[Federal Register Volume 65, Number 96 (Wednesday, May 17, 2000)]
[Rules and Regulations]
[Pages 31246-31248]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-11986]


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DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1710

RIN 0572-AB52


General and Pre-Loan Policies and Procedures Common to Insured 
and Guaranteed 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 allow flexibility in determining whether a borrower needs to solicit 
bids from all sources for new or replacement generation. It is also 
deleting the requirement that borrowers seek bids if RUS financial 
assistance is requested from all sources for generation projects of 10 
megawatts or more or for modifications to existing plants if it results 
in an increase in capacity of 10 percent. RUS will review each project 
on a case by case basis and determine whether there is a need for a 
borrower to seek bids from all sources for the project.

DATES: This rule will become effective July 3, 2000 unless we receive 
written adverse comments or written notice of intent to submit adverse 
comments on or before June 16, 2000. If we receive such comments or 
notice, we will publish a timely document in the Federal Register 
withdrawing the rule. Comments received will be considered under the 
proposed rule published in this edition of the Federal Register in the 
proposed rule section. 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: Wei M. Moy, Chief, Power Resources & 
Planning Branch, Power Supply Division, Rural Utilities Service, U.S. 
Department of Agriculture, Stop 1568, 1400 Independence Avenue, SW, 
Washington, DC 20250-1568. Telephone: (202) 720-1438. FAX (202) 720-
1401. 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 under 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 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

    RUS has determined that this rule will not have a significant 
impact on a substantial number of small entities, as defined in the 
Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The RUS electric 
program provides loan and loan guarantees to borrowers at interest 
rates and terms that are more favorable than those generally available 
from the private sector. Small entities are not subjected to any 
requirements which are not applied equally to large entities. 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

    This rule contains no additional information collection or 
recordkeeping requirements under the Paperwork Reduction Act of 1995 
(44 U.S.C. Chapter 35).

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, local and tribal governments or the private sector. See the 
final rule related notice entitled ``Department Programs and Activities 
Excluded from Executive Order 12372'' (50 FR 47034).

Unfunded Mandates

    This rule contains no Federal mandates (under the regulatory 
provision of title II of the Unfunded Mandates Reform Act) for State, 
local, and tribal governments or the private sector. Thus, this rule is 
not subject to the requirements of section 202 and 205 of the Unfunded 
Mandates Reform Act.

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

    Section 1710.254 provides that RUS will consider providing 
financial assistance to borrowers for the construction of generation 
facilities and the modification of existing generation facilities only 
if certain conditions are met. The requirements also apply to financial 
assistance for all new generation facilities of 10 megawatts or more 
and for modifications to existing

[[Page 31247]]

generation facilities that would result in an increase of generation 
capacity of 10 percent or more. This section provides that all loan 
requests for any type of addition of generation capacity, including 
replacement and modification of existing capacity, will be accepted by 
RUS only when the applicant has satisfactorily completed the 
investigation of possible alternative sources of power. The applicant 
is required to search out and attempt to utilize capacity available 
from RUS borrowers and other organizations before developing plans for 
additional generation capacity. The applicant must solicit power and 
energy purchase proposals from all reasonable potential sources of 
power by the issuance of a formal Request for Proposals (RFP) to all 
sources. The applicant is also required to evaluate all alternative 
proposals received on an economic, present value basis, giving 
consideration to cost-effectiveness, reliability of service, the short 
and long-term financial viability of the supplier, and the financial 
risk to the borrower and its creditors. After evaluating all proposals, 
the applicant is to negotiate final proposals with entities submitting 
the best acceptable offers. This entire process is required to 
determine if there are other entities that could supply the additional 
power and energy needs of the applicant without RUS financial 
assistance.
    This process is very time consuming, costly and, in many cases, is 
not needed. The entire process can take more than a year in some cases. 
At the conclusion of the process, the business opportunities and the 
best approach to meet the applicant's specific need may no longer be 
available or no longer available at the projected cost.
    The electric energy industry in the United States is experiencing 
ongoing deregulation. This has increased competition in the industry 
and the need for RUS borrowers to be able to meet the power needs of 
their members and the power needs of the rural consumers in a timely, 
cost effective manner. Presently, there is an abundance of public 
information and reports assessing market conditions of various regions 
of the country, utility market trends, market forecasts, and projected 
projects for various markets. As such, in certain cases, an RFP is not 
needed nor is the expense and time involved in the solicitation useful 
or justified.
    The rapidly changing and increasingly competitive environment of 
the electric utility industry requires borrowers to make certain 
decisions regarding the need for generation facilities and the type of 
facilities needed in a very short time frame to enable them to meet 
their power supply needs in the most reliable and economical manner. 
The borrower's intended use of the generation facilities is critical to 
any determination as to need and cost. An example of this is the 
installation of peaking generation facilities to meet peak loads. Due 
to reliability problems, growing demand and the high cost of power and 
energy experienced by some electric utilities during peak demand 
periods in recent years, there is an increasing need for peaking 
generation units. The gas turbine manufacturers are unable to keep up 
with the demand. As a result, RUS borrowers must be able to take full 
advantage of any business opportunities in order to maintain their 
competitiveness and be able to obtain peaking units to meet their peak 
loads. Due to the time consuming process required by the existing 
requirements of Sec. 1710.254, this can and has been an impediment to 
the borrowers obtaining capacity to meet peaking requirements in a 
reliable and economical manner.
    Another concern of the borrowers and RUS is that the process 
required by Sec. 1710.254 is expensive, especially when the sole reason 
to issue an RFP is to meet the requirements of this regulation. To meet 
these requirements, some borrowers have had to hire consultants to 
assist them in the RFP and evaluation process. This has added to the 
time necessary to complete the process and added to the cost. For 
projects such as upgrades or modifications to existing generation 
facilities, which result in an increase in generation capacity, the 
economics and the actual need are generally clear, hence, the RFP 
requirement contained in Sec. 1710.254 and the associated costs are an 
unnecessary expense in most cases.

List of Subjects in 7 CFR 1710

    Electric power, Electric utilities, Loan programs-energy, Reporting 
and recordkeeping requirements, Rural areas.

    Accordingly, 7 CFR chapter XVII is amended 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:

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


    2. Amend Sec. 1710.254 by revising paragraphs (a)(2), (b), (c), 
(d), and (e) to read as follows:


Sec. 1710.254  Alternative sources of power.

    (a) * * *
    (2) If a borrower already owns and operates the types of facilities 
included in a loan request, then a loan for the purposes contained in 
paragraph (a)(1) of this section, as well as for the construction of 
transmission facilities by a distribution borrower, will be considered 
and evaluated by RUS in terms of whether the proposed facilities 
constitute an effective and economical means of meeting the power 
requirements of the consumers. A borrower shall contact RUS as soon as 
practicable in order for RUS to review information submitted by the 
borrower and advise the borrower, in writing, whether there is a need 
for the borrower to investigate and seek alternative sources of power. 
RUS will determine, based on information provided by the borrower or 
otherwise available, whether there is a need to investigate alternative 
sources of power or whether RUS will require information or other 
methods of determining the need for the generation capacity. RUS will 
base its determination on whether RUS is able to conclude that the 
project is needed, the borrower would incur delays and costs in 
pursuing an RFP, or that an RFP is not likely to produce new 
alternatives to the project.
    (b) Loan requests for the addition of generation capacity, 
including replacement of existing capacity, will be accepted by RUS 
when the applicant has completed the requirements established by RUS, 
in a manner satisfactory to RUS. The investigations of alternative 
sources of power must be coordinated in advance with RUS. This section 
applies to RUS financed generation capacity whether owned solely by the 
borrower, owned on an undivided ownership basis with other utilities or 
substantially controlled by the borrower.
    (c) The applicant may be required to seek and utilize capacity 
available from RUS borrowers and other organizations before developing 
plans for additional generation capacity. RUS may require, on a case by 
case basis, that the applicant, among other things:
    (1) Solicit power and energy purchase proposals from all reasonable 
potential sources of power, such as other electric cooperatives, 
investor-owned utilities, municipal utility organizations, and Federal 
and state power authorities.
    (2) Solicit proposals from independent power producers, including 
co-generators, to determine

[[Page 31248]]

the terms and conditions under which these producers can supply the 
additional power and energy needs of the applicant, without RUS 
financial assistance. Such solicitations should be placed in at least 
three national newspapers or trade publications, and they meet all 
planning, coordination or other requirements imposed by state 
authorities, as well as the environmental requirements of RUS.
    (d) When solicitations are received in accordance with paragraph 
(c) of this section, the applicant will evaluate all alternative 
proposals on an economic, present-value basis, giving consideration to 
cost-effectiveness, reliability of service, the short-term and long-
term financial viability of the supplier, and the financial risk to the 
borrower and its creditors. The applicant will keep RUS fully informed 
on these evaluations and provide supporting information and analysis as 
requested by RUS.
    (e) After evaluation of all proposals received in accordance with 
paragraph (c) of this section, and having informed RUS of the results, 
the applicant may be required to negotiate final proposals with the 
entities submitting the best acceptable offers. Contracts requiring RUS 
approval will either be approved in advance by the Administrator or 
contain a provision that the contract is not valid until approved, in 
writing, by the Administrator. The Administrator will approve the 
contracts in a timely manner provided that the borrower has met all 
applicable requirements, including, among other matters, evidence that 
the alternative source of power selected is an economical and effective 
alternative.
* * * * *

    Dated: May 5, 2000.
Jill Long Thompson,
Under Secretary, Rural Development.
[FR Doc. 00-11986 Filed 5-16-00; 8:45 am]
BILLING CODE 3410-15-P