[Federal Register Volume 59, Number 150 (Friday, August 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18772]
[[Page Unknown]]
[Federal Register: August 5, 1994]
VOL. 59, NO. 150
Friday, August 5, 1994
DEPARTMENT OF AGRICULTURE
Rural Electrification Administration
7 CFR Parts 1710, 1714, and 1785
RIN 0572-AA69
Pre-loan Policies and Procedures for Electric Loans
AGENCY: Rural Electrification Administration, USDA.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Rural Electrification Administration (REA) proposes to
amend its pre-loan regulations for electric loans. Key provisions of
this proposed regulation include: lengthening the allowable loan period
for insured and guaranteed electric loans for distribution,
transmission, and improvements to generation facilities to 4 years;
clarifying REA requirements for supplemental financing concurrent with
municipal rate loans; substantially modifying the requirement that
borrowers develop and maintain certain levels of equity; and clearly
setting forth the documents required for a complete loan application.
This regulation is intended to facilitate the application process for
borrowers and reduce administrative costs to the government.
DATES: Written comments must be received by REA or carry a postmark or
equivalent by October 4, 1994.
ADDRESSES: Written comments should be addressed to Sue Arnold, Program
Support Staff, U.S. Department of Agriculture, Rural Electrification
Administration, room 2230-s, 14th Street and Independence Avenue, SW.,
Washington, DC 20250-1500. REA requires a signed original and three
copies of all comments (7 CFR 1700.30 (e)). Comments will be available
for public inspection during regular business hours (7 CFR 1.27(b)).
FOR FURTHER INFORMATION CONTACT: Sue Arnold, Financial Analyst, U.S.
Department of Agriculture, Rural Electrification Administration, room
2230-s, 14th Street & Independence Avenue, SW., Washington, DC 20250-
1500. Telephone: 202-720-0736. FAX 202-742-4120.
SUPPLEMENTARY INFORMATION: This proposed rule has been determined to be
not significant for the purposes of Executive Order 12866 and therefore
has not been reviewed by the Office of Management and Budget (OMB). The
Administrator of REA has determined that the Regulatory Flexibility Act
(5 U.S.C. 601 et seq.) does not apply to this proposed rule. The
Administrator of REA 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. The program described by this proposed rule is
listed in the Catalog of Federal Domestic Assistance Programs under
number 10.850 Rural Electrification Loans and Loan Guarantees. This
catalog is available on a subscription basis from the Superintendent of
Documents, the United States Government Printing Office, Washington, DC
20402-9325. This proposed rule is excluded from the scope of Executive
Order 12372, Intergovernmental Consultation, which may require
consultation with State and local officials. A Notice of Final Rule
titled Department Programs and Activities Excluded from Executive Order
12372 (50 FR 47034) exempts REA electric loans and loan guarantees from
coverage under this Order. This proposed rule has been reviewed under
Executive Order 12778, Civil Justice Reform. If adopted, this proposed
rule: (1) Will not preempt any state or local laws, regulations, or
policies, unless they present an irreconcilable conflict with this
rule; (2) Will not have any retroactive effect; and (3) Will not
require administrative proceedings before any parties may file suit
challenging the provisions of this rule.
Information Collection and Recordkeeping Requirements
The existing recordkeeping and reporting burdens contained in this
proposed rule were approved by OMB pursuant to the Paperwork Reduction
Act of 1980 (44 U.S.C. 3501 et seq.), under control numbers 0572-0017,
0572-0032, and 0572-0103.
Send questions or comments regarding these burdens or any other
aspect of these collections of information, including suggestions for
reducing the burden, to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Attention: Desk Officer for
USDA, room 3201, NEOB, Washington, DC 20503.
Background
REA is proposing several amendments to pre-loan regulations
affecting both insured and guaranteed loans. These amendments are
intended to enhance the delivery of customer service by facilitating
the application process for borrowers, and reducing administrative
costs to the Government.
Loan Period
The first of the proposed amendments would lengthen the allowable
loan period to 4 years for both insured and guaranteed loans for the
construction of distribution and transmission facilities and for
improvements to generation facilities. The loan period, sometimes
referred to as the financing period, means the period of time during
which the facilities included in a loan application will be
constructed. Currently loans to distribution borrowers are limited to a
2 year loan period, and loans to power supply borrowers are limited to
a 3 year period. Some borrowers must apply for loans every 2 or 3 years
in order to meet their financing needs. REA believes that allowing a
longer loan period will, in the long run, significantly reduce loan
application costs to Agency customers, including REA borrowers and
supplemental lenders, as well as loan processing costs to the
Government. Borrowers would still have the option of applying for loans
for a shorter period, if they so desire, and REA reserves the right to
limit loans to a period of less than 4 years under certain
circumstances (Sec. 1710.106).
To accomplish this policy change, REA is proposing to amend the
definition of ``loan period'' (Sec. Sec. 1710.2 and 1710.106) and the
construction period required to be covered by the borrower's REA
construction work plan (Sec. 1710.251). On December 20, 1993, at 58 FR
66260, REA published a rule setting forth policies and procedures for
municipal rate loans pursuant to the Rural Electrification Loan
Restructuring Act of 1993. This regulation at 7 CFR 1714.6(a)(2) allows
not more than 6 advances of funds on any municipal rate loans. To
provide flexibility to borrowers, REA proposes increasing this number
to 8 advances if the loan period is longer than 2 years.
In conjunction with lengthening the allowable loan period, REA
proposes amendments to the requirements for automatic termination of
the Government's obligation to advance funds from insured loans.
Current regulations at 7 CFR 1785 subpart A, provide that funds from
insured loans approved on or after June 1, 1984, may be advanced for a
period of no more than 4 years from the date of the loan contract as
amended unless the borrower applies for, and the Administrator approves
an extension of the Government's obligation. Subpart A of part 1785 was
originally published May 29, 1984, at 49 FR 22266. As stated in its
preamble, the rule was intended to help assure that REA's loan funds
are used effectively and efficiently.
To allow borrowers to complete construction projects based on a
loan period of more than 2 years, REA proposes, in Sec. 1714.56, that
funds from insured loans approved on or after the effective date of the
rule proposed today may be advanced for a period of 1 year longer than
the loan period, provided that the fund advance period may not be
shorter than 4 years. For example, if the loan period is 2 or 3 years,
the period during which funds may be advanced would terminate after 4
years; if the loan period is 4 years, the fund advance period would
terminate after 5 years.
To provide borrowers with a fixed date for automatic termination,
REA is proposing that the date of the automatic termination be computed
from the date of the loan note, rather than the date of the loan
contract. On April 7, 1993, at 58 FR 18043, REA published a proposed
amendment to part 1785 that would, in effect, redesignate 7 CFR 1785
subpart A as 7 CFR 1785 subpart F. Since automatic termination of
insured electric loans is more closely related to the subject matter of
part 1714 than of part 1785, REA has determined that setting out the
requirements in detail in part 1714 would better serve the public. It
is, therefore, proposed that existing subpart A (proposed subpart F) of
part 1785 be removed.
Supplemental Financing
REA is proposing amendments to clarify policy on supplemental
financing requirements. Existing 7 CFR 1710.110 states that, except in
cases of financial hardship, applicants for a municipal rate insured
loan are required to obtain a portion of their loan funds from a
supplemental source without an REA guarantee. The method for
determining the supplemental financing percentage for each individual
loan is set forth in existing Secs. 1710.110(c)(1) and (2). For most
borrowers, this percentage is based on the borrower's plant revenue
ratio (PRR), as defined in Sec. 1710.2. To clarify the requirement for
those borrowers whose PRR changes between the time of the loan
application and the time of loan approval, REA is proposing to codify
the policy of using the PRR based on the most recent year-end data
available on the date of loan approval.
Consistent with longstanding REA policy, if termination or
rescission of an insured loan, or its associated supplemental loan
substantially affects the overall proportion of REA and supplemental
financing to a borrower, the amount of supplemental financing required
on that borrower's next municipal rate loan is adjusted to maintain the
overall proportion. Since REA loans generally carry a lower interest
rate than supplemental loans from private lenders, this policy is
intended to avoid (1) Penalizing borrowers following a loan rescission
and (2) Allowing a borrower to receive a disproportionate amount of low
interest REA financing.
The proposed amendment will clarify that the adjustment will only
be made following rescission or termination of more than 5 percent of
an insured loan subject to supplemental financing. No adjustment will
be made based on rescission of a hardship rate loan where no
supplemental financing was required. The amendment will also set forth
the formula used to compute the adjustment.
Amortization of Principal
Under current procedures, amortization of principal begins 2 years
after the date of the note for advances made during the first and
second years of the loan, and 4 years after the date of the note for
advances made during the third and fourth years. REA proposes to
continue existing policy with respect to advances made during the first
2 years of the loan. In conjunction with lengthening the allowable loan
period, REA is proposing, in Sec. 1714.58, that principal amortization
of advances made more than 2 years after the date of the note begin
with the loan payment billed in the next full month after the month of
the advances. For example, principal amortization on funds advanced any
time during the month of June of the third year after the date of the
note would begin with the bill sent to the borrower in July of that
year. In cases of financial hardship, the Administrator may approve a
principal deferment period of up to 2 years for any advances made after
the second year of the loan.
The initial 2 year deferment period allows the borrower to make
significant improvements to existing facilities and, in addition, to
place most of the new plant in service, earning revenues with which to
repay the loan. REA believes that any increase in scheduled payments
after the second year of the loan will represent only a fraction of a
borrower's total scheduled debt service payments and an even smaller
fraction of its total costs. Any increase in principal payments during
these later years will be offset by reduced principal payments in
subsequent years.
Final Maturity
REA proposes a technical change in the method used to evaluate
final maturity of loans. Pursuant to Sec. 1710.115, REA loans must be
repaid with interest within a period, up to 35 years, that approximates
the expected useful life of the facilities financed. The existing rule
bases expected useful life on the weighted average of the depreciation
rates proposed by the borrower. The proposed amendment will base final
maturity on useful life, rather than on depreciation rates. Although
depreciation rates and useful life are closely related, REA believes
that basing loan maturity directly on useful life is a more
straightforward approach.
Equity Development Plans
On January 9, 1992, at 57 FR 1053, REA published regulations
requiring at 7 CFR 1710.116, that a borrower whose total equity as a
percentage of total assets is, or is projected to be, less than certain
target levels, prepare and agree to follow an equity development plan
as a condition of obtaining an REA loan. For distribution borrowers the
target equity level is 40 percent; for power supply borrowers the
target level is 20 percent. The equity development plan must be
designed to make reasonable progress toward meeting the applicable
target level during a 10-year period without, as stated in the existing
rule at 7 CFR 1710.116(d), raising power costs or retail rates for
electricity unreasonably, placing an unreasonable burden on rate
payers, or substantially reducing the borrower's ability to compete
with neighboring utilities or other energy sources.
The requirement that borrowers develop and maintain equity was
intended to strengthen the Agency's credit policies and protect the
value of its loan portfolio. In accordance with the RE Act, REA may
make a loan only if the Administrator determines that the security
therefor is reasonably adequate and such loan will be repaid in full
within the time agreed. Since a borrower's total capitalization is
equal to the sum of its equity and its debt, a low ratio of equity to
total assets indicates a correspondingly high level of debt. The equity
targets were designed to minimize cases where over leverage could
jeopardize a borrower's ability to meet its financial obligations.
While REA still believes that low levels of equity present risks to
lenders, two years of experience with the equity development plan
requirement has demonstrated that such plans are an unnecessary and
burdensome means of achieving the desired result. As stated in the
preamble to the 1992 regulation, the target level of 40 percent for
distribution borrowers was based on the experience of REA borrowers,
typical industry standards, and the long established threshold in the
REA mortgage for determining whether REA approval is required for
borrowers to retire capital credits.
At the time the rule was published, about 48 percent of
distribution borrowers had equity levels of 40 percent or more, and an
additional 31 percent had between 30 and 40 percent equity levels. At
the end of 1992, before borrowers were significantly impacted by the
new requirement, the percentage of distribution borrowers with equity
levels of 40 percent or more had increased to 53 percent, and the
percentage with levels between 30 and 40 percent had increased to about
32 percent. For power supply borrowers, the percentage of borrowers
with equity levels less than 10 percent dropped from about 60 percent
to about 50 percent between the time the 1992 rule was published and
the end of 1992.
At the same time, there has been a great deal of confusion as to
what constitutes an acceptable plan that will demonstrate reasonable
progress toward increasing equity and have no significant adverse
effects on rate payers or on the borrower's competitive position.
Consequently, REA is proposing to drop the requirement that an
equity development plan be submitted as part of a loan application. REA
does, however, continue to support and encourage borrower efforts to
achieve and maintain sound levels of equity. REA will continue to
review the borrower's total capital structure based on the borrower's
audited financial reports submitted pursuant to 7 CFR Part 1773; on
financial and statistical reports (REA Form 7 for distribution
borrowers and REA Form 12 for power supply borrowers) submitted by the
borrower to REA; the Long-Range Financial Forecast submitted in support
of the loan, and on other information known to REA. Capital structure
will be a factor in REA's evaluation of loan feasibility pursuant to
Sec. 1710.112, in determining borrower eligibility for advance approval
of a lien accommodation pursuant to 7 CFR 1717.854, and in evaluating
certain other borrower requests under the REA mortgage.
Credit Reform
A policy change mandated by the Federal Credit Reform Act of 1990
(2 U.S.C. 661f), affects loans approved on or after October 1, 1991.
The Federal Credit Reform Act requires Federal agencies to match funds
obligated, disbursed, and collected with their intended purposes.
Therefore, this rule proposes, in Sec. 1710.106(f), that advances of
funds from a loan made on or after that date be made only for primary
budget purposes included in that particular loan, unless the borrower
applies for and REA approves a budget transfer. Primary budget purposes
as listed in REA Bulletin 26-1, Budgetary Control and Advance of Loan
Funds, and on REA Form 595, Financial Requirement and Expenditure
Statement, are (1) Distribution, (2) Transmission, (3) Generation, (4)
Headquarters Facilities, (5) Acquisitions, and (6) All Other.
Loan Application Documents
Finally, REA proposes to add new subpart I to part 1710 to set
forth the documents and procedures required for a loan application. REA
has determined that publishing the entire list of loan application and
primary support documents in a single regulation would facilitate the
application process for borrowers and supplemental or other lenders.
The general requirement to submit each of the documents is set forth in
existing part 1710 or in other REA regulations. The proposed new
subpart I is simply a summary list for the convenience of the public.
To avoid imposing any unnecessary burdens, REA proposes, in some cases,
to accept copies of forms the borrower is required to submit to the
Department of Energy, instead of requiring the borrower to follow a
different format. REA is exploring possibilities for electronic
submission of certain documents.
Other Issuances
This proposed rule consolidates, updates, and, in some instances,
revises information contained in REA's Electric Operations Manual, EOM-
1 Guide for the Preparation of Electric Distribution Loan Applications
and in the following existing REA Bulletins:
20-5 Extensions of Payments of Principal and Interest
20-9 Loan Payments and Statements
26-1 Budgetary Control and Advance of Electric Loan Funds
86-3 Headquarters Facilities for Electric Borrowers
When this regulation and other related rules are effective, these
publications will be rescinded, in whole or in part, or revised. In the
future, REA bulletins will be used to provide certain procedural
information, illustrative examples, and other guidance to assist
borrowers in complying with REA's published rules.
REA believes the amended parts 1710 and 1714 will clarify pre-loan
policies and requirements, bring them up to date, facilitate
understanding and compliance by borrowers, and improve program
effectiveness.
List of Subjects
7 CFR Part 1710
Electric power, Electric utilities, Loan programs--energy, Rural
areas.
7 CFR Part 1714
Electric power, Loan programs--energy, Rural areas.
7 CFR Part 1785
Electric power, Loan programs--energy, Rural areas.
For the reasons set out in the preamble, REA proposes to amend 7
CFR Chapter XVII 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. 901-950(b); Public Law 99-591, 100 Stat,
3341-16; Delegation of Authority by the Secretary of Agriculture, 7
CFR 2.23; Delegation of Authority by the Under Secretary for Small
Community and Rural Development, 7 CFR 2.72.
2. Section 1710.2 is amended by removing the existing definition of
``Loan Period'' and adding two new definitions in alphabetical order to
read as follows:
Sec. 1710.2 Definitions and rules of construction.
(a) * * *
Fund advance period means the period of time during which the
Government may advance loan funds to the borrower. See 7 CFR 1714.56.
* * * * *
Loan period means the period of time during which the facilities
included in a loan application will be constructed. It commences with
the date shown on page 1, in the block headed ``Cost Estimates as of,''
of REA Form 740c, Cost Estimates and Loan Budget for Electric
Borrowers, which is the same as the date on the Financial and
Statistical Report submitted with the loan application. The loan period
may be up to 4 years for distribution borrowers and, except in the case
of a loan for new generating and associated transmission facilities, up
to 4 years for the transmission facilities and improvements or
replacements of generation facilities for power supply borrowers. The
loan period for new generating facilities is determined on a case by
case basis.
* * * * *
3. Section 1710.106 is amended by redesignating paragraph (d) as
paragraph (e) and adding new paragraphs (d) and (f) to read as follows:
Sec. 1710.106 Uses of loan funds.
* * * * *
(d) A distribution borrower may request a loan period of 2, 3 or 4
years. Except in the case of loans for new generating and associated
transmission facilities, a power supply borrower may request a loan
period of not more than 4 years for transmission and substation
facilities and improvements or replacements of generation facilities.
The loan period for new generating facilities is determined on a case
by case basis. The loan period for DSM activities will be determined in
accordance with Sec. 1710.355. The Administrator may approve a loan
period shorter than the period requested by the borrower, if in the
Administrator's sole discretion, a loan made for the longer period
would fail to meet REA requirements for loan feasibility and loan
security set forth in Secs. 1710.112 and 1710.113, respectively.
* * * * *
(f)(1) For borrowers having one or more loans approved on or after
October 1, 1991, advances of funds will be made only for the primary
budget purposes included in the loan as shown on REA Form 740c as
amended and approved by REA, or on a construction work plan or a
construction work plan amendment approved by REA. Each advance will be
charged to the oldest outstanding note(s) having unadvanced funds for
the primary budget purpose for which the request for advances was made,
regardless of whether such notes are associated with loans approved
before or after October 1, 1991, unless any conditions on advances
under any of these notes have not been met by the borrower.
(2) For borrowers whose most recent loan was approved before
October 1, 1991, advances will be made on the oldest outstanding note
having unadvanced funds, unless any conditions on advances under such
note have not been met by the borrower.
4. Section 1710.110 is amended by revising paragraph (c)(1)(ii) and
adding a new paragraph (c)(3) to read as follows:
Sec. 1710.110 Supplemental financing.
* * * * *
(c) Supplemental financing required for municipal rate loans.--(1)
Distribution borrowers.
* * * * *
(ii) All other distribution borrowers must obtain supplemental
financing according to their plant revenue ratio (PRR), as defined in
Sec. 1710.2, based on the most recent year-end data available on the
date of loan approval, as follows:
------------------------------------------------------------------------
Supplemental
PRR loan
percentage
------------------------------------------------------------------------
9.00 and above............................................ 10
8.01-8.99................................................. 20
8.00 and below............................................ 30
------------------------------------------------------------------------
* * * * *
(3) Subsequent loans. (i) If more than 5 percent of an insured loan
made prior to November 1, 1993, or of a municipal rate loan is
terminated or rescinded, the amount of supplemental financing required
in the borrower's next loan after the rescission for which supplemental
financing is required, pursuant to paragraph (a) of this section, will
be adjusted to average the actual supplemental financing portion on the
terminated or rescinded loan with the supplemental financing portion
that would have been required on the new loan according to paragraphs
(c) (1) and (2), in accordance with the formulas set forth in
paragraphs (c)(3) (ii) and (iii) of this section.
(ii) If a borrower's supplemental financing requirement as set
forth in paragraphs (a), (c)(1), and (c)(2) of this section has not
changed between the most recent loan and the loan being considered,
then the amount of supplemental financing required for the new loan
will be computed as follows:
Supplemental financing amount, new loan = [(A + B) x C] - D
where:
A = The total funds ($) actually advanced from the first loan,
including both REA loan funds and funds from the supplemental loan,
plus any unadvanced funds still available to the borrower after the
rescission.
B = The total amount ($) for facilities of the new loan request,
including both REA loan funds and funds from supplemental loans.
C = The proportion (%) of supplemental financing required on the
loans according to paragraphs (a), (c)(1) and (c)(2) of this
section.
D = The amount ($) of supplemental funds actually advanced on the
first loan, plus any unadvanced supplemental funds still available
to the borrower after the rescission.
(iii) If a borrower's supplemental financing requirement as set
forth in paragraphs (a), (c)(1), and (c)(2) of this section has changed
between the most recent loan and the loan being considered, then the
amount of supplemental financing required for the new loan will be the
weighted average of the portions otherwise applicable on the two loans
and will be computed as follows:
Supplemental financing amount, new loan = (A x C1) + (B x C2)
- D
where:
A = The total funds ($) actually advanced from the first loan,
including both REA loan funds and funds from the supplemental loan,
plus any unadvanced funds still available to the borrower after the
rescission.
B = The total amount ($) for facilities of the new loan request,
including both REA funds and funds from supplemental loans.
C1 = The proportion (%) of supplemental financing required on
the old loan according to paragraphs (a), (c)(1) and (c)(2) of this
section.
C2 = The proportion (%) of supplemental financing required on
the new loan according to paragraphs (a), (c)(1) and (c)(2) of this
section.
D = The amount ($) of supplemental funds actually advanced on the
first loan, plus any unadvanced supplemental funds still available
to the borrower after the rescission.
* * * * *
5. Section 1710.112 is amended by adding a new paragraph (b)(10) to
read as follows:
Sec. 1710.112 Loan feasibility.
* * * * *
(b) * * *
(10) The borrower's projected capitalization, measured by its
equity as a percentage of total assets, is adequate to enable the
borrower to meet its financial needs and to provide service consistent
with the RE Act. Among the factors to be considered in reviewing the
borrower's projected capitalization are the economic strength of the
borrower's service territory, the inherent cost of providing service to
the territory, the disparity in rates between the borrower and
neighboring utilities, the intensity of competition faced by the
borrower from neighboring utilities and other power sources, and the
relative amount of new capital investment required to serve existing or
new loads.
6. Section 1710.115 is amended by revising paragraph (b) to read as
follows:
Sec. 1710.115 Final maturity.
* * * * *
(b) Loans made or guaranteed by REA 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 REA. The proposed useful lives proposed
by the borrower for the facilities financed must be consistent with the
borrower's proposed depreciation rates for these facilities. In states
where the borrower must obtain state regulatory authority approval of
depreciation rates for rate making purposes, the depreciation rates
used for the purposes of this paragraph shall be the rates currently
approved by the state authority or rates for which the borrower plans
to seek state authority approval, provided that these rates are deemed
appropriate by REA. In other states, if the rates proposed by the
borrower are not deemed appropriate by REA, REA will base expected
useful life on the depreciation rates listed in Bulletin 183-1, or its
successor, revising such rates as necessary to reflect current industry
practice. 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 REA.
* * * * *
Sec. 1710.116 [Removed and Reserved]
7. Section 1710.116 is removed and reserved.
8. Section 1710.251 is amended by revising paragraph (b) to read as
follows:
Sec. 1710.251 Construction work plans--distribution borrowers.
* * * * *
(b) A distribution borrower's CWP shall cover a construction period
of between 2 and 4 years, and include all facilities to be constructed
which are eligible for REA financing, whether or not REA financial
assistance will be sought or be available for certain facilities. Any
REA financing provided for the facilities will be limited to a 4-year
loan period. The construction period covered by a CWP in support of a
loan application shall not be shorter than the loan period requested
for financing of the facilities.
* * * * *
9. Section 1710.252 is amended by revising paragraph (b) to read as
follows:
Sec. 1710.252 Construction work plans--power supply borrowers.
* * * * *
(b) Normally a power supply borrower's CWP shall cover a period of
3 to 4 years. While comprehensive CWP's are desired, if there are
extenuating circumstances REA may accept a single-purpose transmission
or generation CWP in support of a loan application or budget
reclassification. The construction period covered by a CWP in support
of a loan application shall not be shorter than the loan period
requested for financing of the facilities.
* * * * *
10. Subpart I is added to part 1710 to read as follows:
Subpart I--Application Requirements and Procedures for Insured and
Guaranteed Loans
Sec.
1710.400 Initial contact.
1710.401 Loan application documents.
1710.402-1710.403 [Reserved]
1710.404 Additional requirements.
1710.405 Supplemental financing documents.
1710.406 Loan approval.
1710.407 Loan documents.
Subpart I--Application Requirements and Procedures for Insured and
Guaranteed Loans
Sec. 1710.400 Initial contact.
(a) Loan applicants that do not have outstanding loans from REA
should write to the Rural Electrification Administration, United States
Department of Agriculture, Washington, D.C. 20250-1500. A field or
headquarters staff representative may be assigned by REA to visit the
applicant and discuss its financial needs and eligibility. Borrowers
that have outstanding loans should contact their assigned REA general
field representative (GFR) or, in the case of a power supply borrower,
the Director, Power Supply Division. Borrowers may consult with REA
field representatives and headquarters staff, as necessary.
(b) Before submitting an application for an insured loan the
borrower shall ascertain from REA the amount of supplemental financing
required, as set forth in Sec. 1710.110.
Sec. 1710.401 Loan application documents.
(a) All borrowers. All applications for electric loans shall
include the documents listed in this paragraph. The first page of the
application shall be a list of the documents included in the
application. The borrower may use REA Form 726, Checklist for Electric
Loan Application, as this list.
(1) Transmittal letter. A letter signed by the borrower's manager
indicating the actual corporate name and taxpayer identification number
of the borrower and addressing the following items:
(i) The need for flood hazard insurance;
(ii) Breakdown of requested loan funds by state;
(iii) A listing of the counties served by the borrower;
(iv) A listing of threatened actions by third parties that could
adversely affect the borrower's financial condition, including
annexations or other actions affecting service territory, loads, or
rates; and
(v) A listing of pending regulatory proceedings pertaining to the
borrower.
(2) Board resolution. This document is the formal request by the
borrower's board of directors for a loan from REA. The board resolution
shall include:
(i) The requested loan amount, loan term, final maturity, and
method of amortization (Sec. 1710.110(b));
(ii) The sources and amounts of any supplemental or other
financing;
(iii) Authorization for REA to release appropriate information to
supplemental or other lender(s), and authorization for these lenders to
release appropriate information to REA; and
(iv) For an insured loan, a statement of whether the application is
for a municipal rate loan, with or without the interest rate cap, or a
hardship loan. If the application is for a municipal rate loan, the
board resolution must indicate whether the borrower intends to elect
the prepayment option. See 7 CFR 1714.4(c).
(3) REA Form 740c, Cost Estimates and Loan Budget for Electric
Borrowers. This form together with its attachments lists the
construction, equipment, facilities and other cost estimates from the
construction work plan or engineering and cost studies, and the sources
of financing for each component. The date on page 1 of the form is the
beginning date of the loan period and shall be the same as the date on
the Financial and Statistical Report submitted with the application
(paragraph (a)(5) of this section). Form 740c also includes the
following information, exhibits, and attachments:
(i) Description of funds and materials. This description details
the availability of materials and equipment, any unadvanced funds from
prior loans, and any general funds the borrower designates, to
determine the amount of such materials and funds to be applied against
the capital requirements estimated for the loan period.
(ii) Reimbursement schedule. This schedule lists the date, amount,
and identification number of each inventory of work orders and special
equipment summary that form the basis for the borrower's request for
reimbursement of general funds on the REA Form 740c. See Sec. 1710.109.
If the borrower is not requesting reimbursement, this schedule need not
be submitted.
(iii) Location of consumers. If the application is for a municipal
rate loan subject to the interest rate cap, or for a loan at the
hardship rate, and the average number of consumers per mile of the
total electric system exceeds 17, Form 740c must include, as a note, a
breakdown of funds included in the proposed loan to furnish or improve
service to consumers located in an urban area. See 7 CFR 1714.7(c) and
1714.8(d). This breakdown must indicate the method used by the borrower
for allocating loan funds between urban and non urban consumers.
(4) REA Form 740g, Application for Headquarters Facilities. This
form lists the individual cost estimates from the construction work
plan or other engineering study that support the need for REA financing
for any warehouse and service type facilities included, and funding
requested for such facilities shown on REA Form 740c. If no loan funds
are requested for headquarters facilities, Form 740g need not be
submitted.
(5) Financial and statistical report. Distribution borrowers shall
submit these data on REA Form 7; power supply borrowers shall use REA
Form 12. The form shall contain the most recent data available, which
shall not be more than 60 days old when received by REA.
(6) Pending litigation statement. A statement from the borrower's
counsel listing any pending litigation, including levels of related
insurance coverage and the potential effect on the borrower.
(7) Mortgage information. A new mortgage will be required if this
is a borrower's first application for a loan under the RE Act. A
restated mortgage, or a mortgage supplement will be required if there
has been a material change to the real property owned by the borrower
since the most recent REA loan, loan guarantee, or lien accommodation,
if the requested loan would cause the borrower to exceed its previously
authorized debt limit, or if REA otherwise determines it necessary. If
there has been no material change to the real property owned by the
borrower since the most recent REA loan or loan guarantee, the borrower
must submit an opinion of its counsel to that effect. If a new or
restated mortgage or a mortgage supplement is required, the borrower
must provide the following:
(i) Property schedule. For a new or restated mortgage or for a
mortgage supplement, the following information shall be submitted in a
form satisfactory to REA:
(A) A listing of the counties where the borrower's existing
electric facilities and new facilities are or will be located;
(B) A listing and description of all real property owned by the
borrower; and
(C) An opinion of the borrower's counsel certifying that the
property schedule is complete and adequate for inclusion in a security
instrument to be executed by the borrower to secure an REA loan.
(ii) Maximum debt limit. For a new mortgage, or if the proposed
loan would result in the borrower's existing mortgage debt limit being
exceeded, a resolution of the borrower's board of directors, and any
other authorizations or certifications required by State law,
certifying that a new debt limit has been legally established that is
adequate to accommodate existing indebtedness and the proposed new
financing, including any concurrent loans.
(8) Rate disparity and consumer income data. If the borrower is
applying under the rate disparity and consumer income tests for either
a municipal rate loan subject to the interest rate cap or a hardship
rate loan, the application must provide a breakdown of residential
consumers either by county or by census tract. In addition, if the
borrower serves in 2 or more states, the application must include a
breakdown of all ultimate consumers by state. This breakdown may be a
copy of Form EIA 861 submitted by the Borrower to the Department of
Energy or in a similar form. See 7 CFR 1714.7(b) and 1714.8(a). To
expedite the processing of loan applications, REA strongly encourages
distribution borrowers to provide this information to the GFR prior to
submitting the application.
(9) Standard Form 100 - Equal Employment Opportunity Employer
Report EEO-1. This form, required by the Department of Labor, sets
forth employment data for borrowers with 100 or more employees. A copy
of this form, as submitted to the Department of Labor, is to be
included in the application for an insured loan if the borrower has
more than 100 employees. See Sec. 1710.122.
(10) Form AD-1047, Certification Regarding Debarment, Suspension,
and Other Responsibility Matters--Primary Covered Transactions. This
statement certifies that the borrower will comply with certain
regulations on debarment and suspension required by Executive Order
12549, Debarment and Suspension (3 CFR, 1986 Comp., p. 189). See 7 CFR
part 3017 and Sec. 1710.123.
(11) Uniform Relocation Act assurance statement. This assurance,
which need not be resubmitted if previously submitted, provides that
the borrower shall comply with 49 CFR Part 24, which implements the
Uniform Relocation Assistance and Real Property Acquisition Policy Act
of 1970, as amended by the Uniform Relocation Act Amendments of 1987
and 1991. See Sec. 1710.124.
(12) Lobbying. The following information on lobbying is required
pursuant to 7 CFR part 3018 and Sec. 1710.125. Borrowers applying for
both insured and guaranteed financing should consult REA before
submitting this information.
(i) Certification regarding lobbying. This statement certifies that
the borrower shall comply with certain requirements with respect to
restrictions on lobbying activities.
(ii) Standard Form LLL--Disclosure of Lobbying Activities. This
disclosure form is required from those borrowers engaged in lobbying
activities.
(13) Federal debt delinquency requirements. See Sec. 1710.126. The
following documents are required:
(i) Report on Federal debt delinquency. This report indicates
whether or not a borrower is delinquent on any Federal debt.
(ii) Certification Regarding Federal Government Collection Options.
This statement certifies that a borrower has been informed of the
collection options the Federal government may use to collect delinquent
debt. The Federal government is authorized by law to take any or all of
the following actions in the event that a borrower's loan payments
become delinquent or the borrower defaults on its loans:
(A) Report the borrower's delinquent account to a credit bureau;
(B) Assess additional interest and penalty charges for the period
of time that payment is not made;
(C) Assess charges to cover additional administrative costs
incurred by the Government to service the borrower's account;
(D) Offset amounts owed directly or indirectly to the borrower
under other Federal programs;
(E) Refer the borrower's debt to the Internal Revenue Service for
offset against any amount owed to the borrower as an income tax refund;
(F) Refer the borrower's account to a private collection agency to
collect the amount due; and
(G) Refer the borrower's account to the Department of Justice for
collection.
(14) Articles of incorporation and bylaws. The following are
required if either document has been amended since the last loan
application was submitted to REA, or if this is a borrower's first
application for a loan under the RE Act:
(i) The borrower's articles of incorporation currently in effect,
as filed with the appropriate state office, setting forth the
borrower's corporate purpose; and
(ii) The bylaws currently in effect, as adopted by the borrower's
board of directors, setting forth the manner by which the borrower's
organization will be governed and regulated.
(15) State regulatory approvals. In states in which regulatory
authorities have jurisdiction over the borrower's rates, the borrower
must provide satisfactory evidence, pursuant to Secs. 1710.105 and
1710.151(f), based on the information available, such as an opinion of
counsel or of another qualified source, that the state regulatory
authority will not exclude from the borrower's rate base any of the
facilities included in the loan request, or otherwise prevent the
borrower from charging rates sufficient to repay with interest the debt
incurred for the facilities.
(16) Seismic safety certifications, if required under 7 CFR part
1792.
(17) Rates. (i) A distribution borrower shall explain any recent or
planned changes in retail rates, the status of any pending rate cases
before a state regulatory authority, or other pertinent rate
information.
(ii) A power supply borrower shall submit a schedule of its
wholesale rates currently in effect. Any changes in this schedule are
subject to REA approval.
(18) Additional supporting data. Additional supporting data may be
required by REA depending on the individual application or conditions.
Examples of such additional supporting data include information about
acquisitions, headquarters facilities, generation or transmission
facilities, large power loads or special loads.
(b) Distribution borrowers. In addition to the items in paragraph
(a) of this section, applications for loans submitted by distribution
borrowers shall include the borrower's area coverage and line extension
policies. If there have been any amendments to area coverage or line
extension policies since the last loan application submitted to REA, or
if this is a borrower's first application for a loan under the RE Act,
the borrower shall submit the board of directors' approved policies on
area coverage and line extensions. See Secs. 1710.103 and 1710.151(a).
(c) Primary support documents. In addition to the loan application,
consisting of the documents required by paragraphs (a) and (b) of this
section, all borrowers must also provide REA with the following primary
support documents pursuant to Sec. 1710.152:
(1) Along with the loan application, the borrower shall submit to
REA a Long-Range Financial Forecast (LRFF), that meets the requirements
of subpart G of this part and shall include the borrower's proposed
schedule of useful life of the facilities financed. The forecast shall
include any sensitivity analysis or analysis of alternative scenarios
required by subpart G of this part, and shall be accompanied by a
certified board resolution adopting, and indicating the board of
directors' approval of, the LRFF, and directing management to take
whatever steps may be necessary, including the filing for rate
increases, to achieve the TIER goals set forth in the LRFF.
(2) Prior to REA's acceptance of the loan application, the borrower
shall submit to REA and receive approval of:
(i) Power Requirements Study (PRS) that meets the requirements of
subpart E of this part, and is accompanied by a certified board
resolution adopting, and indicating the board of directors' approval
of, the PRS.
(ii) Construction Work Plan (CWP) and/or related engineering and
cost studies that meets the requirements of subpart F of this part, and
is accompanied by a certified board resolution adopting, and indicating
the board of directors' approval of, the CWP and/or engineering and
cost studies.
(iii) Borrower's Environmental Report (BER), or other environmental
information as required by 7 CFR part 1794.
(iv) Demand Side Management Plan and/or Integrated Resource Plan,
if required by subpart H of this part.
(d) Submission of documents. (1) Generally, all information
required by paragraphs (a), (b), and (c)(1) of this section is
submitted to REA in a single application package. The information
required by paragraph (c)(2) of this section is generally submitted to,
and approved by REA before the application is submitted.
(2) To facilitate loan review, REA urges borrowers to ensure that
their applications contain all of the information required by this
section before submitting the application to REA. Borrowers may consult
with REA field representatives and headquarters staff as necessary for
assistance in preparing loan applications.
(3) REA may, in its discretion, return an application to the
borrower if the application is not materially complete to the
satisfaction of REA within 10 months of receipt of any of the items
listed in paragraph (a) or (b) of this section. REA will generally
advise the borrower in writing at least 2 months prior to returning the
application as to the elements of the application that are not
complete.
(4) If an application is returned, an application for the same loan
purposes will be accepted by REA if satisfactory evidence is provided
that all of the information required by this section will be submitted
to REA within a reasonable time. An application for loan purposes
included in an application previously returned to the borrower will be
treated as an entirely new application.
(e) Complete applications. An application is complete when all
information required by REA to approve a loan is materially complete in
form and substance satisfactory to REA.
(f) Change in borrower circumstances. A borrower shall, after
submitting a loan application, promptly notify REA of any changes in
its circumstances that materially affect the information contained in
the loan application or in the primary support documents.
(g) Interest rate category. For pending loans, REA will promptly
notify the borrower if its eligibility for an interest rate category
changes pursuant to new information from the Department of Energy or
the Bureau of the Census. See 7 CFR 1714.
(Approved by the Office of Management and Budget under control
numbers 0572-0017, 0572-0032 and 0572-1013.)
Secs. 1710.402-1710.403 [Reserved]
Sec. 1710.404 Additional requirements.
Additional requirements are set forth in 7 CFR part 1712 for
guaranteed electric loans and 7 CFR part 1714 for insured electric
loans.
Sec. 1710.405 Supplemental financing documents.
(a) The borrower is responsible for ensuring that the loan
documents required for supplemental financing pursuant to Sec. 1710.110
are executed in a timely fashion. These documents are subject to REA
approval.
(b) Security. Any security offered by the borrower to a
supplemental lender is subject to REA approval.
Sec. 1710.406 Loan approval.
(a) A loan is approved when the Administrator signs the
administrative findings.
(b) If the loan is not approved, REA will notify the borrower.
Sec. 1710.407 Loan documents.
Following approval of a loan, REA will forward the loan documents
to the borrower for execution, delivery, recording, and filing, as
directed by REA.
PART 1714--PRE-LOAN POLICIES AND PROCEDURES FOR INSURED ELECTRIC
LOANS
11. The authority citation for part 1714 continues to read as
follows:
Authority: 7 U.S.C. 901-950(b); Pub. L 99-591, 100 Stat. 3341;
Delegation of Authority by the Secretary of Agriculture, 7 CFR 2.23;
Delegation of Authority by the Under Secretary for Small Community
and Rural Development, 7 CFR 2.72.
12. Section 1714.6 is amended by revising paragraph (a)(2) to read
as follows:
Sec. 1714.6 Interest rate term.
(a) * * *
(2) The following limits apply to the number of advances of funds
that may be made to the borrower on any municipal rate loan:
(i) If the loan period is 2 years or less, no more than 6 advances;
(ii) If the loan period is greater more than 2 years, not more than
8 advances.
* * * * *
13. Subpart B is added to part 1714 to read as follows:
Subpart B--Terms of Insured Loans
Sec.
1714.50-1714.54 [Reserved]
1714.55 Advance of funds from insured loans.
1714.56 Fund advance period.
1714.57 Sequence of advances.
1714.58 Amortization of principal.
1714.59 Rescission of loans.
Subpart B--Terms of Insured Loans
Sec. 1714.50-1714.54 [Reserved]
Sec. 1714.55 Advance of funds from insured loans.
The borrower shall request advances of funds as needed. Advances
are subject to REA approval and must be requested in writing on REA
Form 595 or an REA approved equivalent. Funds will not be advanced
until the Administrator has received satisfactory evidence that the
borrower has met all applicable conditions precedent to the advance of
funds, including evidence that the supplemental financing required
under 7 CFR part 1710 and any concurrent loan guaranteed by REA are
available to the borrower under terms and conditions satisfactory to
REA.
Sec. 1714.56 Fund advance period.
(a) For loans approved on or after [the effective date of the final
rule], the fund advance period begins on the date of the loan note and
is one year longer than the loan period, but not less than 4 years. For
example, the fund advance period for a loan with a 2-year loan period
terminates automatically 4 years after the date of the loan note; a
loan with a 4-year loan period terminates automatically 5 years after
the date of the loan note. The Administrator may extend the fund
advance period on any loan if the borrower meets the requirements of
paragraph (c) of this section. As defined in 7 CFR 1710.2, the loan
period begins on the date shown on page 1 of REA Form 740c submitted
with the loan application.
(b) For loans approved between June 1, 1984, and [the effective
date of the final rule], the fund advance period begins on the date of
the loan contract, or the most recent amendment thereto, and terminates
automatically 4 years from the date of the loan contract, or the most
recent amendment thereto, except as provided in paragraph (c) of this
section.
(c) The Administrator may agree to an extension of the fund advance
period for loans approved on or after June 1, 1984, if the borrower
demonstrates to the satisfaction of the Administrator that the loan
funds continue to be needed for approved loan purposes (i.e.,
facilities included in an REA-approved construction work plan).
(1) To apply for an extension, the borrower must send to REA, at
least 120 days before the automatic termination date, the following:
(i) A certified copy of a board resolution requesting an extension
of the Government's obligation to advance loan funds;
(ii) Evidence that the unadvanced loan funds continue to be needed
for approved loan purposes; and
(iii) Notice of the estimated date for completion of construction.
(2) In the case of financial hardship, as determined by the
Administrator, REA may agree to an extension of the fund advance period
even though the borrower has failed to meet the 120-day requirement of
paragraph (c)(1) of this section.
(3) If the Administrator approves a request for an extension, REA
will notify the borrower in writing of the extension and the terms and
conditions thereof. An extension will be effective only if it is
obtained in writing prior to the automatic termination date.
(d) Advances of funds from loans approved before June 1, 1984, are
generally made during the first 6 years of the note.
(e) REA will rescind the balance of any loan funds not advanced to
a borrower as of the final date approved for advancing funds.
Sec. 1714.57 Sequence of advances.
(a) Except as set forth in paragraph (b) of this section,
concurrent loan funds will be advanced in the following order:
(1) 50 percent of the REA insured loan funds;
(2) 100 percent of the supplemental loan funds;
(3) The remaining amount of the REA insured loan funds.
(b) At the borrower's request and with REA approval, all or part of
the supplemental loan funds may be advanced before funds in paragraph
(a)(1) of this section.
Sec. 1714.58 Amortization of principal.
(a) For insured loans approved on or after [the effective date of
this section]:
(1) Amortization of funds advanced during the first 2 years after
the date of the note shall begin no later than 2 years from the date of
the note. Except as set forth in paragraph (a)(2) of this section,
amortization of funds advanced 2 years or more after the date of the
note shall begin with the scheduled loan payment billed in the month
following the month of the advance.
(2) For advances made 2 years or more after the date of the note,
the Administrator may authorize deferral of amortization of principal
for a period of up to 2 years from the date of the advance if the
Administrator determines that failure to authorize such deferral would
adversely affect either the government's financial interest or the
achievement of the purposes of the RE Act.
(b) For insured loans approved before [the effective date of this
section], amortization of principal shall begin 2 years after the date
of the note for advances made during the first and second years of the
loan, and 4 years after the date of the note for advances made during
the third and fourth years.
Sec. 1714.59 Rescission of loans.
(a) A borrower may request rescission of a loan with respect to any
funds unadvanced by submitting a certified copy of a resolution by the
borrower's board of directors.
(b) REA may rescind loans pursuant to Sec. 1714.56.
(c) Borrowers who prepay REA loans at a discounted present value
pursuant to 7 CFR part 1786, subpart F, are required to rescind the
unadvanced balance of all outstanding electric notes pursuant to 7 CFR
1786.158(j).
PART 1785--LOAN ACCOUNT COMPUTATIONS, PROCEDURES AND POLICIES FOR
ELECTRIC AND TELEPHONE BORROWERS
14. The authority citation for part 1785 is revised to read as
follows:
Authority: 7 U.S.C. 901 et seq.; Title 1, Subtitle D, sec. 1403,
Pub. L. 100-203, 101 Stat. 1330; Delegation of Authority by the
Secretary of Agriculture, 7 CFR 2.23; Delegation of Authority by the
Under Secretary for Small Community and Rural Development, 7 CFR
2.72.
Subpart A [Removed and Reserved]
15. Subpart A of part 1785 is removed and reserved.
Dated: July 27, 1994.
Bob J. Nash,
Under Secretary, Small Community and Rural Development.
[FR Doc. 94-18772 Filed 8-4-94; 8:45 am]
BILLING CODE 3410-15-P
