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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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 20, 2010

ZBB Energy received special attention this week when President Barack Obama paid a visit to tout stimulus investments in its Menomonee Falls, Wis., battery manufacturing plant. ZBB Energy secured $1.3 million in state funding in June, which it will use to renovate its plant and triple capacity to make zinc bromide batteries and power management systems. The systems are used in grid-tied and grid-independent applications.

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AUGUST 20, 2010

A federal task force has released a report outlining obstacles and next steps for making carbon capture and storage (CCS) technology viable in the United States. The group, pulled together from 14 executive departments and agencies led by the U.S. Department of Energy (DOE) and Environmental Protection Agency (EPA), said a lack of comprehensive climate change legislation is the key barrier to widespread use of CCS.

Without a carbon price and appropriate financial incentives for new technologies, there is no stable framework for investment in low-carbon technologies such as CCS,” the report said.

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AUGUST 13, 2010

The U.S. Department of Energy (DOE) approved a $33.9 million matching grant to NRECA last week, essentially firing the starter pistol for a nationwide smart grid demonstration project. The project involves 19 electric cooperatives that will deploy more than 153,000 smart grid components and test their value to cooperative members.

The smart grid research grant is part of $3.4 billion in awards made available by the American Recovery and Reinvestment Act of 2009, representing a potential joint public-private investment of more than $8 billion in smart grid technology.

The Electric Power Research Institute estimates the widespread implementation of smart grid technologies could reduce electricity use by more than 4 percent by 2030. That would save U.S. businesses and consumers roughly $20.4 billion, according to DOE.

The cooperatives’ demonstration project will serve as an unprecedented nationwide pilot, testing end-to-end connectivity from power plants to homes. A portion of the project will expand MultiSpeak®—a utility software standard developed by NRECA to facilitate system interoperability—and address cyber security.

Funds will go to cooperatives in 10 states: Illinois, Wisconsin, Iowa, New York, Georgia, Hawaii, Kentucky, Indiana, Louisiana and New Hampshire (see “Stimulus Grants to NHEC Fund Smart Grid Technology, Demonstration Program,” Solutions News Bulletin, May 14, 2010).

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

By Bruce MacNeil, Director, Short-Term Funding

The Federal Reserve’s Federal Open Market Committee renewed its commitment to low interest rates for the foreseeable future at the conclusion of its rate-setting meeting on August 10. The target federal funds rate will remain at a range of zero to 0.25 percent, where it has been since December 2008.

In its post-meeting statement, the Fed acknowledged the economic recovery has slowed in recent months. Ongoing weakness in the employment and housing markets, coupled with tight credit conditions, also caused the Fed to adjust its growth outlook, saying the pace of recovery would be “more modest in the near term than anticipated.” The labor market, in particular, is weighing heavily on the recovery; July’s anemic jobs report indicated only 71,000 net private-sector jobs were created during the month. Gross domestic product growth slowed from 3.7 percent in Q1 to 2.4 percent in Q2, and the U.S. trade deficit increased by 19 percent in June, highlighting a worrisome trend in economic performance.

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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

New to NRCO | Prairie Power, Inc., a Jacksonville, Ill.-based G&T, recently joined the National Renewables Cooperative Organization (NRCO) as its 25th member cooperative. Carmel, Ind.-based NRCO was formed in 2008 by power supply cooperatives in order to develop and deploy renewable energy resources for members. In joining NRCO, Prairie Power plans to further diversify its power supply portfolio—currently strong in coal-, oil- and natural gas-fired generation. NRCO, a not-for-profit cooperative, receives financial support from its members. Each commits $100,000 with an upfront investment of $25,000. CFC joined the organization as an associate member in July 2009.

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Energy Policy Primer | A group of 19 elected legislators from 17 states has released a guide highlighting future energy challenges and state-level policy options. “Meeting the Energy Challenges of the Future: A Guide for Policymakers” was developed by a task force of the National Conference of State Legislators over the past year. The guide provides an overview of the nation’s electric infrastructure; reviews how policy plays a role in regulating it; explores various energy resources and their costs; and summarizes policy options for addressing a wide range of energy issues. The task force consulted Basin Electric Power Cooperative, Bismarck, N.D., NRECA and others in preparing the report, available online at www.ncsl.org.

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Climate Change in Court | A group of five electric utilities filed a petition with the U.S. Supreme Court this week, asking for a review of an appeals court decision they fear could allow judges to set caps on greenhouse gas emissions. In 2009, the U.S. Court of Appeals for the 2nd Circuit ruled against the group—American Electric Power, Duke Energy, Southern Company, Xcel Energy and the Tennessee Valley Authority—in favor of eight states and New York City, according to Platts. The ruling found the plaintiffs could pursue nuisance claims over alleged harm to human health and property from climate change resulting from power plant emissions.

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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