[Federal Register Volume 67, Number 101 (Friday, May 24, 2002)]
[Proposed Rules]
[Pages 36542-36544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-13102]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
 ========================================================================
 

  Federal Register / Vol. 67 , No. 101 / Friday, May 24, 2002 / 
Proposed Rules  

[[Page 36542]]



DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1710 and 1717

RIN 0572-AB68


Exceptions of RUS Operational Controls Under Section 306E of the 
RE Act

AGENCY: Rural Utilities Service, USDA.

ACTION: Proposed rule.

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SUMMARY: In an effort to continually look for ways to streamline 
requirements of borrowers and make regulations simple and direct, the 
Rural Utilities Service (RUS) proposes to eliminate regulations on 
Exceptions of RUS Operational Controls under Section 306E of the RE Act 
in its entirety. Because borrowers are now afforded the same exemptions 
from RUS operational controls by way of other provisions, RUS has 
determined that the regulations can now be removed.

DATES: Written comments must be received by RUS or carry a postmark or 
equivalent no later than June 24, 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 from 
coverage 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 and action against the Department or its agencies.

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) 
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 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 currently treats the general subject of operational controls 
for recipients of electric loans and guarantees in three separate 
places, namely in RUS loan documents, in 7 CFR part 1717, subpart M, 
and in 7 CFR 1710.7. In the interests of eliminating confusion and to 
continue in its ongoing program to streamline RUS regulations, RUS is 
proposing to remove 7 CFR 1710.7. An understanding of how RUS treatment 
of operational controls evolved in the 1990's is essential to 
understanding this action.
    In November of 1993, Congress enacted sec. 306e of the Rural

[[Page 36543]]

Electrification Act of 1936 (RE Act)(7 U.S.C. 936e), directing RUS to 
be ``guided by the practices of private lenders'' to ``minimize the 
approval rights, requirements and restrictions, and prohibitions that 
the Secretary otherwise may establish with respect to the operations'' 
of any electric borrower whose net worth exceeds 110 percent of the 
outstanding principal balance on loans made or guaranteed by RUS (Pub. 
L. 103-129 2(c)(7)). In December 1993, Congress made technical 
corrections to the act and effectively directed the Administrator to 
issue ``interim final regulations'' to implement sec. 306e within 180 
days (Pub. L. 103-201). RUS did so on January 28, 1994 (59 FR 3982), 
thereby creating 7 CFR 1710.7. Members of the class of electric 
borrowers subject to this regulation are commonly referred to as ``110 
percent borrowers.''
    On December 29, 1995 (60 FR 67395), RUS published a final rule 
substantially revising the forms of its loan documents to extend the 
benefits of the treatment of 110 percent borrowers to virtually all RUS 
borrowers. That exercise made the most comprehensive changes to RUS 
loan documents in over 20 years and was guided by the practices of 
private lenders. Consequently, regardless of whether they were entitled 
to treatment as 110 percent borrowers, all borrowers using the updated 
forms of loan documents enjoyed their more contemporary treatment of 
the subject of operational controls. That treatment closely followed 
the treatment of 110 percent borrowers in 7 CFR 1710.7. In the same 
rulemaking, RUS promulgated 7 CFR part 1717, subpart M, which also 
treated the subject of operational controls. Subpart M was intended to 
manage the transition from old style loan documents to the more 
contemporary new forms in an orderly and equitable way. RUS was 
concerned that all of its borrowers would simultaneously request 
replacement of their existing loan documentation with the new forms. 
Constraints on RUS resources necessitated the phasing in of the new 
loan documents. RUS managed its concerns by promulgating subpart M to 
conform the requirements for existing loan documents to those being 
used in the new forms. Borrowers who have not yet replaced their loan 
documents with the new forms are referred to as ``legacy'' borrowers.
    In the preamble to that 1995 rulemaking, RUS explained the 
relationship between these three separate treatments of the subject of 
operational controls: ``The provisions of the new mortgage and loan 
contract and 7 CFR part 1717, subpart M, in many cases provide greater 
latitude to borrowers than established originally in 7 CFR 1710.7 for 
110 percent borrowers. Therefore, [sect] 1710.7 has been revised to 
reflect the greater latitude provided in the new loan documents and 
Subpart M.''
    RUS also concluded that in its ``judgement'' and citing ``prudent 
private lending practices,'' the further relaxation of operational 
controls for 110 percent borrowers was not justified beyond what was 
provided for every borrower in the new loan documents and in subpart M 
for ``legacy'' borrowers. In other words, by changing 7 CFR 1710.7 only 
so far as necessary to avoid the anomaly of 110 percent borrowers being 
subjected to more restrictive covenants under 7 CFR 1710.7 then they 
otherwise would have been as a typical borrower operating under the new 
documents and regulations, RUS made operational controls for 110 
percent borrowers coextensive with the relaxed operational controls in 
the new loan documents and subpart M. Thus, for all intents and 
purposes, on December 29, 1995, the treatment of operational controls 
for all three categories of electric borrowers converged around the 
less intrusive approach adopted by the new loan documents reflecting 
private lending practices.
    Since 1995, almost all RUS electric borrowers have executed the new 
loan documents. About 100 electric borrowers still have the old forms, 
but the distinctions in operational controls have been eliminated by 
subpart M. It should also be noted that every 110 percent electric 
borrower either now has the new form of loan documents or has 
``legacy'' loan documents, which have been modified by the promulgation 
of subpart M. Accordingly, the subject of operational controls is now 
treated essentially the same way for all distribution borrowers 
regardless of their 110 percent borrower status. In all instances, that 
treatment has been guided by the practices of private lenders. Since 
that treatment of operational controls conforms to the requirements of 
sec. 306e of the RE Act, 7 CFR 1710.7 now appears to be an anachronism 
that no longer serves any useful purpose.
    RUS notes that sec. 306e of the RE Act also treats the subject of 
lien accommodations and subordinations for 110 percent borrowers. 
Although this remains important, the subject of lien accommodations and 
subordinations for 110 percent borrowers is separately treated in 7 CFR 
1717.860 and 7 CFR 1717.904. Although 7 CFR 1717.904 contains some 
cross-references to 7 CFR 1710.7(c), these appear to be merely reader's 
aids. Accordingly, RUS proposes to amend 7 CFR 1717.904 by eliminating 
paragraphs (c) and (d) thereof and redesignating the existing paragraph 
(e) as paragraph (c). RUS considers these changes in 7 CFR 1717.904 to 
be of a conforming nature and no substantive change in the existing 
treatment of requests for lien accommodations or subordinations by 110 
percent borrowers is intended. No changes in 7 CFR 1717.860 are 
necessitated by the proposed action and so none are being made.
    For all of the above reasons, it appears that 7 CFR 1710.7 has 
become an anachronism because the subsequent promulgation of new loan 
documents and subpart M effectively conferred the benefits of 7 CFR 
1710.7 to all borrowers. Borrowers who are relying on subpart M are 
encouraged to switch to the new forms of loan documents so that subpart 
M itself can eventually be removed at a later date once the universe of 
legacy borrowers has sufficiently contracted to the point that any 
remaining legacy borrowers could be dealt with either informally or on 
a case-by-case basis. RUS does not believe this proposed action will 
diminish or abrogate any rights or privileges conferred upon 110 
percent borrowers by sec. 306e of the RE Act, and no such consequences 
are intended.

List of Subjects

7 CFR Part 1710

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

7 CFR Part 1717

    Administrative practice and procedure, Electric power, Electric 
power rates, Electric utilities, Intergovernmental relations, 
Investments, Loan programs--energy, Reporting and recordkeeping 
requirements, Rural areas.

    For the reasons set forth in the preamble, chapter X 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.

[[Page 36544]]

Subpart A--General


[sect] 1710.7  [Removed and Reserved]

    2. Section 1710.7 is removed and reserved.

PART 1717--POST-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND 
GUARANTEED ELECTRIC LOANS

    3. The authority citation for part 1717 continues to read as 
follows:

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

Subpart S--Lien Accommodations for Supplemental Financing Required 
by 7 CFR 1710.110


[sect] 1717.904  [Amended]

    4. Section 1717.904 is amended by removing paragraphs (c) and (d) 
and redesignating paragraph (e) as paragraph (c).

    Dated: May 20, 2002.
Curtis M. Anderson,
Acting Administrator, Rural Utilities Service.
[FR Doc. 02-13102 Filed 5-23-02; 8:45 am]
BILLING CODE 3410-15-P