

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AUGUST 13, 2010

Job Losses Continue in July

The economy lost 131,000 net jobs in July, versus market expectations of a much lower loss of 63,000 jobs. The drop was driven by the layoff of 143,000 temporary census workers, and a net total of 202,000 displaced government employees.

The private sector added 71,000 jobs in July, bringing net private-sector job growth to 630,000 this year. Although better than the previous two months’ job figures, private-sector job creation in July still fell below the normal pace of growth.

The construction sector lost 11,000 jobs while financial services lost 17,000 jobs—a large chunk coming from the real estate sector. Growth continued in the manufacturing sector, which added 36,000 jobs, reaching a net total of 161,000 jobs so far this year, with 21,000 attributed to the auto industry. The production of motor vehicles has been increasing as the auto industry scrambles to replenish inventory following a sharp reduction in manufacturing last year.

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AUGUST 13, 2010

Next month representatives from electric cooperatives around the country will begin assembling at CFC District Meetings. This year’s meeting schedule includes updates on CFC’s financial outlook and elections for six open seats on the CFC Board of Directors. Districts 5 and 6 will meet together for the first time.

“We’re looking forward to this opportunity to meet with co-ops in their own regions, discussing both local and national issues affecting our industry,” said Sheldon C. Petersen, CFC governor and CEO.

The format of each District Meeting will follow last year’s schedule and will take place on the first day of each NRECA Regional Meeting. CFC’s business meeting will immediately follow NRECA’s first general session. In six districts it will include balloting for board candidates (see table). Seven districts will elect a 2011 Nominating Committee responsible for selecting nominees for a CFC board seat opening in March 2012. All districts will hear a financial report by CFC board members. A CFC/NCSC-sponsored luncheon will follow, where Petersen will share insights on the economy and the utility industry.

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AUGUST 6, 2010

By Leena Kapila, Securities Supervisor

The U.S. dollar declined against almost every major currency last week. The dollar has been particularly weak against the Japanese yen, hitting an eight-month low that is only slightly above 15-year lows of 84.82 yen to the dollar. With low growth forecasts for the U.S. economy, further dollar weakness may continue. The Federal Reserve is expected to focus on stimulating growth and lowering unemployment at its policy meeting later this month.

The dollar often has been used as a safe-haven currency during the global economic recession—particularly earlier this year as the sovereign debt crisis struck the euro zone. But weaker-than-expected U.S. economic data—unemployment remains high and consumer confidence remains low—together with stronger-than-expected figures for Japanese exports—has led more investors to embrace the yen as the new safe-haven currency of choice. The recent strengthening of the yen against the dollar has sped the shift in investor appetite.

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JULY 30, 2010

Home Resales Dip

Source: National Association of Realtors

Existing home sales fell 5.1 percent in June to a seasonally adjusted annual rate of 5.37 million units—the weakest pace since March. June’s sales drop was better than Wall Street had expected; however, the consensus forecast had called for a 9.9-percent drop. Year-over-year sales were up 10 percent.

Inventories rose 2.5 percent to 3.99 million in June—an 8.9-month supply at the current pace of sales and the highest level since August 2009. Supplies are soon expected to reach 10 months, and home prices will deteriorate further if inventories remain high.

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JULY 30, 2010

As a new class of electric vehicles makes the jump from drawing board to dealership (see sidebar below), electric utilities increasingly want to know how the growing sector could influence load patterns. In a survey report released this week, the Electric Power Research Institute (EPRI) said the answer involves anticipating consumer usage patterns.

EPRI’s survey of potential electric vehicle (EV) customers in California found that 95 percent of respondents would prefer to charge their EV at home, although there is also strong interest in public charging stations at users’ workplaces, gas stations and shopping centers. The idea of public fast-charging availability—a 10- to 15-minute charge facility, for example—is also desirable. About 75 percent of respondents would pay a 33-percent premium over the slower, at-home rate to fast-charge their vehicle.

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JULY 23, 2010

A beta website for the U.S. Department of Energy-funded Smart Grid Information Clearinghouse was launched this month. The site—now in a public testing phase—is designed to appeal to a wide audience, including consumers, utilities and regulators, and is managed and run by the Virginia Tech Advanced Research Institute (ARI) in Arlington, Va.

Educating consumers is a top goal of the portal. “We believe that by providing information about electricity usage, pricing and incentives, we can help motivate better consumer purchasing patterns,” said Saifur Rahman, ARI director. “Active consumer participation is very important to achieving a more efficient and reliable operation of the overall grid.”

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