[Federal Register Volume 67, Number 68 (Tuesday, April 9, 2002)]
[Proposed Rules]
[Pages 17018-17020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-8484]


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DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1710

RIN 0572-AB80


Useful Life of Facility Determination

AGENCY: Rural Utilities Service, USDA.

ACTION: Proposed rule.

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SUMMARY: The Rural Utilities Service (RUS) proposes to eliminate the 
requirement to use depreciation rates as found in Bulletin 183-1, for 
determining the useful life of a facility. If the proposed useful life 
of a facility is deemed inappropriate by RUS, other means to establish 
an appropriate term for the loan will apply. Current reliance on the 
fixed range of depreciation rates found in Bulletin 183-1, to be used 
across the country, has been determined to not be as appropriate as 
looking at proposals on a case-by-case basis. This proposed rule is 
made as part of the RUS efforts to continually look for ways to 
streamline lending requirements and make regulations useful and direct.

[[Page 17019]]


DATES: Written comments must be received by RUS or carry a postmark or 
equivalent no later than May 9, 2002.

ADDRESSES: Written comments should be addressed to F. Lamont Heppe, 
Jr., Director, Program Development and Regulatory Analysis, Rural 
Utilities Service, U.S. Department of Agriculture, STOP 1522, 1400 
Independence Ave., SW., Washington, DC 20250-1522. RUS requests 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: Patrick R. Sarver, Management Analyst, 
Rural Utilities Service, Electric Program, Room 4024 South Building, 
Stop 1560, 1400 Independence Ave., SW., Washington, DC 20250-1560, 
Telephone: 202-690-2992, FAX: 202-690-0717, E-mail: 
[email protected].

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This proposed rule has been determined to be not significant for 
purposes of Executive Order 12866 and, therefore, has not been reviewed 
by the Office of Management and Budget (OMB).

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. See the final rule related notice titled 
``Department Programs and Activities Excluded from Executive Order 
12372'' (50 FR 47034) advising that RUS loans and loan guarantees were 
not covered by Executive Order 12372.

Executive Order 12988

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. RUS has determined that this proposed 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 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 before an action against the Department or its agencies may 
be initiated.

Regulatory Flexibility Act Certification

    In accordance with the Regulatory Flexibility Act (5 U.S.C. 601 et 
seq.), the Administrator of RUS has determined that this rule will not 
have significant impact on a substantial number of small entities. The 
RUS electric loan program provides loans 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 cost 
associated with RUS regulations and requirements.

Information Collection and Recordkeeping Requirements

    This rule contains no additional information collection or 
recordkeeping requirements under OMB control number 0572-0032 that 
would require approval under the Paperwork Reduction Act of 1995 (44 
U.S.C. Chapter 35).

Unfunded Mandates

    This proposed 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 proposed 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 proposed 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 proposed 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 Superintendent of Documents, U.S. 
Government Printing Office, Washington, DC 20402-9325, telephone number 
(202) 512-1800.

Background

    RUS is authorized to make loans and loan guarantees with a final 
maturity of up to 35 years. When determining the useful life of a 
facility to be financed, current regulations require that the useful 
life determination be consistent with the borrower's proposed 
depreciation rates for facilities. If the depreciation rates are deemed 
inappropriate by RUS, then the depreciation rates listed in RUS 
Bulletin 183-1 will apply. RUS Bulletin 183-1, last updated in 1977, 
provides the borrower depreciation rates by asset class, which is meant 
to be used by all borrowers across the country. The standard 
depreciation rates that are published in Bulletin 183-1 are presented 
as a range of rates to allow for the recognition of locational and 
situational differences.
    Depreciation is the allocation of asset costs over the period that 
the asset provides a benefit. The system of allocation should correctly 
match cost with related revenue, while recognizing the declining 
service value of the asset. Both use and usefulness of the asset 
influence the rate of depreciation. Appropriate determination of 
depreciation for a particular asset should consider the past experience 
with similar assets, the asset's present condition and the factory's 
maintenance policy. Other considerations include technological and 
industry trends, and local environmental conditions.
    In the electric utility industry depreciation is designed to 
allocate the costs of electric plant, including net salvage (cost of 
removal less salvage), over the estimated useful life of the plant. The 
depreciation rates, therefore, include components for estimated cost of 
removal and net salvage. In recent years net salvage has, in many 
cases, become a significant factor in depreciation rates. As a result, 
without knowing the net salvage components the depreciation rates 
cannot readily be converted to determine the estimated useful life of 
electric plant.
    Because of the growing difficulty in determining the net salvage 
value and the resulting difficulty in accurately determining useful 
life, RUS is proposing to eliminate the requirement for a useful life 
determination based upon the depreciation rates as found in Bulletin 
183-1. If the useful life being proposed by the borrower is not 
satisfactory to RUS, the depreciation rates listed in RUS Bulletin 183-
1 will no longer be used in lieu there of. Instead, RUS proposes using 
an independent evaluation, the manufacturer's estimated useful-life or 
RUS experience with like-property as alternatives to an unsatisfactory 
proposal made by the borrower. RUS views this new back-stop approach to 
reviewing and approving the

[[Page 17020]]

determination of the useful life of a facility as a more appropriate 
method. The increased difficulties in establishing net salvage values 
and recent experience in using the fixed range of depreciation rates as 
found in Bulletin 183-1, dictates a more flexible approach.
    The RUS is proposing this change to regulations as part of its 
ongoing effort to minimize administrative burden, streamline the loan 
process, and update regulations to reflect current requirements. This 
proposed change in regulations will provide greater latitude in 
establishing the useful life of a facility being financed but at the 
same time maintain RUS approval for making the determination.

List of Subjects in 7 CFR Part 1710

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

    For the reasons set forth in the preamble, chapter XVII of title 7 
of the Code of Federal Regulations, is proposed to be 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., 6941 et seq.

Subpart C--Loan Purposes and Basic Policies

    2. Amend Sec. 1710.115 by revising paragraph (b) to read as 
follows:


Sec. 1710.115  Final maturity.

* * * * *
    (b) Loans made or guaranteed by RUS for facilities owned by the 
borrower generally must be repaid with interest within a period, up to 
35 years, that approximates the expected useful life of the facilities 
financed. The expected useful life shall be based on the weighted 
average of the useful lives that the borrower proposes for the 
facilities financed by the loan, provided that the proposed useful 
lives are deemed appropriate by RUS. RUS Form 740c, Cost Estimates and 
Loan Budget for Electric Borrowers, submitted as part of the loan 
application must include, as a note, either a statement certifying that 
at least 90 percent of the loan funds are for facilities that have a 
useful life of 33 years or longer, or a schedule showing the costs and 
useful life of those facilities with a useful life of less than 33 
years. If the useful life determination proposed by the borrower is not 
deemed appropriate by RUS, RUS will base expected useful life on an 
independent evaluation, the manufacturer's estimated useful-life or RUS 
experience with like-property, as applicable. Final maturities for 
loans for the implementation of programs for demand side management and 
energy resource conservation and on and off grid renewable energy 
sources not owned by the borrower will be determined by RUS. Due to the 
uncertainty of predictions over an extended period of time, RUS may add 
up to 2 years to the composite average useful life of the facilities in 
order to determine final maturity.
* * * * *

    Dated: March 27, 2002.
Blaine D. Stockton,
Acting Administrator, Rural Utilities Service.
[FR Doc. 02-8484 Filed 4-8-02; 8:45 am]
BILLING CODE 3410-15-P