00-29499. General and Pre-Loan Policies and Procedures Common to Insured and Guaranteed Loans

AGENCY:

Rural Utilities Service, USDA.

ACTION:

Notice of confirmation of direct final rule.

SUMMARY:

The Rural Utilities Service (RUS) hereby gives notice that comments were received regarding direct final rule on General and Pre-Loan Policies and Procedures Common to Insured and Guaranteed Electric Loans, and reconfirms the effective date of the direct final rule. This notice also serves to address the comments received.

Dates:

The direct final rule, which was published on May 17, 2000, at 65 FR 31246, was effective July 3, 2000.

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: [phone]. FAX [phone]. E-mail: [e-mail].

Background

The Rural Utilities Service (RUS) published a direct final rule on May 17, 2000, at 65 FR 31246, in the Federal Register amending § 1710.254, Alternative Sources of Power, to allow flexibility in determining whether a borrower needs to solicit bids from all sources for new or replacement generation. It also deleted 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 reserves the right to 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.

RUS received comments from three parties on this direct final rule, two of which were deemed adverse. According to RUS policy, should adverse comments be received concerning a direct final rule, the agency would withdraw the direct final rule and the companion proposed rule, which was published in the same issue of the Federal Register, would be the ruling action. RUS failed to issue a withdrawal notice. As a result, the direct final rule became effective on July 3, 2000. In lieu of this oversight, RUS feels that this notice of confirmation of direct final rule serves to address the concerns of the commentors and at the same time confirms the effective date of the direct final rule. If not for this oversight, this rule would have become effective through the normal regulatory process though its companion proposed rule and then as a final rule.

A summaries of these comments and responses follows:

Comments

Comment: Tri-State is in agreement with the amendment, and appreciates the flexibility that RUS has written into this amendment. However, Tri State recommended (1) That language be added regarding environmental issues, and (2) that, if RUS requires an applicant to solicit proposals for sources of power, the applicant be allowed to comply with the requirement by submitting competitive bids previously obtained by regional utilities.

Reply: RUS appreciates the support for its efforts to modify the requirement that borrowers must seek bids from all sources if funding is requested for generation projects equal to or greater than 10 megawatt or for modifications to existing plants if it results in an increase in capacity of 10 percent or more. Although the comments on environmental issues and the timing of competitive bid solicitations are appreciated, RUS feels these comments are non-responsive and do not effect language in the regulation.

Comment: Otter Tail suggests that competitive bidding should be a standard imposed on any party seeking federal financing and that the inefficiencies in the review and approval process should not cause delays in an efficiently run business or agency. Otter Tail feels that RUS borrowers should be meeting their power needs within the market place and only when competitive policies have been followed should any borrower be eligible for federally subsidized loans.

Reply: The amendment does not abandon the practice of seeking competitive bids. Upon an RUS review of each project, a determination will be made whether there is a need for a borrower to seek competitive bids for the project. This evaluation by RUS will be performed on a case-by-case basis. RUS will continue to follow good business practice and make sound business decisions. At the same time, RUS will provide its borrowers with the flexibility to make sound business decisions to meet the power needs of rural America.

Comment: Edison objects to the amendment, stating that the present regulation has been in existence for a long time and is entirely consistent with the nation's transition to competitive wholesale power markets. RUS borrowers should seek to meet their power needs out of these markets and make every effort to do so before seeking more assistance from RUS in the form of subsidized loans.

Reply: This amendment deletes the requirement that borrowers seek bids if RUS financial assistance is requested from all sources for 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 competitive bids from all sources for the project. RUS will provide its borrowers with the flexibility to make sound business decisions to meet the power needs of rural America.

The direct final rule requires RUS to 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. Following the initial RUS review, if it is determined that a full solicitation for bids to supply new or replacement generation is necessary, then RUS will require such an evaluation process be completed. This amendment in no way is intended to minimize the need for all borrowers to follow good business practice in making economically sound business decisions. The direct final rule provides RUS electric borrowers with the flexibility and tools necessary to make prudent decisions to meet the power needs of rural customers in the competitive environment advanced by industry restructuring efforts.

These amendments to § 1710.254, provide borrowers with increased flexibility during the new and replacement electric power evaluation period. The new policy requires RUS to 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. Following this initial RUS review, if it is determined that a full solicitation for bids to supply new or replacement generation is necessary, then RUS will require that such an evaluation process be completed.

As the electric industry moves to a more competitive environment, it is imperative that RUS prudently review and revise policy when necessary. The amendments to 7 CFR part 1710 are in no way intended to minimize the need for all borrowers to follow good business practice in making economically sound business decisions. The direct final rule provides RUS borrowers with the flexibility and tools necessary to make prudent decisions to meet the power needs of rural customers in the competitive environment advanced by industry restructuring efforts.

To that effect the direct final rule stands as published.

Confirmation of Effective Date

This is to confirm the effective date of July 3, 2000, of the direct final rule, 7 CFR Part 1710, General and Pre-Loan Policies and Procedures Common to Insured and Guaranteed Electric Loans, published in the Federal Register on May 17, 2000, at 65 FR 31246.

Dated: November 13, 2000.

Anthony C. Haynes,

Acting Administrator, Rural Utilities Service.