Pre-Loan Procedures for Electric Loans

DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1710

RIN 0572-AB30

Pre-Loan Procedures for Electric Loans

AGENCY: Rural Utilities Service, USDA.

ACTION: Direct final rule.

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SUMMARY: The Rural Utilities Service (RUS) is issuing a minor amendment

to its pre-loan procedures that will clarify that use of a conventional

utility indenture as a security instrument for loans to power supply

borrowers is permissible. This amendment will give these borrowers and

RUS the flexibility to address the complex issues surrounding power

supply loans in the rapidly changing electric industry. The rule will

also enhance loan security and, by conforming more closely to private

lending practice, allow easier access to private sector financing.

In the proposed rules section of this Federal Register, RUS is

proposing approval of and soliciting comments on this action. If

adverse comments are received on this action, RUS will withdraw this

final rule prior to its effective date and address the comments

recieved in response to this action in a final rule on the related

proposed rule, which is published in the proposed rules section of this

Federal Register. A second public comment period will not be held.

Parties interested in commenting on this action should do so at this

time.

DATES: This rule will become effective on April 7, 1997, unless we

receive written adverse comments or notice of intent to submit adverse

comments on or before March 24, 1997. If the effective date is delayed,

timely notice will be published in the Federal Register.

[[Page 7664]]

ADDRESSES: Submit any adverse comments or notice of intent to submit

adverse comments to F. Lamont Heppe, Jr., Director, Program Support and

Regulatory Analysis, Rural Utilities Service, U.S. Department of

Agriculture, Room 2230-S, 1400 Independence Avenue, SW., STOP 1522,

Washington, DC 20250-1522. RUS requires, in hard copy, a signed

original and 3 copies of all comments (7 CFR 1700.30(e)). Comments will

be available for public inspection during regular business hours at

Room 4034, South Building, U.S. Department of Agriculture, Washington,

DC 20250 between 8:00 a.m. and 4:00 p.m. (7 CFR part 1.27(b)).

FOR FURTHER INFORMATION CONTACT: F. Lamont Heppe, Jr., Director,

Program Support and Regulatory Analysis, Rural Utilities Service, U.S.

Department of Agriculture, Room 2230-S, 1400 Independence Avenue, SW.,

STOP 1522, Washington, DC 20250-1522. Telephone: 202-720-0736. FAX:

202-720-4120. E-mail: [email protected].

SUPPLEMENTARY INFORMATION: This regulatory action has been determined

to be not significant for the purposes of Executive Order 12866,

Regulatory Planning and Review, and, therefore has not been reviewed by

the Office of Management and Budget (OMB). The Administrator of RUS has

determined that a rule relating to the RUS electric loan program is not

a rule as defined in the Regulatory Flexibility Act (5 U.S.C. 601 et

seq.) for which RUS published a general notice of proposed rulemaking

pursuant to 5 U.S.C. 553(b), or any other law. Therefore, the

Regulatory Flexibility Act does not apply to this action. The

Administrator of RUS has determined that this rule will not

significantly affect the quality of the human environment as defined by

the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq.).

Therefore, this action does not require an environmental impact

statement or assessment. This rule is excluded from the scope of

Executive Order 12372, Intergovernmental Consultation, which may

require consultation with State and local officials. A Notice of Final

Rule titled Department Programs and Activities Excluded from Executive

Order 12372 (50 FR 47034) exempts RUS electric loans and loan

guarantees from coverage under this Order. This rule has been reviewed

under Executive Order 12988, Civil Justice Reform. RUS has determined

that this rule meets the applicable standards provided in Sec. 3. of

the Executive Order.

The program described by this rule is listed in the Catalog of

Federal Domestic Assistance Programs under number 10.850 Rural

Electrification Loans and Loan Guarantees. This catalog is available on

a subscription basis from the Superintendent of Documents, the United

States Government Printing Office, Washington, DC 20402-9325.

Information Collection and Recordkeeping Requirements

The recordkeeping and reporting burdens contained in this rule were

approved by the Office of Management and Budget (OMB) pursuant to the

Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35, as amended)

under control number 0572-0032.

Background

RUS recognizes that power supply borrowers (also known as

generation and transmission borrowers or ``G&T's'') generally have a

far more complex corporate structure and face more complex financing

issues than distribution borrowers. In order to meet the financing

needs of these borrowers more efficiently, RUS is amending its

regulations to specifically allow the use of a conventional utility

indenture in lieu of a mortgage as security instruments for loans to

these borrowers.

Although current RUS regulations do not preclude the use of trust

indentures as security instruments for RUS loans, the Agency believes

that it would be useful to clarify how RUS regulations in 7 CFR Chapter

XVII will be reconciled with any conflicting provisions contained in

conventional utility indentures and related loan contracts which the

Agency may accept in lieu of typical RUS mortgages and mortgages as

loan instruments. The Agency anticipates that otherwise some of the

provisions in such indentures and loan contracts might conflict with

provisions in this chapter that were developed to implement or

interpret the traditional standard forms of RUS loan instruments which

were designed for use under different circumstances.

On July 18, 1995, at 60 FR 36882, and December 29, 1995, at 60 FR

67396, RUS substantially revised the forms of loan instruments it uses

in making loans to electric distribution borrowers. Because of the

differing situations of power supply borrowers, RUS did not attempt to

prescribe corresponding forms of those new documents for power supply

borrowers. Nevertheless, RUS recognizes that many of the reasons

underlying the modernization effort apply to its power supply

borrowers. Thus, RUS believes that the option of using trust indentures

represents a balanced approach to increasing borrowers' access to

private capital markets and reducing RUS operational controls while

simultaneously enhancing RUS loan security by appropriately adapting to

the changing cooperative electric industry.

RUS is willing to consider the use of an indenture when RUS and the

power supply borrower mutually agree that it is appropriate. The terms

of each indenture and related loan agreement will be negotiated on a

case by case basis to best meet the needs of the individual borrower

and the Government as the electric industry undergoes a period of

drastic change. RUS believes that ultimately this approach will enhance

loan security by addressing the individual circumstances of each

borrower; will allow RUS greater flexibility in dealing with the more

complex structures of most power supply borrowers; and will allow these

borrowers easier access to private sources of credit, thus reducing

their dependence on RUS financing. RUS recognizes that this approach

may conflict from time to time with some provisions of 7 CFR Chapter

XVII. This regulation provides that the terms of any indenture or

associated loan contract control in such circumstances.

RUS is publishing this action without prior proposal because the

Agency views this as a noncontroversial amendment and anticipates no

adverse comments. However, in a separate document in the proposed rules

section of this Federal Register publication, RUS is proposing to amend

7 CFR part 1710 should adverse or critical comments be filed.

If RUS receives such comments, RUS will publish a subsequent

document that will withdraw this direct final rule before the effective

date. All public comments received will be addressed in a subsequent

final rule based on the proposed rule. RUS will not institue a second

comment period on this action. Any parties interested in commenting on

this action should do so at this time.

List of Subjects in 7 CFR Part 1710

Electric power, Electric utilities, Loan programs--energy,

Reporting and recordkeeping requirements, Rural areas.

For the reasons set out in the preamble, and under the authority of

7 U.S.C. 901 et seq., RUS amends 7 CFR Part 1710 as follows:

PART 1710--GENERAL AND PRE-LOAN POLICIES AND PROCEDURES COMMON TO

INSURED AND GUARANTEED ELECTRIC LOANS

1. The authority citation for part 1710 continues to read as

follows:

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Authority: 7 U.S.C. 901-950(b); Pub. L. 99-591, 100 Stat. 3341;

Pub. L. 103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

2. Section 1710.113 is amended by redesignating the existing

paragraph (c) as paragraph (c)(1) and adding a new paragraph (c)(2) to

read as follows:

Sec. 1710.113 Loan security.

* * * * *

(c)(1) * * *

(2) The Administrator, at his or her discretion, may approve the

use of an indenture patterned after those indentures commonly used by

utilities engaged in private market financing, in lieu of a mortgage as

the security instrument for loans to power supply borrowers. The use of

an indenture will be by mutual agreement of the borrower and the

Administrator. The terms of each indenture and related loan agreement

will be negotiated on a case by case basis to best meet the needs of

the individual borrower and the Government. The provisions of the

indenture and loan contract shall control, notwithstanding any

provisions of 7 CFR Chapter XVII which may be in conflict therewith.

* * * * *

Dated: February 10, 1997.

Jill Long Thompson,

Under Secretary, Rural Development.

[FR Doc. 97-3990 Filed 2-19-97; 8:45 am]

BILLING CODE 3410-15-P