[Federal Register Volume 59, Number 105 (Thursday, June 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-13402]
[[Page Unknown]]
[Federal Register: June 2, 1994]
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DEPARTMENT OF AGRICULTURE
Rural Electrification Administration
7 CFR Part 1710
Credit Support of Power Supply Borrowers
AGENCY: Rural Electrification Administration, USDA.
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: The Rural Electrification Administration (REA) is considering
revising its policies regarding credit support required in connection
with loans to power supply borrowers (G&T's) and is hereby soliciting
comments from interested parties on issues relating to credit support.
DATES: Written comments and recommendations must be received by REA by
July 18, 1994.
ADDRESSES: Written comments should be addressed to F. Lamont Heppe,
Jr., Deputy Director, Program Support Staff, Rural Electrification
Administration, room 2234, 14th and Independence Avenue, SW.,
Washington, DC 20250-1500. REA requires a signed original and three
copies of all comments (7 CFR 1700.30(e)). All comments received will
be made available for public inspection in room 2234-S (address as
above) during regular business hours (7 CFR 1.27 (b)).
FOR FURTHER INFORMATION CONTACT: F. Lamont Heppe, Jr., Deputy Director,
Program Support Staff, room 2234-S, at the above address. Telephone:
(202) 720-0736.
SUPPLEMENTARY INFORMATION:
Background
REA-financed cooperatives are generally organized on a two-tier
system with power supply borrowers providing wholesale service to their
member/owners, the distribution cooperatives. The power supply borrower
owns or controls generation and bulk transmission facilities. The
distribution members own the facilities necessary to serve consumers on
the retail level. Taken together, a power supply borrower and its
distribution members are essentially one economic unit, similar to a
typical investor-owned utility which owns or controls both the sources
of production and the retail franchises. This unity of ownership and
interest between the power supply cooperative and its owners has made
possible a highly efficient capitalization structure uniquely suited to
the needs of REA's constituency.
Distribution cooperatives entered into long term contracts to
purchase all their power requirements from the power supply cooperative
at the rates necessary to cover all the power supplier's costs,
including debt service on its loans. These contracts, together with all
other assets of the power supply cooperative, are pledged as security
for billions of dollars of loans to the power supply cooperatives by
the Government and private sector alike. The Government and other
lenders have generally not required power suppliers to develop and
maintain equity. As a result, consumers benefitted from lower electric
rates,
While, in most cases, REA credit support requirements currently
include the long term, all-requirements wholesale power contract and
the first lien on all property including after acquired property, in
several instances REA has required additional credit support in the
form of guarantees from the G&T's members.
REA is undertaking to review the requirement for credit support in
connection with G&T loans and loan guarantees. REA will be taking into
consideration the G&T profile and the projects undertaken by the G&T.
This profile includes some of the following characteristics: 100% debt
financing from REA; equity considerations; and complex issues
concerning their wholesale power contract agreements. REA financing of
G&T projects generally consists of primarily guarantees of FFB loans
and lien accommodations.
I. Credit Support Considerations
REA is requesting input on all factors that impact on the
feasibility and risks associated with the borrower and the project to
be financed. Factors to be considered may include the following:
a. The regulatory climate (degree of regulation, regulatory body
policies);
b. Economics of the service territory (consumer growth trends,
consumer load diversity, revenue by consumer class),;
c. The power supply borrowers' current and future electric resource
arrangement (capacity, fuel agreements, purchased power, generation
statistics);
d. Construction and operating risk of the proposed facility;
e. Quality of management (strategic planning, consumer relations,
experience, depth, capability, credibility, response to changing
environment);
f. Whether the borrower is operating under a debt restructure
agreement with REA
g. Impact on distribution member cooperative rates; and
h. Rate competitiveness;
i Territorial integrity.
j. Diversification activity and/or plans:
k. Analysis of accounting practices vs. industry practices.
Comments are specifically requested on what factors should be
considered, how the factors should be weighted, i.e. the ranking
criteria, and on when REA should generally not require additional
credit support.
REA anticipates reserving the right to require credit support on
any loan or loan guarantee it deems necessary.
II. Types of Support
REA is also requesting input on the forms of credit support REA
should require under those circumstances where additional credit
support is required. Respondents should consider, among others, in
addition to the lien on wholesale power contracts and all system
assets, the following types of support:
a. G&T member guarantees of loans made to a G&T;
b. Guarantees by financial institutions of G&T loans in lieu of
member guarantees; and
c. Letters of Credit obtained by members in lieu of a guarantee.
REA is also requesting comments and suggestions on the terms and
conditions that would attach to such credit support. Comments are
specifically requested on the concepts of joint and several liability
of guarantors, liability caps, pro rata sharing of liability,
acceleration of the support obligations under certain circumstances,
collateralization, term, and termination.
Authority: 7 U.S.C. 901-950(b); Public Law 99-591; Delegation of
Authority by the Secretary of Agriculture, 7 CFR 2.23; Delegation of
Authority by the Under Secretary of Small Community and Rural
Development, 7 CFR 2.72.
Dated: May 26, 1994.
Bob J. Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-13402 Filed 6-1-94; 8:45 am]
BILLING CODE 3410-15-P
