General and Pre-Loan Policies and Procedures Common to Insured and Guaranteed Electric Loans

DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1710

RIN 0572-AB46

General and Pre-Loan Policies and Procedures Common to Insured

and Guaranteed Electric Loans

AGENCY: Rural Utilities Service, USDA.

ACTION: Direct final rule.

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SUMMARY: The Rural Utilities Service (RUS) is amending its regulations

to: revise the method of determining loan fund eligibility for

``ordinary replacements'' and authorize the use of guaranteed financing

for ``minor projects''.

DATES: This rule will become effective August 6, 1999 unless we receive

written adverse comments or written notice of intent to submit adverse

comments on or before July 22, 1999. If we receive such comments or

notice, we will publish a timely withdrawal of the Direct Final Rule in

the Federal Register stating that the rule will not become effective.

We will address the comments received and publish a final rule. A

second public comment period will not be held. Parties interested in

commenting on this action should do so at this time.

ADDRESSES: Submit adverse comments or notice of intent to submit

adverse comments to F. Lamont Heppe, Jr., Director, Program Development

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

Agriculture, Stop 1522, 1400 Independence Avenue, SW, Washington, DC

20250-1522. Telephone: (202) 720-9550. RUS requires a signed original

and three copies of all comments (7 CFR 1700.4). Comments will be

available for public inspection during regular business hours (7 CFR

1.27(b)).

FOR FURTHER INFORMATION CONTACT: Alex M. Cockey, Jr., Deputy Assistant

Administrator, Electric Program, Rural Utilities Service, U.S.

Department of Agriculture, Stop 1560, 1400 Independence Avenue, SW,

Washington, DC 20250-1560. Telephone: (202) 720-9547. FAX (202) 690-

0717. E-mail: [email protected].

SUPPLEMENTARY INFORMATION:

Executive Order 12866

This rule has been determined to be not significant for the

purposes of Executive Order 12866 and, therefore, has not been reviewed

by the Office of Management and Budget (OMB).

Executive Order 12988

This rule has been reviewed in accordance with Executive Order

12988, Civil Justice Reform. RUS has determined that this rule meets

the applicable standards provided in section 3 of the Executive Order.

In addition, all state and local laws and regulations that are in

conflict with this rule will be preempted. No retroactive effect will

be given to this rule and in accordance with Sec. 212(e) of the

Department of Agriculture Reorganization Act of 1994 (7 USC

Sec. 6912(e)) administrative appeal procedures, if any, must be

exhausted before an action against the Department or its agencies may

be initiated.

Regulatory Flexibility Act Certification

The Administrator of RUS has determined that a rule relating to RUS

electric loan program is not a rule as defined in the Regulatory

Flexibility Act (5 U.S.C. 601 et seq.) and, therefore, the Regulatory

Flexibility Act does not apply to this rule. RUS borrowers, as a result

of obtaining federal financing, receive economic benefits that exceed

any direct economic costs associated with complying with RUS

regulations and requirements.

Information Collection and Recordkeeping Requirements

The Office of Management and Budget (OMB) has approved the

reporting and recordkeeping requirements contained in 7 CFR Part 1710

under the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35) and

assigned control number 0572-0032. This rule contains no additional

information collection or recordkeeping requirements.

Catalog of Federal Domestic Assistance

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

Federal Domestic Assistance Programs under No. 10.850, Rural

Electrification Loans and Loan Guarantees. This catalog is available on

a subscription basis from the United States Government Printing Office,

Washington, DC 20402-9325, telephone number (202) 512-1800.

Executive Order 12372

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 entitled ``Department

Programs and Activities Excluded from Executive Order 12372'', (50 FR

47034), exempted RUS loans and loan guarantees from coverage under this

order.

Unfunded Mandates

This rule contains no Federal Mandates (under the regulatory

provision of Title II of the Unfunded Mandates Reform Act of 1995) for

State, local, and tribal governments or the private sector. Thus, this

rule is not subject to the requirements of sections 202 and 205 of the

Unfunded Mandates Reform Act of 1995.

[[Page 33177]]

National Environmental Policy Act Certification

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.

Background

RUS is amending its regulations to change the manner in which it

categorizes electric plant replacements for the purpose of clarifying

financing eligibility for replacements. RUS financing is presently

based upon the accounting and engineering classifications of new

construction, system improvements, and ordinary replacements. These

procedures are established in 7 CFR Part 1710, General and Pre-Loan

Policies and Procedures Common to Insured and Guaranteed Electric

Loans, including Sec. 1710.106, Uses of Loan Funds, establishing the

extent of funding for new construction, system improvements, and

ordinary replacements, as well as RUS Bulletin 1767B-2, Work Order

Procedure (Electric).

At present, RUS financing is provided as follows: (a) for new

construction based on cost of construction (amount capitalized), (b)

for system improvements based on cost of construction plus removal cost

less applicable salvage, and (c) for ordinary replacements based on

cost of construction less original cost of units removed.

In each case above, non-refundable contribution amounts by the

ultimate customer are deducted from the amount financed.

Section 1710.2, Definitions, provides the following definitions:

(a) system improvement means the change or addition to electric plant

facilities to improve the quality of electric service or to increase

the quantity of electric power available to RE Act beneficiaries; (b)

ordinary replacement means replacing one or more units of plant, called

``retirement units,'' with similar units when made necessary by normal

wear and tear, damage beyond repair, or obsolescence of facilities.

With these definitions, RUS has experienced problems as to which

projects should appropriately be classified as either system

improvements or ordinary replacements. As a result, there has been

confusion and inconsistency in the determination of loan fund

eligibility. While the determination does not significantly affect the

amount of loan funds provided by RUS, the determination nevertheless is

an unnecessary burden for RUS borrowers, their engineering consultants,

and RUS staff, who often apply the definitions differently.

This rule change combines the classifications of system

improvements and ordinary replacements into a single category.

Financing will be based on the process presently used to finance system

improvements. This process will provide funding to cover the cost of

construction, plus the cost of removal, less any salvage value. No

change is being made in the manner in which new construction or system

improvements are classified or financed by RUS. It merely changes the

manner in which ordinary replacements are categorized and financed by

RUS.

RUS has previously authorized certain types of ordinary

replacements, including underground cable replacements, to be financed

as system improvements. Furthermore, Sec. 1710.106 (3) presently

permits RUS to finance the total cost of ordinary replacements, if

specifically authorized by the Administrator.

Potentially, the requests for RUS financing assistance may be

slightly increased by combining these two methods of accounting for

system improvements and ordinary replacements into a single category.

However, the overall benefits to the borrowers and RUS outweigh the

possible increase in requests for loan funds. This rule change is being

made in order to: (a) simplify classifications of construction and

eliminate the judgments necessary as to whether a project is considered

an improvement or replacement; and (b) avoid creating any new method of

financing while still generating necessary information from which RUS

can determine appropriate funding eligibility.

It should be further noted that factors other than the amount of

construction eligible for financing under the present concepts of

system improvements and ordinary replacements impact the amount of

funding actually requested from RUS. Generally, RUS borrowers do not

request financing assistance for all capital improvements because of

desired equity goals. Typically, borrowers utilize internally generated

funds from as little as 20 percent to more than 50 percent of total

construction costs. The overall effect of this is that borrowers

presently borrow funds in amounts which are significantly less than

that for which they would be eligible under either present loan

concepts (with system improvements and ordinary replacements) or those

concepts provided under this rule change.

Benefits of this rule change include: (a) simplified RUS financing

and engineering analysis which avoids conflicting interpretations of

what is a system improvement and what is an ordinary replacement; (b)

expedited close-out and audit processes; (c) little or no change in the

application for available loan funds; and (d) elimination of additional

analysis in electric plant accounting to determine amount capitalized.

With this rule change, Inventories of Work Orders, RUS Form 219,

covering completed construction projects that are closed out after the

effective date of this rule, will be subject to these new procedures

for ``ordinary replacements.'' During the period while revised RUS Form

219's are being prepared and distributed, RUS borrowers may utilize

existing supplies of forms bearing an issue date of 10/88 and include

all plant rebuilds and replacements as system improvements. The columns

on RUS Form 219 that are currently dedicated to ordinary replacements

would, therefore, not be used under this rule change.

The second aspect of this rule change concerns ``minor projects''

and guaranteed loan funds. Minor projects are defined in 7 CFR Part

1721, Post-Loan Policies and Procedures for Insured Electric Loans,

Subpart A, Advance of Funds, Sec. 1721.1(a) as ``a project costing

$25,000 or less.'' Section 1721.1(a), further states that: ``With the

exception of minor construction, insured loan funds will be advanced

only for projects in an RUS approved Borrower's construction work plan

or approved amendment and in an approved loan, as amended.'' Also

related to this matter is 7 CFR Part 1710, Subpart F, Construction Work

Plans and Related Studies. Section 1710.250(e) states that:

``Applications for a loan or loan guarantee from RUS...must be

supported by a current CWP. . . .'' Since part 1721 only covers insured

loans, no mechanism is presently in place to authorize minor projects

under an RUS loan guarantee. Part 1710, subpart F, would, therefore,

presently require inclusion of all projects in either a work plan or an

amendment to a work plan and preclude authority for and funding of

``minor projects'' under an RUS loan guarantee. The purpose of this

rule change is to clarify that minor projects may, in fact, be funded

through an RUS loan guarantee, just as they are done under insured loan

procedures without being specifically approved in a work plan or

amendment.

[[Page 33178]]

List of Subjects in 7 CFR Part 1710

Electric power, Loan programs, Reporting and recordkeeping

requirements, Rural areas.

Accordingly, 7 CFR part 1710 is amended as follows:

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

INSURED AND GUARANTEED ELECTRIC LOANS, SUBPART C--LOAN POLICIES AND

BASIC POLICIES

1. The authority citation for part 1710 is revised to read as

follows:

Authority: 7 U.S.C. 901 et seq., 1921 et seq., and 6941 et seq.

2. Amend Sec. 1710.106 by removing paragraph (a)(3), redesignating

paragraphs (a)(4) through (a)(6) as (a)(3) through (a)(5), and revising

paragraphs (a)(1)(i) and (a)(2)(i) to read as follows:

Sec. 1710.106 Uses of loan funds.

(a) * * * * *

(1) Distribution facilities. (i) The construction of new

distribution facilities or systems, the cost of system improvements and

removals less salvage value, the cost of ordinary replacements and

removals less salvage value, needed to meet load growth requirements,

improve the quality of service, or replace existing facilities.

* * * * *

(2) Transmission and generation facilities. (i) The construction of

new transmission and generation facilities or systems, the cost of

system improvements and removals, less salvage value, the cost of

ordinary replacements and removals less salvage value, needed to meet

load growth, improve the quality of service, or replace existing

facilities.

* * * * *

3. Amend Sec. 1710.250(f) by adding the following sentence to the

end of the paragraph to read:

Sec. 1710.250 General.

* * * * *

(f) * * * Provision for funding of ``minor projects'' under an RUS

loan guarantee is permitted on the same basis as that discussed for

insured loan funds in 7 CFR part 1721, Post-Loan Policies and

Procedures for Insured Electric Loans.

* * * * *

Dated: June 14, 1999.

Jill Long Thompson,

Under Secretary, Rural Development.

[FR Doc. 99-15703 Filed 6-21-99; 8:45 am]

BILLING CODE 3410-15-P