[Federal Register Volume 67, Number 3 (Friday, January 4, 2002)]
[Rules and Regulations]
[Pages 484-487]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-234]


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DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1721

RIN 0572-AB60


Extensions of Payments of Principal and Interest

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule.

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SUMMARY: The Rural Utilities Service (RUS) is adding procedures and 
conditions under which Borrowers may request extensions of the payment 
of principal and interest. These procedures and conditions are stated 
in RUS Bulletin 20-5:320-2, Extensions of Payments of Principal and 
Interest, dated May 10, 1972, and RUS Bulletin 20-23, Section 12 
Extensions for Energy Resources Conservation Loans, dated December 8, 
1980; however, these procedures and conditions were not codified in the 
Code of Federal Regulations. This regulation will set forth procedures 
and conditions under which Borrowers may request extensions of 
principal and interest. RUS will rescind upon the effective date of 
this regulation RUS Bulletin 20-5:320-2, and RUS Bulletin 20-23.

DATES: This rule will become effective on February 4, 2002.

FOR FURTHER INFORMATION CONTACT: Gail P. Salgado, Management Analyst, 
U.S. Department of Agriculture, Rural Utilities Service, Electric 
Program, Room 4023 South Building, Stop 1560, 1400 Independence Avenue, 
SW., Washington, DC 20250-1560. Telephone: 202-205-3660.

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, 
(1) all State and local laws and regulations that are in conflict with 
this rule will be preempted; (2) no retroactive effect will be given to 
this rule; and (3) in accordance with section 212(e) of the Department 
of Agriculture Reorganization Act of 1994 (7 U.S.C. 6912(e)) 
administrative appeals procedures, if any are required, must be 
exhausted prior to initiating an action against the Department or its 
agencies.

Regulatory Flexibility Act Certification

    The Administrator of RUS has determined that this rule will not 
have a significant economic 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 loans and loan guarantees to 
Borrowers at interest rates and on terms that are more favorable than 
those generally available from the private sector. 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 reporting and recordkeeping requirements contained in this rule 
have been approved by the Office of Management and Budget (OMB) 
pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35) 
under OMB control number 0572-0123.

Unfunded Mandates

    This rule contains no Federal mandates (under the regulatory 
provisions 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 sections 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.

Catalog of Federal Domestic Assistance

    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, telephone 
number (202) 512-1800.

Executive Order 12372

    This rule is excluded from the scope of Executive Order 12372,

[[Page 485]]

Intergovernmental Consultation, which may require consultation with 
state and local officials. See the final rule related notice entitled 
``Department Programs and Activities Excluded from Executive Order 
12372'' (50 FR 47034) advising that RUS loans and loan guarantees are 
not covered by Executive Order 12372.

Background

    On January 9, 2001, at 66 FR 1604, the Rural Utilities Service 
(RUS) published a proposed rule, 7 CFR part 1721--Extensions of 
Payments of Principal and Interest, which proposed adding procedures 
and conditions under which Borrowers may request extensions of the 
payment of principal and interest. These procedures and conditions are 
stated in RUS Bulletin 20-5:320-2, Extensions of Payments of Principal 
and Interest, dated May 10, 1972, and RUS Bulletin 20-23, Section 12 
Extensions for Energy Resources Conservation Loans, dated December 8, 
1980; however, these procedures and conditions were not codified in the 
Code of Federal Regulations. This final rule will set forth procedures 
and conditions under which Borrowers may request extensions of 
principal and interest. RUS will rescind upon the effective date of 
this regulation RUS Bulletin 20-5:320-2, and RUS Bulletin 20-23.
    Written comments on the proposed rule were received and they are 
summarized as follows:
    RUS received comments dated March 8, 2001, from the National Rural 
Electric Cooperative Association (NRECA), Oregon Rural Electric 
Cooperative Association (ORECA), and Harney Electric Cooperative, Inc. 
(HEC). The three cooperatives suggested that the language in 
Sec. 1721.104(a)(2) be revised to reflect that the factors for 
determining qualifications for deferment of RUS loan payments listed 
not be inclusive, but only examples of the kinds of factors RUS should 
consider. RUS agrees with this comment and has made the change to the 
final rule wording under Sec. 1721.104(a)(2).
    In addition, NRECA commented on:

Section 1721.104(a)(2)(iv)  Need to substantially upgrade a Borrower's 
system to bring it into compliance with the National Electric Safety 
Code (NESC).

    NRECA states it is unclear as to the appropriateness of this factor 
since it is inconsistent with other RUS practices. Current RUS 
practices require annual certifications and assurances at loan 
application that systems are being properly maintained. RUS is in 
agreement with NRECA's comment. RUS requires and borrowers conform to 
annual certifications and assurances that systems are being properly 
operated and maintained, and these assurances include conformance to 
NESC provisions. RUS has removed Sec. 1721.104(a)(2) from this final 
rule.

Section 1721.104(b)  Deferments for energy resource conservation (ERC) 
loans.

    NRECA states it is unclear to what extent this proposal is 
significantly different from the existing RUS Bulletin 20-23, dated 
December 8, 1980, which is being amended and codified through this 
regulation. As codified, the terms for ERC deferments contain fewer 
restrictions and limitations on the terms for the corresponding ERC 
loans between the Borrower and its members. Generally speaking, the 
terms of such loans will now be left to the discretion of the 
Borrower's management. RUS Bulletin 20-23, section 12, Extensions for 
Energy Resource Conservation Loans, dated December 8, 1980, will be 
rescinded upon publication of this final rule.

Section 1721.104(d)(2)  Deferments for contributions-in-aid of 
construction.

    NRECA states that it is unclear whether the calculation methodology 
of construction costs would be made without regard to contribution-in-
aid of construction (CIAC). Should construction costs be calculated net 
of CIAC, a Borrower's line extension policy would have a significant 
impact on the eligible amount available for deferments. RUS agrees and 
the final rule wording has been changed to clarify the calculation 
methodology.
    Other--Deferments for distributed generation projects. NRECA 
recommends RUS consider allowing a Borrower to defer principal payments 
to finance properly coordinated distributed generation projects. RUS 
has taken this comment under advisement and will consider whether to 
publish a proposed rule which would include deferments for certain 
distributed generation projects.
    Additionally, under Sec. 1721.103(d) RUS is clarifying that the 
maturity date of any such loan does not extend to a date beyond forty 
(40) years from the date of the note (not the date of the loan as 
indicated in the proposed rule).

List of Subjects in 7 CFR Part 1721

    Electric power, Loan programs--energy, Rural areas.


    For the reasons set forth in the preamble, RUS amends 7 CFR chapter 
XVII, part 1721 as follows:

PART 1721--POST LOAN POLICIES AND PROCEDURES FOR INSURED ELECTRIC 
LOANS

    1. The authority citation for part 1721 continues to read:

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


    2. Add subpart B to read as follows:
Subpart B--Extensions of Payments of Principal and Interest
Sec.
1721.100   Purpose.
1721.101   General.
1721.102   Definitions.
1721.103   Policy.
1721.104   Eligible purposes.
1721.105   Application documents.
1721.106   Repayment of deferred payments.
1721.107   Agreement.
1721.108   Commencement of the deferment.
1721.109   OMB Control Number.

Subpart B--Extensions of Payments of Principal and Interest


Sec. 1721.100  Purpose.

    This subpart contains RUS procedures and conditions under which 
Borrowers of loans made by RUS may request RUS approval for extensions 
for the payment of principal and interest.


Sec. 1721.101  General.

    (a) The procedures in this subpart are intended to provide 
Borrowers with the flexibility to request an extension of principal and 
interest as authorized under section 12(a) of the RE Act and section 
236 of the Disaster Relief Act of 1970 (Public Law 91-606).
    (b) The total amount of principal and interest that has been 
deferred, including interest on deferred principal, will be added to 
the principal balance, and the total amount of principal and interest 
that has been deferred will be reamortized, through level payment, over 
the remaining life of the applicable note beginning in the first year 
the deferral period ends.
    (c) Payment of principal and interest will not be extended more 
than 5 years after such payment is due as originally scheduled. 
However, in cases where the extension is being granted because, at the 
sole discretion of the Administrator, a severe hardship has been 
experienced, the Administrator may grant a longer extension provided 
that the maturity date of any such loan does not extend to a date 
beyond forty (40) years from the date of the note.


Sec. 1721.102  Definitions.

    The definitions contained in 7 CFR 1710.2 are applicable to this 
subpart unless otherwise stated.

[[Page 486]]

Sec. 1721.103  Policy.

    (a) In reviewing requests for extension of payment of principal and 
interest, consideration shall be given to the effect of such extensions 
on the security of the Government's loans, and on the ability of the 
Borrower to achieve program objectives. It is the policy of RUS to 
extend the time for payment of principal and interest on the basis of 
findings that such extension does not impair the security and 
feasibility of the Government's loans and:
    (1) Is essential to the effectiveness of the Borrower's operations 
in achieving RUS program objectives which include providing reliable, 
affordable electricity to RE Act beneficiaries;
    (2) Is necessary to help a Borrower place its operations on a more 
stable financial basis and thereby provide assurance of repayment of 
loans within the time when payments of such loans are due under the 
terms of the note or notes as extended; or
    (3) Is otherwise in the best interest of the Government.
    (b) Extensions will be given in the minimum amount to achieve the 
purpose of the extension.


Sec. 1721.104  Eligible purposes.

    (a) Deferments for financial hardship. (1) In cases of financial 
hardship, a Borrower may request that RUS defer principal or interest 
or both. RUS will consider whether the deferral will help a Borrower 
place its operations on a more stable financial basis and thereby 
provide assurance of repayment of loans within the time when payment of 
such loans are due under the terms of the note or notes as extended.
    (2) RUS will determine whether a Borrower qualifies for the 
deferment on a case-by-case basis, considering such factors as the 
following:
    (i) Substantial unreimbursed or uninsured expenses relating to 
storm damage;
    (ii) Loss of large power load (as defined in Sec. 1710.7(c)(6)(ii) 
of this chapter, Large retail power contracts); or
    (iii) Substantial loss of consumers or load due to hostile 
annexations and condemnations, without adequate compensation.
    (b) Deferments for energy resource conservation (ERC) loans.
    (1) A Borrower may request that RUS defer principal payments to 
make funds available to the Borrower's consumers to conserve energy. 
Amounts deferred under this program can be used to cover the cost of 
labor and materials for the following energy conservation measures:
    (i) Caulking;
    (ii) Weather-stripping;
    (iii) Heat pump systems (including water source heat pumps);
    (iv) Heat pumps, water heaters, and central heating or central air 
conditioning system replacements or modifications, which reduce energy 
consumption;
    (v) Ceiling insulation;
    (vi) Wall insulation;
    (vii) Floor insulation;
    (viii) Duct insulation;
    (ix) Pipe insulation;
    (x) Water heater insulation;
    (xi) Storm windows;
    (xii) Thermal windows;
    (xiii) Storm or thermal doors;
    (xiv) Electric system coordinated customer-owned devices that 
reduce the maximum kilowatt demand on the electric system;
    (xv) Clock thermostats; or
    (xvi) Attic ventilation fans.
    (2) ERC loans will be amortized over not more than 84 months, 
without penalty for prepayment of principal.
    (c) Deferments for renewable energy projects. (1) A Borrower may 
request that RUS defer principal payments to enable the Borrower to 
finance renewable energy projects. Amounts deferred under this program 
can be used to cover costs to install all or part of a renewable energy 
system including, without limitation:
    (i) Energy conversion technology;
    (ii) Electric system interface;
    (iii) Delivery equipment;
    (iv) Control equipment; and
    (v) Energy consuming devices.
    (2) A Borrower may request that RUS defer principal payments for 
the purpose of enabling the Borrower to provide its consumers with 
loans to install all or part of customer-owned renewable energy systems 
up to 5kW.
    (3) A renewable energy system is defined in Sec. 1710.2 of this 
chapter.
    (4) For the purpose of this subpart, a renewable energy project 
consists of one or more renewable energy systems.
    (d) Deferments for contributions-in-aid of construction.
    (1) A Borrower may request RUS to defer principal payments to 
enable the Borrower to make funds available to new full time 
residential consumers to assist them in paying their share of the 
construction costs (contribution-in-aid of construction) needed to 
connect them to the Borrower's system.
    (2) Amounts available for this purpose will be limited to the 
amount of the construction costs that are in excess of the average cost 
per residential consumer incurred by the Borrower to connect new full 
time residential consumers during the last calendar year for which data 
are available. The average cost per residential consumer is the total 
cost incurred by the Borrower and will not be reduced by the amounts 
received as a contribution-in-aid of construction.


Sec. 1721.105  Application documents.

    (a) Deferments for financial hardship. A Borrower requesting a 
section 12 deferment because of financial hardship must submit the 
following:
    (1) A summary of the financial position of the Borrower, based on 
the latest information available (usually less than 60 days old).
    (2) A copy of the board resolution requesting an extension due to 
financial hardship.
    (3) A 10-year financial forecast of revenues and expenses on a cash 
basis, by year, for the period of the extension and 5 years beyond to 
establish that the remaining payments can be made as rescheduled.
    (4) A listing of notes or portions of notes to be extended, the 
effective date for the beginning of the extension, and the length of 
the extension.
    (5) A narrative description of the nature and cause of the hardship 
and the strategy that will be instituted to mitigate or eliminate the 
effects of the hardship.
    (b) Deferments for energy resource conservation loans. A Borrower 
requesting principal deferments for an ERC loan program must submit the 
following information:
    (1) A letter from the Borrower's General Manager requesting an 
extension of principal payments for the purpose of offering an ERC loan 
program to its members and describing the details of the program.
    (2) A copy of the board resolution establishing the ERC loan 
program.
    (c) Deferments for renewable energy projects. A Borrower requesting 
principal deferments for its renewable energy project must submit the 
following information:
    (1) A letter from the Borrower's General Manager requesting an 
extension of principal payments for the purpose of financing a 
renewable energy project and describing the details of the project.
    (2) A copy of the board resolution establishing the renewable 
energy project.
    (d) Deferments for contribution-in-aid of construction. A Borrower 
requesting principal deferments for contribution-in-aid of construction 
must submit the following information:
    (1) A letter from the Borrower's General Manager requesting an 
extension of principal payments for the purpose of offering a 
contribution-in-aid of construction program and describing the details 
of the program.

[[Page 487]]

    (2) A copy of the board resolution establishing the contribution-
in-aid of construction program.
    (3) A summary of the calculations used to determine the average 
cost per residential consumer. (See Sec. 1721.104 (e)(2)).


Sec. 1721.106  Repayment of deferred payments.

    (a) Deferments relating to financial hardship. The total amount of 
principal and interest that has been deferred, including interest on 
deferred principal, will be added to the principal balance, and the 
total amount of principal and interest that has been deferred will be 
reamortized over the life of the applicable note beginning in the first 
year the deferral period ends. For example: the amount of interest 
deferred in years 2001, 2002, 2003, 2004, and 2005, will be added to 
the principal balance and reamortized over the life of the applicable 
note for repayment starting in year 2006.
    (b) Deferments relating to the ERC loan program, renewable energy 
project, and the contribution-in-aid of construction. An extension 
agreement is for a term of two (2) years. The installment will be 
recalculated each time the Borrower defers the payment of principal and 
recognition of the deferred amount will begin with the next payment. 
For example: the amount deferred in the October payment will be 
reamortized over a 84 month period starting with the next payment 
(November if paying on a monthly basis). When a Borrower defers 
principal under any of these programs the scheduled payment on the 
account will increase by an amount sufficient to pay off the deferred 
amount, with interest, by the date specified in the agreement (usually 
84 months (28 quarters)).


Sec. 1721.107  Agreement.

    After approval of the Borrower's request for a deferment of 
principal and interest, an extension agreement, containing the terms of 
the extension, together with associated materials, will be prepared and 
forwarded to the Borrower by RUS. The extension agreement will then be 
executed and returned to RUS by the Borrower.


Sec. 1721.108  Commencement of the deferment.

    The deferment of principal and interest will not begin until the 
extension agreement and other supporting materials, in form and 
substance satisfactory to RUS, have been executed by the Borrower and 
returned to RUS. Examples of other supporting materials are items such 
as approving legal opinions from the Borrower's attorney and approvals 
from the relevant regulatory body for extending the maturity of 
existing debt and for the additional debt service payment incurred.


Sec. 1721.109  OMB control number.

    The information collection requirements in this part are approved 
by the Office of Management and Budget and assigned OMB control number 
0572-0123.

    Dated: December 18, 2001.
Hilda Gay Legg,
Administrator, Rural Utilities Service.
[FR Doc. 02-234 Filed 1-3-02; 8:45 am]
BILLING CODE 3410-15-P