Solutions NewsBulletin

Created and Owned by America’s

Electric Cooperative

Network

APRIL 15, 2013 | VOL. 15, NO. 15

EIA: Electricity Generation Projected To Grow U.S. electricity generation is continuing a rebound from a record 2009 low, according to the U.S. Energy Information Administration’s (EIA) latest Short-Term Energy Outlook. The recent trend of substituting coal-fired with natural gas-fired generation also is expected to slow, as EIA projected last fall (see “EIA: Coal Generation Likely To Increase in Near Term,” Solutions News Bulletin, Sept. 7, 2012). Despite an expected 5-percent drop in summer residential consumption relative to last year, total U.S. generation is projected to grow by 1 percent in 2013 and by another 0.9 percent in 2014. Generation has been trending up since 2009, when it dropped by 4.1 percent—closely tracking a 2.6-percent decrease in U.S. gross domestic product.Natural gas prices at the Henry Hub, a benchmark measure for natural gas prices nationwide, is expected to increase from an average of $2.75 per million Btu (MMBtu) in 2012 to $3.52 per MMBtu in 2013 and $3.60 per MMBtu in 2014. As a result, coal generation is expected to rise 7.8 percent during 2013. “This increase, which results because of the increasing cost of natural gas relative to coal, raises the share of total generation fueled by coal from 37.4 percent in 2012 to 39.9 percent in 2013, but still below coal’s 42.3-percent fuel share in 2011,” EIA said.Natural gas-fired capacity’s share of generation is expected to drop from a high of 30.4 percent in 2012 to 28 percent in 2013. The full Short-Term Energy Outlook is available at www.eia.gov. p

Adams Electric Hosts New CFC EmployeesCFC employees hired within the past year recently made a trip to Gettysburg, Pa.-based Adams Electric Cooperative, where they were shown the ins and outs of electricity distribution. The field trip was a joint effort with NRECA, which also had new employees present.

“I think the entire group was highly engaged throughout and walked away with a greater appreciation of the members we serve,” CFC Regional Vice President Jim Meiers said. “It was thought provoking for CFC employees as we look for new ways to enhance the products and services we offer to members.”Adams Electric staff members gave the group an overview of operations, including a facilities tour and discussion of its AMR, SCADA and load control programs. The group viewed a video highlighting restoration efforts following Hurricane Sandy, the super storm that swept through the region last fall and postponed the field trip as originally scheduled.CFC and NRECA employees also toured a district office pole yard and nearby substation, and received a high-

voltage demonstration from Safety and Energy Use Manager George Taughinbaugh.“This is a clear demonstration of cooperatives helping cooperatives,” Meiers said. “I sincerely appreciate the time Adams Electric employees gave to developing a high-class training program for our new employees.”Adams Electric serves 32,000 member accounts in south-central Pennsylvania. More information is available at www.adamsec.coop. p

“We only exist forthe success of the

electric co-opnetwork.”

– Sheldon C. Petersen,CFC CEO

CFC and NRECA employees watch a high-voltage demonstration.

Notice of NCSC’s Annual MeetingThe official notice of the National Cooperative Services Corporation’s 32nd Annual Meeting has been mailed to all NCSC voting members. This year’s meeting will be held June 6 in Indianapolis, in conjunction with the CFC Forum. Members will hear a report from NCSC President Otis Jones and a keynote from former First Lady Laura Bush. Members also will vote to elect directors for open board seats in Districts 2, 4 and 5, and vote on proposed bylaw changes.

Solutions NewsBulletin

Y O U R F I N A N C E C O O P E R A T I V E

Long-Term Funding: CFC’s Bread and ButterCFC’s mission is to bridge the financial needs of the rural electric network with the expectations of the global capital markets. The long-term funding and risk management team, a part of CFC’s Treasury Group, works hard every day to do just that.The group is responsible for raising long-term funds from a variety of sources in order to provide financing to CFC’s member-owners. Additionally, the team oversees interest rates; manages the Medium-Term Notes member investment program; and handles CFC’s derivatives portfolio, designing hedging strategies to manage risk. Long-term funding staff draw on diverse backgrounds in providing economic research and analysis, including through Solutions’ own Eyes on the Economy and Financial Feature sections.

MEET THE TEAMMadhuri Dhawan, Financial Analyst, Risk Management. Madhuri studied economics and business administration at the University of Maryland. She enjoys teaching dance and spending quality time with her husband, Shawn, and one-year-old son, Ethan.Eric Levine, Financial Analyst. Eric studied political science at the University of Connecticut and the London School of Economics, where he received a master’s degree in international political economy. He enjoys the outdoors, traveling and reading.Peter Lillestolen, Securities Supervisor. Peter holds a master’s degree in finance from Johns Hopkins University and has worked at CFC for three years. On weekends you might catch him angling for Rockfish on the Chesapeake Bay.Bruce MacNeil, Director, Long-Term Funding & Risk Management. Bruce oversees the team, having also worked in CFC’s Member Services Group. His four children keep him and his wife busy, as do cold-weather sports (skiing and, more recently, ice hockey). Teri Ocampo, Financial Analyst. Prior to joining CFC, Teri worked in the World Bank’s Investment Management division. She enjoys road trips with her husband and their six-year-old son, and she can play a mean game of table tennis. Matthew Wade, Derivatives Supervisor. Matt came to CFC after spending six years in Morgan Stanley’s Derivative Operations group. He completed his first marathon (which he claims was also his last) in February.John Suter, Vice President, Capital Markets Funding. John heads up the Capital Markets Funding group (the long- and short-term funding teams and the Member Center). He grew up in rural Ohio, where he worked in his family’s five-generation meat market. p

April 15, 2013 | Page 2

Beschloss, Case To Reflect on Presidential LeadershipAt CFC Forum 2013, award-winning historian Michael Beschloss will discuss leadership lessons from past presidents in a general session moderated by Ted Case, CEO of the Oregon Rural Electric Cooperative Association.Beschloss is NBC News’ presidential historian, offering commentary on “Meet the Press,” “Today” and “PBS NewsHour,” among other programs. He has authored nine books on America’s presidents, including “Presidential Courage: Brave Leaders and How They Changed America, 1789-1989” and two volumes on Lyndon Johnson’s presidential tapes.During Thursday afternoon’s general session, Beschloss will share inspiring, humorous and sometimes tragic stories involving American presidents from George Washington to Barack Obama, and their struggles with war, peace and domestic crises. With electric cooperative directors, CEOs and CFOs in mind, he will discuss the qualities that have made great presidents—lessons that all leaders can draw from. Case will bring his own unique insight to the session as author of the forthcoming book “Power Plays: Electric Cooperatives, the U.S. Presidency and the Transformation of Rural America.” The book traces the relationship of electric cooperatives and the presidency from FDR to George W. Bush, analyzing the industry’s intersection with significant events including the Cuban Missile Crisis, the Vietnam War, the Watergate scandal and 9/11. More information on CFC Forum 2013, including a registration link, is available at CFC’s website, www.nrucfc.coop. p

CFC Provides Financing...Continued from Page 1

In BriefOutage Intel | Electric utilities across the United States are taking steps to improve outage communications, according to a new report from Atlanta-based Chartwell. New technology is expanding the way utilities convey outage information, with many communicating through online outage maps, mobile websites and apps, and social media. The report includes case studies of investor-owned utilities that are leveraging outage communications strategies to enhance the consumer experience. More information is available at www.chartwellinc.com.

n n n n n

Gaff-n-Go | Electric cooperative linemen came together from four states to test their skills at the 11th annual Gaff-n-Go Lineman’s Rodeo in Virginia. CFC was a sponsor of the event, held April 5 and 6, which offered the public an opportunity to see line workers doing what they do best. Events included climbing skills demonstrations and hurt man rescues at apprentice and journeyman levels. An Equipment Operator’s Rodeo was held in conjunction with Gaff-n-Go at the Caroline County Agricultural Fairgrounds in Ruther Glen, Va. More information is available at www.gaff-n-go.com.

Michael Beschloss

Ted Case

Top (L-R): Wade, Ocampo, Dhawan, Levine. Bottom (L-R): Suter, MacNeil, Lillestolen

Source: Gaff-n-Go

Solutions NewsBulletin

E Y E S O N T H E E C O N O M Y

April 15, 2013 | Page 3

Pace of Manufacturing Slows in MarchThe Institute for Supply Management’s (ISM) manufacturing index fell by 2.9 points to 51.3 in March, the lowest level since December 2012. The median estimate of economists surveyed by Bloomberg called for a reading of 54. Nevertheless, this is the fourth consecutive month the index has remained above 50, indicating that manufacturing output continues to grow, albeit at a slower pace. New orders fell by 6.4 to 51.4, while production tumbled by 5.4 to 52.2. Inventories and supplier deliveries both declined by 2 points to 49.5 and 49.4, respectively. Conversely, employment rose 1.6 to 54.2 and new export orders jumped 2.5 to 56.New orders and production have decreased as demand has slowed. Manufacturers that produce defense and transportation equipment may encounter a more significant slowdown in the months ahead as the sequester takes hold, leaving inventory rebuilding to drive growth.

Service Sector Continues To Post GrowthThe service sector posted growth for the 39th consecutive month in March, but at the slowest pace in eight months. The ISM nonmanufacturing composite index fell from 56 to 54.4, versus consensus expectations for 55.5. Survey results are consistent with slower growth in the retail and real estate sectors and weak employment numbers. The service sector of the economy is much larger than the manufacturing sector, with approximately 86 percent of employees working in service industries.Three main components of the composite index—business activity, new orders and employment—posted slower growth compared with February, while supplier deliveries accelerated. Despite the weakening pace, all components remained above the growth threshold of 50.

Consumer Credit IncreasesConsumer credit rose $18.1 billion during February, according to the Federal Reserve. The jump was higher than Wall Street economists’ forecasts of $15 billion. February’s figures mark the seventh consecutive double-digit, billion-dollar monthly increase, following a surprise decline in July 2012. Growth was primarily driven by the nonrevolving segment—including student and auto financing—which rose $17.6 billion, the 18th consecutive monthly increase. Nonrevolving balances have grown rapidly over the past year and a half. Revolving credit, primarily credit card debt, rose by $0.5 billion in February, marking its second consecutive monthly increase. Overall, consumer credit is forecast to continue to rise this year as credit availability slowly improves and consumers take advantage of continued low interest rates.

Source: Institute for Supply Management

B

B

B

BB

BB

BB

B

B

B

BM

AR 2

012

APR

2012

MAY

201

2JU

N 20

12JU

L 201

2AU

G 20

12SE

P 20

12OC

T 201

2NO

V 20

12DE

C 201

2JA

N 20

13FE

B 20

13M

AR 2

013

49

50

51

52

53

54

55

56

Factory Orders JumpNew orders for manufactured products grew by 3 percent in February, following a 1-percent decline in January. February’s growth was the fastest since September 2012. When the volatile transportation component is excluded, however, orders rose by just 0.3 percent. The median estimate of economists surveyed by Bloomberg called for a 2.9-percent increase. The headline number was significantly influenced by a 95-percent surge in commercial aircraft and parts orders, coupled with a 6-percent increase in automobile and light truck orders. Orders for nondurable goods climbed by 0.8 percent, while orders for durable goods increased by 5.6 percent. Shipments of factory goods and unfilled orders both grew by 0.9 percent. Recoveries in the housing and automobile industries continue to bolster manufacturing demand. Expiration of the payroll tax holiday has not dramatically affected consumer spending, and business spending has improved.

Trade Deficit Narrows Unexpectedly The U.S. trade deficit narrowed to $43 billion in February from a revised level of $44.5 billion in January. Analysts were expecting the trade gap to widen slightly to $44.6 billion, but exports grew and imports remained flat for the month. The real goods deficit, which is factored into gross domestic product, fell from $48.1 billion in January to $47.4 billion in February. The weakening euro has increased the deficit as the difference between imports and exports between the U.S. and the European Union has widened considerably over the last year. The depreciating Japanese yen is likely to further increase the trade deficit in future months as U.S. exports become more costly. Helping the balance of trade is the fact that imports of energy-related goods continue to fall as the United States becomes more energy independent.

R E C E N T E C O N O M I C R E L E A S E SINDICATOR PRIOR PERIOD CURRENT PERIOD

(FORECAST)CURRENT PERIOD

(ACTUAL)

ISM Manufacturing (Mar.) 54.2 54.0 51.3 ISM Nonmanufacturing (Mar.) 56.0 55.5 54.4 Factory Orders (Feb.) -1.0% 2.9% 3.0%Trade Balance (Feb.) -$44.5B -$44.6B -$43.0B Consumer Credit (Feb.) $12.73B $15.00B $18.14B Change in Nonfarm Payrolls (Mar.) 268K 190K 88K Unemployment Rate (Mar.) 7.7% 7.7% 7.6%

Source: Bloomberg

K E Y I N T E R E S T R A T E S RATE FORECAST—FUTURES MARKET

4/2/13 4/9/13 CHANGE Q2-13 Q3-13 Q4-13 Q1-14

Fed Funds 0.25% 0.25% - - - 0.25% 0.25% 0.25% 0.25%

1m Libor 0.20% 0.20% - - - 0.21% 0.23% 0.26% 0.26%

3m Libor 0.28% 0.28% - - - 0.30% 0.33% 0.35% 0.37%

2yr UST 0.24% 0.23% -0.01 0.82% 0.84% 0.84% 0.84%

5yr UST 0.77% 0.69% -0.08 0.97% 1.04% 1.06% 1.06%

10yr UST 1.86% 1.73% -0.13 2.29% 2.40% 2.38% 2.38%

30yr UST 3.10% 2.91% -0.19 3.45% 3.49% 3.51% 3.51%Source: Bloomberg Source: INO.com

About SolutionsSolutions NewsBulletin

20701 Cooperative Way | Dulles, Virginia 20166

Created and Owned by America’s Electric Cooperative Network

Address Service Requested

SCOTT GATESManaging Editorscott.gates@nrucfc.coopPhone: 800-424-2954, x1652

THOMAS BERGAssociate Editorthomas.berg@nrucfc.coopPhone: 800-424-2954, x1653

DANIEL TEDLAGraphic Designer

Eyes on the Economy:

BRUCE MACNEILDirector, Long-Term Funding & Risk Managementbruce.macneil@nrucfc.coopPhone: 800-424-2954, x1630

CFC’s finance experts:

JOHN F. SUTER | BRUCE MACNEIL PETER LILLESTOLEN | MADHURI DHAWAN TERI OCAMPO | ERIC LEVINE | MATT WADE

Print subscription changes:

ELAINE CHANDLERCorporate Records and Information Services Managerelaine.chandler@nrucfc.coopPhone: 800-424-2954, x1689

To receive Solutions by e-mail, click on the Solutions Quick Link on CFC’s Extranet or go to the Industry Publications page of Cooperative.com.

Solutions News Bulletin is published weekly by CFC.20701 Cooperative WayDulles, Virginia 20166 www.nrucfc.coop

© 2013 National Rural Utilities Cooperative Finance Corporaton

April 15, 2013 | Page 4

F I N A N C I A L F E A T U R E

Job Market Stalls in MarchBy Bruce MacNeil, Director, Long-Term Funding & Risk ManagementA mere month ago, we observed the strongest monthly job creation in more than a year. The Labor Department’s employment report beat expectations in a big way and the unemployment rate, derived from a separate survey, dropped two-tenths of a percent. But the recently released March jobs numbers were a sharp contrast to February’s bullish report. Posting the weakest month-over-month job creation numbers since June 2012, the report completely underwhelmed analyst forecasts, triggering a rally in Treasuries and highlighting ongoing headwinds for the economy.The U.S. economy created only a net 88,000 jobs last month, compared with Wall Street expectations for more than twice that level. Perhaps February’s number, which was revised up from 236,000 to 268,000, set the bar so high that a weaker subsequent report was sure to disappoint (see “Jobs Report Trounces Estimates,” Solutions News Bulletin, March 18, 2013). Although the unemployment rate fell in March from 7.7 percent to 7.6 percent, it fell for the wrong reason: 496,000 people dropped out of the labor market. Behind this drop lies an unsettling trend as the labor force participation rate—the percentage of adults either employed or unemployed but looking for a job—fell to a 30-year low of 63.3 percent (see chart).Job gains in March were primarily in professional and business services (+51,000), health care (+23,000) and construction (+18,000). Government employment fell by 7,000 overall, weighed down by postal service job losses of 12,000. The retail sector also saw significant declines (-24,000), a marked change for the sector, which had been averaging 32,000 new jobs per month for the last six months.Although disappointing, March’s employment report was not unprecedented in this recovery. The economy has experienced a midyear slowdown in hiring for several years in a row. Summertime job creation slowed in both 2011 and 2012, only to rebound again later in the year. There has been some speculation this pattern may be repeating itself early this year. Although we are further along in the recovery, there are new headwinds to consider in the months ahead. The impact of the expiration of the payroll tax holiday, coupled with government spending cuts, may take some time to work through the economy. March’s report also has moderated speculation that the Federal Reserve might end its unprecedented monetary easing earlier than expected. p

CFC Solutions NewsBulletin

0%

1%

63%

64%

65%

66%

67%

68%

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

PresortedFirst-Class MailUS Postage Paid

Permit #465Dulles VA 201

Labor Participation Rate

Source: Bloomberg