[Federal Register Volume 59, Number 105 (Thursday, June 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13402]


[[Page Unknown]]

[Federal Register: June 2, 1994]


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DEPARTMENT OF AGRICULTURE
Rural Electrification Administration

7 CFR Part 1710

 

Credit Support of Power Supply Borrowers

AGENCY: Rural Electrification Administration, USDA.

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The Rural Electrification Administration (REA) is considering 
revising its policies regarding credit support required in connection 
with loans to power supply borrowers (G&T's) and is hereby soliciting 
comments from interested parties on issues relating to credit support.

DATES: Written comments and recommendations must be received by REA by 
July 18, 1994.

ADDRESSES: Written comments should be addressed to F. Lamont Heppe, 
Jr., Deputy Director, Program Support Staff, Rural Electrification 
Administration, room 2234, 14th and Independence Avenue, SW., 
Washington, DC 20250-1500. REA requires a signed original and three 
copies of all comments (7 CFR 1700.30(e)). All comments received will 
be made available for public inspection in room 2234-S (address as 
above) during regular business hours (7 CFR 1.27 (b)).

FOR FURTHER INFORMATION CONTACT: F. Lamont Heppe, Jr., Deputy Director, 
Program Support Staff, room 2234-S, at the above address. Telephone: 
(202) 720-0736.

SUPPLEMENTARY INFORMATION:

Background

    REA-financed cooperatives are generally organized on a two-tier 
system with power supply borrowers providing wholesale service to their 
member/owners, the distribution cooperatives. The power supply borrower 
owns or controls generation and bulk transmission facilities. The 
distribution members own the facilities necessary to serve consumers on 
the retail level. Taken together, a power supply borrower and its 
distribution members are essentially one economic unit, similar to a 
typical investor-owned utility which owns or controls both the sources 
of production and the retail franchises. This unity of ownership and 
interest between the power supply cooperative and its owners has made 
possible a highly efficient capitalization structure uniquely suited to 
the needs of REA's constituency.
    Distribution cooperatives entered into long term contracts to 
purchase all their power requirements from the power supply cooperative 
at the rates necessary to cover all the power supplier's costs, 
including debt service on its loans. These contracts, together with all 
other assets of the power supply cooperative, are pledged as security 
for billions of dollars of loans to the power supply cooperatives by 
the Government and private sector alike. The Government and other 
lenders have generally not required power suppliers to develop and 
maintain equity. As a result, consumers benefitted from lower electric 
rates,
    While, in most cases, REA credit support requirements currently 
include the long term, all-requirements wholesale power contract and 
the first lien on all property including after acquired property, in 
several instances REA has required additional credit support in the 
form of guarantees from the G&T's members.
    REA is undertaking to review the requirement for credit support in 
connection with G&T loans and loan guarantees. REA will be taking into 
consideration the G&T profile and the projects undertaken by the G&T. 
This profile includes some of the following characteristics: 100% debt 
financing from REA; equity considerations; and complex issues 
concerning their wholesale power contract agreements. REA financing of 
G&T projects generally consists of primarily guarantees of FFB loans 
and lien accommodations.

I. Credit Support Considerations

    REA is requesting input on all factors that impact on the 
feasibility and risks associated with the borrower and the project to 
be financed. Factors to be considered may include the following:
    a. The regulatory climate (degree of regulation, regulatory body 
policies);
    b. Economics of the service territory (consumer growth trends, 
consumer load diversity, revenue by consumer class),;
    c. The power supply borrowers' current and future electric resource 
arrangement (capacity, fuel agreements, purchased power, generation 
statistics);
    d. Construction and operating risk of the proposed facility;
    e. Quality of management (strategic planning, consumer relations, 
experience, depth, capability, credibility, response to changing 
environment);
    f. Whether the borrower is operating under a debt restructure 
agreement with REA
    g. Impact on distribution member cooperative rates; and
    h. Rate competitiveness;
    i Territorial integrity.
    j. Diversification activity and/or plans:
    k. Analysis of accounting practices vs. industry practices.
    Comments are specifically requested on what factors should be 
considered, how the factors should be weighted, i.e. the ranking 
criteria, and on when REA should generally not require additional 
credit support.
    REA anticipates reserving the right to require credit support on 
any loan or loan guarantee it deems necessary.

II. Types of Support

    REA is also requesting input on the forms of credit support REA 
should require under those circumstances where additional credit 
support is required. Respondents should consider, among others, in 
addition to the lien on wholesale power contracts and all system 
assets, the following types of support:
    a. G&T member guarantees of loans made to a G&T
    b. Guarantees by financial institutions of G&T loans in lieu of 
member guarantees; and
    c. Letters of Credit obtained by members in lieu of a guarantee.
    REA is also requesting comments and suggestions on the terms and 
conditions that would attach to such credit support. Comments are 
specifically requested on the concepts of joint and several liability 
of guarantors, liability caps, pro rata sharing of liability, 
acceleration of the support obligations under certain circumstances, 
collateralization, term, and termination.

    Authority: 7 U.S.C. 901-950(b); Public Law 99-591; Delegation of 
Authority by the Secretary of Agriculture, 7 CFR 2.23; Delegation of 
Authority by the Under Secretary of Small Community and Rural 
Development, 7 CFR 2.72.

    Dated: May 26, 1994.
Bob J. Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-13402 Filed 6-1-94; 8:45 am]
BILLING CODE 3410-15-P