Detailed Information on the
Rural Electric Utility Loans and Guarantees Assessment

Target the loans to areas with high poverty rates.

Increased programmatic emphasis on energy efficiency measures in order to reduce demand on rural electric generation and distribution systems.

Increased emphasis on developing renewable energy generation sources.

Reduce funding supporting non-rural areas by recertifying borrowers' rural status.

Conduct periodic independent reviews that focus on how well the program is accomplishing its mission and meeting its long-term goals.

Measure: Percentage of all electric program borrowers' consumers receiving new or upgraded electric service. From 2005 through 2010.

Explanation:Increase the percentage of consumers receiving new or upgraded electric service by 27% by 2010. Performance is measured using a formula based on the number of consumers recieving new or upgraded electric service divided by the total number of consumers served by all existing electric program borrowers (both are based on data reported by borrowers on RUS Form 740c and Informational Publication 201-1).

Measure: Percentage of all electric program distribution borrowers with system outage hours equal to or less than 5 system outage hours per year per consumer.

Explanation:Increase the percentage of electric program distribution borrowers with system outage hours equal to or less than 5 system ourage hours per year per consumer by 2% annually. Performance is measured using a formula based on the number of all electric program distribution borrowers that have system outage hours equal to or less than 5 system outage hours annually per consumer divided by the number of all electric program distribution borrowers. The data is obtained annually from an Agency produced Borrowers' Statistical Profile. The 2005 actual for this measure will not be available until early March.

Measure: Percentage of all electric program borrowers' distribution and transmission lines that are new or have been upgraded.

Explanation:Increase the percentage of new or upgraded miles of distribution and transmission lines by 2.5% annually. Performance is measured using a formula based on the number of new or upgraded miles of distribution and transmission lines divided by the total number of existing miles of distribution and transmission lines for all Electric Program borrowers (based on data reported by borrowers on the RUS Form 740c and Informational Publication 201-1). The 2005 actual for this measure will not be available until early March.

Measure: Percentage of kilowatts of generating capacity added.

Explanation:Increase the percentage of kilowatts of generating capacity added by 4% annually. Performance is measured using a formula based on the total kilowatts of generating capacity added divided by the total kilowatts of generating capacity for all Electric Program borrowers. The data is obtained from the RUS Form 130, RUS Form 12 and/or Informational Publication 201-1. The 2005 actual for this measure will not be available until early March.

Measure: Percentage of consumers receiving new or upgraded electric service.

Explanation:Increase the percentage of consumers receiving new or upgraded electric service by 4.5% annually. Performance is measured using a formula based on the number of consumers recieving new or upgraded electric service divided by the total number of consumers served by all existing electric program borrowers (both are based on data reported by borrowers on RUS Form 740c and Informational Publication 201-1). The 2005 actual for this measure will not be available until early March.

Measure: Percentage of all electric program distribution borrowers with system outage hours equal to or less than 5 system outage hours per year per consumer.

Explanation:Increase the percentage of electric program distribution borrowers with system outage hours equal to or less than 5 system ourage hours per year per consumer by 12% by 2010. Performance is measured using a formula based on the number of all electric program distribution borrowers that have system outage hours equal to or less than 5 system outage hours annually per consumer divided by the number of all electric program distribution borrowers. The data is obtained annually from an Agency produced Borrowers' Statistical Profile.

Measure: Percentage increase of new or upgraded miles of distribution and transmission lines.

Explanation:Increase the percentage of new or upgraded miles of distribution and transmission lines by 15% by 2010. Performance is measured using a formula based on the number of new or upgraded miles of distribution and transmission lines divided by the total number of existing miles of distribution and transmission lines for all Electric Program borrowers (based on data reported by borrowers on the RUS Form 740c and Informational Publication 201-1).

Measure: Percentage of kilowatts of generating capacity added.

Explanation:Increase the percentage of kilowatts of generating capacity added by 24% by 2010. Performance is measured using a formula based on the total kilowatts of generating capacity added divided by the total kilowatts of generating capacity for all Electric Program borrowers. The data is obtained from the RUS Form 130, RUS Form 12 and/or Informational Publication 201-1.

Measure: Cost per loan. This is the ratio of total annual Salaries and Expenses funding over the average obligated loan portfolio + accrued interest and fees + total average grants.

Explanation:The ratio of total annual obligated salaries and expenses funding over the obligated average loan portfolio balance outstanding plus accrued interest and fees plus total average grants. At the moment cost accounting systems are not in place to track expenses at the program level. However, over the next year the agency will be working to differentiate adminstrative expenses among each loan program.

Is the program purpose clear?

Explanation: Authorizing legislation provides the Secretary of Agriculture the authority to make loans for electrification purposes to provide electricity to rural areas.

Evidence: 7 USC Chapter 31

Does the program address a specific and existing problem, interest or need?

Explanation: Commercial credit is more expensive than government credit. Providing electricity in rural areas is more expensive than urban (per customer). Geography and low population density make providing electric service in rural areas more difficult and expensive. To provide cheaper energy supply to citizens in rural areas and to improve access to reliable electric service, government lending is beneficial.

Evidence: For the past year, Moody AAA bond rates averaged 1.9 above the 10 year Treasury rate. Private rural electric lenders rates are above the Moody rate. For example, in August the private lender rate was 2.5% above the RUS rate.

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: Commercial credit is available. RUS makes a significant contribution since they are the primary financing source for rural cooperatives, however, the program is not targeted to the most remote, poor areas.

Evidence: Two private lenders provide loans to RUS borrowers. RUS provided the following % of funds to borrowers: in 1999, 23%; in 2000, 34%; and in 2001, 55%. The remaining funds were provided by commercial sources.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: Even though there is no conclusive evidence that there are better ways of accomplishing this goal, the government should focus more on commercial guarantees (other than the small amount through CFC and CoBank) to provide loans in lieu of direct loans and 100% guarantees. Commercial guarantees are known to decrease the risk to the government and increase ability of commercial sector to meet capital needs.

Evidence: RUS has direct and 100% guaranteed loans. These types of loans are more costly to the government. Since there are private lenders, RUS should move towards more private sector guarantees, guaranteed at 80% or less. However, current legislation requires a 100% guarantee.

Is the program effectively targeted, so that resources will reach intended beneficiaries and/or otherwise address the program's purpose directly?

Explanation: Except for the Hardship loans, RUS electric loans are not provided in such a way that would focus support to areas of greatest need. In addition loan funds do not always go to rural areas.

Evidence: GAO report GAO/RCED-98-42

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: Four specific performance measures have been developed which focus on specific short-term and long-term outcomes and reflects the purpose of the Electric Program and its funding. These measures support the program purpose of providing electricity to rural areas. % of miles of line new or upgraded is important since these lines must be installed and maintained for rural residents to obtain electricity. % of customers receiving new or upgraded service provides information on the population that is benefiting from the electric loans. Reducing system outages improves the reliability of electricity provision to rural areas. Increasing generating capacity allows electric program borrowers to meet growing needs in rural areas.

Evidence: In developing these four specific performance measures, the program purpose, goals, and funding were analyzed to develop measures that adequately reflect the program.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: The four performance measures developed have annual and long term performance targets that are discrete, quantifiable, and measurable.

Evidence: Discrete, quantifiable, and measurable data is collected annually from various agency sources such as RUS Form 740c, RUS Form 130, and the Borrower's Statistical Report. Historical data from these reports was used to develop ambitious targets.

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: The four performance measures developed include specific annual short-term performance measures which will demonstrate progress toward achieving the long-term outcomes of the Electric Program. See question 2.1 for more information. USDA has developed new efficiency measures for all credit programs.

Evidence: The performance measures include annual short-term measures that collectively will aid the program in meeting its long-term outcomes.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: In developing the four specific performance measures appropriate baselines and ambitious targets were set.

Evidence: Discrete, quantifiable, and measurable data is collected annually from various agency sources such as RUS Form 740c, RUS Form 130, and the Borrower's Statistical Report. Historical data from these reports was used to develop ambitious targets.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: RUS borrowers are committed to supplying rural areas with electricity and provide regular reports on their financial and operating performance.

Evidence: RUS requires yearly submission of Form 7, Financial and Statistical Report, for all distribution borrowers and Form 12, Operating Report-Financial, for all generation and transmission borrowers.

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: There are no annual independent audits of the performance of the program performed on a regular basis. However, RUS receives a financial audit each year. This audit reviews many aspects of the credit programs. In addition, both the USDA IG and GAO review various aspects of RUS's performance.

Evidence:  

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: Since RUS does not have annual performance goals that are outcome goals, it is unclear how funding, policy or legislative changes impact annual performance (especially service to areas of persistent outmigration or poverty). The funding impact is easily seen on the loan level since the budget authority and loan level are linked.

Evidence:  

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: RUS has developed new short term and long term measures that are outcomes. Ambitious targets have been developed.

Evidence:  

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: RUS borrowers submit yearly reports. RUS reviews the loan portfolio on a continuous basis. However, RUS does not use the information to direct funding to areas of critical need.

Evidence: Data is used to project financial need and determine how to allocate resources to meet program demands to meet or exceed performance goals.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: All managers are evaluated on a yearly basis using the performance standards that are directly related to achieving performance goals.

Evidence: Program Management is one factor in the Employee Performance Work Plan.

Are funds (Federal and partners') obligated in a timely manner and spent for the intended purpose?

Explanation: Most funds are obligated in the year they are appropriated. The funds that are not obligated are too small to support a loan. A borrower's loan application specifically references a RUS approved "work plan" which includes the projects that may be funded under a specific loan. Amendments to the work plan and loan must be approved by RUS.

Evidence:  

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: RUS does not have a specific process for improving performance nor do they have efficiency measures. However, RUS routinely monitors program and employee performance. See question 3.7 below.

Evidence:  

Does the program collaborate and coordinate effectively with related programs?

Explanation: Though there are no other similar Federal programs and very few state and local programs, RUS does work with the private sector to finance rural electric projects.

Evidence:  

Does the program use strong financial management practices?

Explanation: Rural Development has worked extensively w/the CFO/OMB/OIG to improve credit programs financial management. Audit results: FY2000-qualified opinion and FY2001, FY2002 and FY2003-unqualified opinion.

Evidence:  

Has the program taken meaningful steps to address its management deficiencies?

Explanation: RUS routinely monitors program and employee performance. Employees are evaluated twice a year. Loan committees review the process for timely reporting and response. When deficiencies are found managers work with employees to develop a plan to correct deficiencies.

Evidence: One example of efficiency improvements is the Automated Legal Practice Service that improved the process for developing and reviewing legal documents.

Is the program managed on an ongoing basis to assure credit quality remains sound, collections and disbursements are timely, and reporting requirements are fulfilled?

Explanation: RUS borrowers are required to submit yearly reports. Borrowers provide unqualified CPA audits with applications. RUS field personnel visit borrowers on a regular basis to ensure proper financial management and operation practices.

Evidence:  

Do the program's credit models adequately provide reliable, consistent, accurate and transparent estimates of costs and the risk to the Government?

Explanation: Rural Development develops subsidy rates that estimate the cost to the government, including various risks, which are audited by the OIG.

Evidence: RUS provides subsidy estimates and reestimates. Cash flow models have been audited by the IG. Credit programs are audited each year as part of the financial audit for compliance with laws including FCRA and Debt collection. IG Financial statement audits FY2000, FY2001, FY2002 and FY2003.

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: USDA has developed new measures and targets. Data from previous years is provided to show efforts towards improving electric service. The program has made significant progress in obtaining annual goals which indicates that the long term goals should be obtained. However, in some instances the actuals do not meet the current targets so it is possible that not all long term goals will be met. Based on this, partial credit is given.

Evidence: See answer to 4.2.

Does the program (including program partners) achieve its annual performance goals?

Explanation: USDA has developed new measures and targets. Data from previous years is provided to show efforts towards improving electric service. The program has made significant progress in obtaining many of its annual performance goals. However, not all years have exceeded the targets and in one measure the results show a decrease instead of an increase. Based on this, partial credit is given.

Evidence: % of consumers receiving new or upgraded services was 4.1% in 2003. % of borrowers with system outage hours equal to or less than 5 was 72.1% in 2002 which is a 3.5% decrease from 2001. % increase in new/upgraded miles of line was 2.4% in 2003. % of kilowatts of generating capacity added was 6.6% in 2002. (Some data from 2003 is not yet available.)

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: RUS has made improvements in efficiency over the past 5 years. The number of employees in RUS has remained constant while the loan dollars have increased from $1.6 billion in FY1999 to $4.1 billion in FY2002.

Evidence: Loan dollars per employee has increased from 11.7 in FY1999 to 30.6 in FY2002.

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: There are no other programs that have similar purpose and goals.

Evidence:  

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: RUS receives a financial audit each year which reviews many aspects of the credit programs. For FY2000, Rural Development received a qualified opinion and for FY2001, they received an unqualified opinion. These audits review the financial aspects of programs which is a significant issue for loan programs and loan portfolio management. However, the IG noted that Rural Development lacks meaningful performance indicators that measured progress towards meeting performance goals. In addition, GAO has reviewed various aspects of operations and noted that RUS has been successful in some areas but there is still room for improvement. There are no regularly scheduled audits for program effectiveness. Based on this, only a small extent is given.

Evidence: GAO reports - 1998, 1999, 2001 IG Financial statement audits FY2000, FY2001, FY2002 and FY2003.