[Federal Register Volume 68, Number 88 (Wednesday, May 7, 2003)]
[Rules and Regulations]
[Pages 24335-24336]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-11241]



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 Rules and Regulations
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  Federal Register / Vol. 68, No. 88 / Wednesday, May 7, 2003 / Rules 
and Regulations  

[[Page 24335]]



DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1710

RIN 0572-AB80


Useful Life of Facility Determination

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule.

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SUMMARY: The Rural Utilities Service (RUS) is changing the requirement 
to use depreciation rates for determining loan terms. Depreciation 
rates contain other variables such as cost of removal and salvage value 
which preclude using these rates to determine useful life of a facility 
when these other variables are unknown. RUS depreciation requirements 
for financial statement purposes remain in effect.
    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 solely on depreciation rates has been 
determined to not be as appropriate as looking at proposals on a case-
by-case basis. This rule is made as part of the RUS efforts to 
continually look for ways to streamline lending requirements and make 
regulations useful and direct.

EFFECTIVE DATE: May 7, 2003.

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 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 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

    It has been determined that the Regulatory Flexibility Act is not 
applicable to this rule since the Rural Utilities Service is not 
required by 5 U.S.C. 551 et seq. or any other provision of law to 
publish a notice of proposed rulemaking with respect to the subject 
matter of this rule.

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 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 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 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. The final maturity is based on the useful 
life of the facilities to be financed. When determining the useful life 
of such facilities, current regulations require that the useful life 
determination be consistent with the borrower's proposed depreciation 
rates for facilities. The depreciation requirements contained in RUS 
Bulletin 183-1 remain in effect for financial statement preparation and 
allocation of asset costs. However, depreciation rates cannot be 
readily converted to determine a facility's useful life.
    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.
    RUS will continue to allow borrowers the option of utilizing the 
depreciation rates contained in RUS Bulletin 183-1 and avoid the cost 
of individual

[[Page 24336]]

depreciation studies to determine the components of its depreciation 
rates. This rule will eliminate the requirement for a useful life 
determination based solely 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 for loan term 
calculation. RUS will consider 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 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.
    This rule change was first issued as a proposed rule and published 
in the Federal Register, Vol. 67, No. 68, Tuesday, April 9, 2002. One 
comment was received in full support of the rule change and provided 
specific reasons why reliance on Bulletin 183-1 alone may not be the 
best method for determining the useful life of a facility. The RUS is 
making 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 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.


0
For the reasons set forth in the preamble, chapter XVII of title 7 of 
the Code of Federal Regulations, is amended as follows:

PART 1710--GENERAL AND PRE-LOAN POLICIES AND PROCEDURES COMMON TO 
INSURED AND GUARANTEED ELECTRIC LOANS

0
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

0
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 17, 2003.
Hilda Gay Legg,
Administrator, Rural Utilities Service.
[FR Doc. 03-11241 Filed 5-6-03; 8:45 am]
BILLING CODE 3410-15-P