[Federal Register Volume 64, Number 119 (Tuesday, June 22, 1999)]
[Rules and Regulations]
[Pages 33176-33178]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-15703]


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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