Rural Determination and Financing Percentage, 33757-33764 [2013-13309]

Agencies

• DEPARTMENT OF AGRICULTURE
• Rural Utilities Service

[Federal Register Volume 78, Number 108 (Wednesday, June 5, 2013)]
[Proposed Rules]
[Pages 33757-33764]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-13309]


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DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR PART 1710

RIN 0572-AC32


Rural Determination and Financing Percentage

AGENCY: Rural Utilities Service, USDA.

ACTION: Proposed rule.

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SUMMARY: The Rural Utilities Service (RUS or Agency) is proposing 
policies and procedures for determining rural eligibility for all loans 
and loan guarantee financial assistance. In addition, policies and 
procedures are proposed for determining the percentage of total project 
costs the Agency will finance where the project supplies electricity to 
an electric utility serving an area that is less than 100 percent 
rural. By codifying these policies and procedures the agency will 
provide needed flexibility in the methods utilized to determine 
eligibility and percentage of financing.

DATES: Written comments must be received by RUS no later than August 5, 
2013.

ADDRESSES: Submit comments by either of the following methods:
    Federal eRulemaking Portal: Go to https://www.regulations.gov. 
Follow the instructions for submitting comments.
    Postal Mail/Commercial Delivery: Please send your comments 
addressed to Michele Brooks, Director, Program Development and 
Regulatory Analysis, USDA Rural Development, 1400 Independence Avenue 
SW., STOP 1522, Room 5162, Washington, DC 20250-1522.
    Other Information: Additional information about Rural Development 
and its programs is available on the Internet at https://www.rurdev.usda.gov/.

FOR FURTHER INFORMATION CONTACT: Lou Riggs, USDA--Rural Utilities 
Service, 1400 Independence Avenue SW., Stop 1569, Washington, DC 20250-
1569, telephone (202) 690-0551 or email to lou.riggs@wdc.usda.gov.

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 formally reviewed by 
the Office of Management and Budget. This regulation expands the scope 
of RUS's lending authority to promote renewable energy and support 
smaller projects that do not qualify under current regulations. Due to 
the expanded scope of the program, RUS is working with the Office of 
Management and Budget on a program review to better understand the 
implications of these changes.

Catalog of Federal Domestic Assistance

    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. The Catalog is 
available on the Internet and the General Services Administration's 
(GSA) free CFDA Web site at https://www.cfda.gov.

Executive Order 12372

    This proposed 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 
entitled, ``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.

Information Collection and Recordkeeping Requirements

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
chapter 35), RUS invites comments on this information collection for 
which RUS intends to request approval from the Office of Management and 
Budget (OMB).
    Comments on this notice must be received by August 5, 2013.
    Comments are invited on (a) whether the collection of information 
is necessary for the proper performance of the functions of the Agency, 
including

[[Page 33758]]

whether the information will have practical utility; (b) the accuracy 
of the Agency's estimate of burden including the validity of the 
methods and assumption used; (c) ways to enhance the quality, utility 
and clarity of the information to be collected; and (d) ways to 
minimize the burden of the collection of information on those who are 
to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques on 
other forms or information technology.
    Comments may be sent to Michele Brooks, Director, Program 
Development and Regulatory Analysis, Rural Development, U.S. Department 
of Agriculture, 1400 Independence Avenue SW., Stop 1522, Room 5162 
South Building, Washington, DC 20250.
    Title: Rural Determination and Financing Percentage.
    Type of Request: New information collection.
    Abstract: The Agency manages loan and loan guarantee programs in 
accordance with the Rural Electrification Act of 1936, 7 U.S.C. 901 et 
seq., as amended (RE Act), which authorizes RUS to make loans to 
entities that furnish and improve electric service to persons in rural 
areas. The proposed rulemaking sets forth approaches to be used by the 
Agency in determining a Rural Percentage for areas served by electric 
utilities. That percentage could range from 0 to 100 percent. The 
proposed rulemaking will also set forth approaches by the Agency for 
determining what percentage of a project is eligible for RUS financing 
if the Rural Percentage of an electric utility's entire service area is 
less than 100 percent. These approaches will apply to all loan and loan 
guarantee funding requests.
    The information collected will consist of information necessary to 
document the basis for estimating the Rural Percentage and the required 
loan application materials.
    Estimate of Burden: Public reporting burden for this collection of 
information is estimated to average 14.3 hours per response.
    Respondents: Nonprofit organizations, business or other for profit.
    Estimated Number of Respondents: 10.
    Estimated Number of Responses per Respondent: 21.6.
    Estimated Annual Responses: 216.
    Estimated Total Annual Burden on Respondents: 3,088 hours.
    Copies of this information collection can be obtained from Michele 
Brooks, Program Development and Regulatory Analysis, USDA Rural 
Development, 1400 Independence Avenue SW, STOP 1522, Room 5162, 
Washington, DC 20250-1522. Telephone: 202 690-1078.
    All responses to this information collection and recordkeeping 
notice will be summarized and included in the request for OMB approval. 
All comments will also become a matter of public record.

National Environmental Policy Act Certification

    The Agency has determined that this proposed 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.

Regulatory Flexibility Act Certification

    The Regulatory Flexibility Act is not applicable to this rule since 
the RUS 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.

Unfunded Mandates

    This rule contains no Federal mandates (under the regulatory 
provisions of title II of the Unfunded Mandates Reform Act of 1995) for 
State, local, and tribal governments or for the private sector. 
Therefore, this rule is not subject to the requirements of section 202 
and 205 of the Unfunded Mandates Reform Act of 1995.

Executive Order 12988

    This proposed rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. The Agency has determined that this proposed rule 
meets the applicable standards in Sec.  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 effort will be given 
to this rule, and, in accordance with Sec.  212(e) of the Department of 
Agriculture Reorganization Act of 1994 (7 U.S.C. 6912(e)), 
administrative appeals procedures, if any, must be exhausted before any 
action against the Department or its agencies may be initiated.

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on states, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on state and local 
governments. Therefore, consultation with the states is not required.

Executive Order 13175, Consultation and Coordination With Indian Tribal 
Governments

    Executive Order 13175 imposes requirements on Rural Development in 
the development of regulatory policies that have tribal implications or 
preempt tribal laws. Rural Development has determined that this final 
rule does not have a substantial direct effect on one or more Indian 
tribe(s) or on either the relationship or the distribution of powers 
and responsibilities between the Federal Government and Indian tribes. 
Thus, this proposed rule is not subject to the requirements of 
Executive Order 13175. If a tribe determines that this rule has 
implications of which Rural Development is not aware and would like to 
engage in consultation with Rural Development on this rule, please 
contact Rural Development's Native American Coordinator at (720) 544-
2911 or AIAN@wdc.usda.gov.

E-Government Act Compliance

    The Agency is committed to the E-Government Act, which requires 
Government agencies in general to provide the public the option of 
submitting information or transacting business electronically to the 
maximum extent possible.

Background

    RUS proposes to amend 7 CFR part 1710 by adding two new sections 
1710.116 and 1710.117 respectively entitled ``Rural Determination'' and 
``Financing Percentage.'' The Rural Electrification Act of 1936, as 
amended (``RE Act'') authorizes the Agency to make loans to entities 
that furnish and improve electric service to persons in rural areas. 
Traditional borrowers have been non-profit rural electric cooperatives 
that have used federal funds to finance the construction and 
improvement of electric projects in rural areas, including generation, 
transmission and distribution projects.
    For purposes of this discussion, ``June 2008 rural area'' refers to 
the geographic area served by borrowers that had an outstanding RUS 
loan as of June 18, 2008 (such borrowers hereinafter referred to as 
``existing borrowers''). Rural electric cooperatives, public utility 
districts, tribal utility authorities, municipalities and other 
eligible organizations that were existing borrowers as of June 18, 
2008, and which have not since experienced any growth in their service 
areas via acquisition or merger are 100 percent

[[Page 33759]]

rural per the definition of rural area referenced in the RE Act as 
amended by the 2008 Farm Bill (Pub. L. 110-246). It is the borrower's 
June 2008 rural area that is grandfathered and not a borrower that had 
an outstanding RUS loan as of June 18, 2008 (defined in the proposed 
rule as ``June 2008 Borrower.''). To the extent these borrowers have 
acquired additional territory by acquisition or merger since June 18, 
2008, the additional area will be separately reviewed to determine 
whether it is rural. The current definition of rural area for purposes 
of the RE Act provides that an area other than a city, town, or 
unincorporated area that has a population greater than 20,000 is 
defined as rural.
    As the Agency investigates financing options for projects owned by 
entities other than the existing borrowers it has become clear that 
there is a need for flexibility in the methods utilized by the Agency 
to accommodate projects selling to or owned by electric systems that 
serve areas that are partially rural and partially urban in character. 
The Agency proposes to codify the methods by which the agency makes a 
determination of whether a proposed investment can be financed, and if 
so, what percentage of the asset(s) can be financed, by amending 7 CFR 
part 1710.
    The properties of electricity are such that once a project is 
interconnected to a grid that serves both rural and urban areas, there 
is no practical way to direct a given project's output to only rural 
persons. Many persons who live in rural America are served by 
``hybrid'' electric utilities that serve both rural and urban area 
consumers. The Agency proposes a balanced approach that respects the 
constraints within our existing authority under the RE Act and makes 
RUS financing available to borrowers that furnish and improve electric 
service to persons in rural areas that are consumers of a hybrid 
utility.
    In all cases where a service territory is to be supplied with 
electricity by a RUS-financed project, the Agency proposes that the 
applicable utility estimate the percentage of its load that is consumed 
by persons or entities in a rural area (``Rural Percentage''). The 
options for how this Rural Percentage is to be arrived at require that 
the data need to be readily obtainable by the utility and sufficiently 
detailed to allow for verification by an independent third party. In 
all cases the options utilize actual population or a proxy for 
population (described in the next section) in order to be consistent 
with the definition of rural area used in the RE Act. RUS proposes to 
retain the ultimate authority for determining the applicable Rural 
Percentage.
    It has been the Agency's practice to finance only that percentage 
of a project cost that equates to the Rural Percentage. This practice 
has been a workable approach when large projects have been shared by 
RUS borrowers who were considered 100 percent rural and other utilities 
where the balance of costs can be readily financed by another utility 
that is a non-RUS borrower. This approach is neither feasible for 
smaller projects nor responsive to the needs of the market in other 
situations. The Agency's inability to fund 100 percent of the financing 
needs of a given project has undermined the Agency's effort to be 
responsive to the renewable energy project market in particular, but is 
also relevant where applications are submitted by entities for other 
purposes. When the typical outside applicant must find a lender to fill 
the gap that results if the Agency does not fund 100 percent of the 
debt, applicants often cannot readily justify the extra time and 
expense associated with bringing in additional lenders into the 
project. Negotiating case-by-case security documentation and 
participation agreements is overly expensive and time consuming for the 
applicant and the Agency does not have the staff or resources to meet a 
need for this activity in any great volume. This is particularly true 
for smaller projects.
    Promulgating the policies set forth in this proposed regulation has 
the potential of creating jobs and stimulating the economy, primarily 
from entities outside the traditional borrower community.
    The proposed rule provides that it will be the applicant's 
responsibility to work with the utility to develop a report that 
estimates the utility's Rural Percentage. The information needed to 
make this estimate is often proprietary or sensitive, but RUS or a 
third party acceptable to RUS must be able to verify it. RUS retains 
the ultimate responsibility for making the determination.

 Rural Percentage

    As stated earlier, the area served by borrowers with an outstanding 
loan as of June 18, 2008, is considered to be 100 percent rural. If 
previous borrowers reapply to the program, borrowers with June 2008 
rural area territory apply after acquiring new service territory or new 
applicants apply for financing, it is proposed that they have the 
option to use any one of four methods to estimate the Rural Percentage 
for the applicable service area. The first three methods look at the 
overall area or service territory served by the utility. The fourth 
method involves looking at the load flows in rural areas (a) 
immediately surrounding a proposed plant site in a rural area or (b) 
adjacent to or nearby a proposed plant site not in a rural area. It is 
proposed that the Rural Percentage will be reassessed with each loan 
request.
    Method R1 This method may be used when the meter locations are 
known, and, in most cases, the utility will have the data available in 
shape files utilized by geographic information software (``GIS data''). 
GIS data are used to overlay meter locations onto population maps 
available from the United States Census Bureau (Census Bureau) to 
determine how many meters are located in rural areas and how many are 
located in urban areas. The Rural Percentage under this method is 
calculated as rural meters divided by total meters.
    Method R2 This method is similar to Method R1 but it also takes 
load into account as a proxy for population. Load can be either energy 
sold measured in megawatt hours (MWh) or coincident peak demand as 
measured in megawatts (MW), as measured within the service area during 
the most recently completed calendar year. As with Method R1, GIS data 
allow the utility to determine which meters are rural and which are 
urban, but the Rural Percentage under this method is calculated as 
rural load divided by total load.
    Method R3 This method is to be used only when the service area is 
known, but the exact locations of meters are not known. The area is 
identified on a map with landmarks such as highways, rivers, cities, 
etc. The Web site for the Census Bureau is used to identify areas 
within the service area with a population of greater than 20,000 as 
well as the total population for the service area. The Rural Percentage 
is calculated using an estimated total population and known urban 
population using population and housing data from the Census Bureau as 
well as information from other sources acceptable to RUS and may 
incorporate reasonable assumptions when all facts are not available. 
The Rural Percentage using this method shall be equal to the fraction 
that results from dividing the rural population by the total 
population.
    Method R4 This method looks at load flows in and around the actual 
location of a proposed generating plant. A boundary, or polygon, is 
determined which coincides with the area beyond which power from the 
proposed plant does not flow during low consumer demand conditions. Low 
consumer demand in this case is when power from

[[Page 33760]]

the outside must be imported to meet the total demand in this 
geographic area. This boundary is consistent with the presumption that 
all of the power generated from the plant is consumed within this area 
during low consumer demand conditions. This method should only be used 
for projects serving loads that are approximately 50 MW or less located 
in rural areas.
    Under the fourth method above, once the polygon area is 
established, any one of the first three methods may be used to 
determine the Rural Percentage for the polygon. This fourth method 
would be typically used for generation projects that are located in a 
rural area; it would be allowed for projects located in an urban area 
only where a benefit can be clearly demonstrated for a rural area. For 
example, a project located in the southern end of the Delmarva 
Peninsula might be located in a census place greater than 20,000, but 
it would benefit the greater rural area of the peninsula to the north 
of it by reducing congestion at constrained delivery points. It is 
proposed that projects not meeting this exception for an urban location 
must be located at least 10 miles from an urban center.

Financing Percentage

    As discussed above, RUS has historically determined the Rural 
Percentage for a new borrower or an applicant seeking to return for 
financing after buying out of the program, and then only financed 
eligible project costs up to that percentage. It is important that RUS 
be able to finance up to 100 percent of an applicant's request in order 
to be responsive to the needs of the market, but the Agency also needs 
to respect the rural constraint imposed by the RE Act.
    Under the proposed rulemaking, the financing percentage is the 
percentage of total project costs RUS may finance (``Financing 
Percentage''). The rulemaking proposes that the Agency can finance up 
to 100 percent of the debt requirements for projects in a hybrid rural/
urban service territory up to but not exceeding a cap on total RUS 
financing available for the service area (the ``Rural Cap''). The Rural 
Cap is cumulative in nature and once established may be periodically 
reassessed to account for load growth and population shifts within the 
territory. Once the Rural Cap has been reached, a hybrid utility would 
not be eligible for additional financing from the Agency.
    The Rural Cap calculation applies only to a hybrid rural/urban 
service territory served by a for-profit entity or nonprofit entity 
that had no outstanding RUS loan as of June 18, 2008. As proposed, the 
Rural Cap applies to any eligible generation facility, including but 
not limited to renewable and gas-fired generation where the gas 
generation is specifically intended to firm up an identified renewable 
resource. Section 4 of the RE Act provides for a preference to 
cooperatives and nonprofit entities, but does not prohibit RUS from 
making loans to for-profit entities. The proposed rulemaking represents 
a balance of three primary factors: (1) The constraint that Agency 
financing apply to persons in rural areas, (2) the preference for 
nonprofit entities and (3) the recognition that the demand for 
renewable energy financing is greatest where utilities are subject to a 
renewable energy portfolio and for-profit developers are in a position 
to use the tax incentives legislated for renewable energy. Accordingly, 
it is proposed that RUS may provide up to 100 percent of the debt for a 
given energy asset or fleet of assets until the cumulative capacity 
financed by RUS that serves a for-profit utility service area reaches 
the lesser of the Rural Percentage, the state's renewable portfolio 
standard (RPS) or a default percentage (20 percent) established by RUS 
for this purpose for states that do not have an RPS. This more 
restrictive formulation of the Rural Cap as applied to for-profit 
utility service areas is in recognition of the preference found in the 
RE Act for nonprofit entities. Agency lending to for-profit entities is 
not prohibited under the RE Act, but nonprofit entities enjoy a 
preference in this authorizing legislation.
    The following methods recognize the differing practicalities 
presented by whether the applicant is seeking to finance generation, 
transmission, distribution or energy efficiency projects:

Financing Percentage for Generation

    The following three options are proposed for determining the 
Financing Percentage for generation projects and related transmission 
where the applicant was not an existing borrower on June 18, 2008. 
These options facilitate the ability of RUS to finance up to 100 
percent of a given project, but recognize that in mixed rural/urban 
service territories a cap on the cumulative level of lending by RUS is 
necessary to be consistent with the rural eligibility limitation 
imposed by the RE Act.
    Method G1 Multiply the Rural Percentage by the coincident peak 
demand recorded for the utility system during the most recently 
completed calendar year. The result of this calculation is a Rural Cap 
measured in MW. In the case of a nonprofit utility it is proposed that 
RUS may provide 100 percent of the debt for a given energy asset or 
fleet of assets until the cumulative nameplate capacity financed by RUS 
reaches this Rural Cap. In the case of a for-profit utility it is 
proposed that RUS may provide 100 percent of the debt for a given 
energy asset or fleet of assets until the cumulative capacity financed 
by RUS reaches the lesser of this Rural Cap, the state's RPS target, or 
20 percent of the utility's coincident peak, as measured in MW.
    Method G2 Multiply the Rural Percentage times the total energy sold 
in the system as measured during the most recently completed calendar 
year. This calculation would result in a Rural Cap measured in energy 
hours. In the case of a nonprofit utility it is proposed that RUS may 
provide up to 100 percent of the debt for a given energy asset or fleet 
of assets until the cumulative energy financed by RUS reaches this 
Rural Cap. In the case of a for-profit utility it is proposed that RUS 
may provide up to 100 percent of the debt for a given energy asset or 
fleet of assets until the cumulative energy financed by RUS reaches the 
lesser of this Rural Cap, the state's RPS target or 20 percent, as 
measured in MWh.
    Method G3 Multiply the Rural Percentage times the total project 
cost for a specific asset. This would result in a maximum financing cap 
measured in dollars for each asset. It is proposed that RUS provide 
financing for no more than this amount of debt; the balance of the 
costs would come from either equity or additional lenders or a 
combination of both. (This method is the approach currently used by the 
Agency in determining the Financing Percentage.)

Financing Percentage for Distribution

    The following two options for determining the Financing Percentage 
are proposed to be available for distribution projects where the 
applicant is not an existing borrower as of June 18, 2008. No 
differentiation between nonprofit and for-profit utilities is proposed 
for determining the Financing Percentage for distribution projects.
    Method D1 The Financing Percentage is proposed to be equal to the 
Rural Percentage as determined by Methods R1, R2, or R3 above. All 
projects in the system may be financed up to this percentage regardless 
of physical location.
    Method D2 The Financing Percentage is proposed to be 100 percent of 
the costs of the projects located in rural areas; the Financing

[[Page 33761]]

Percentage would be zero for projects located in urban areas.

Financing Percentage for Energy Efficiency Projects

    The following single financing option is being proposed for energy 
efficiency projects since the location of each project will be known 
and the rural/urban determination can be easily determined:
    Method EE1 The Financing Percentage is proposed to be 100 percent 
of the costs of the projects located in rural areas; the Financing 
Percentage would be zero for projects located in urban areas.

Financing Percentage for Transmission

    ``Stand-alone'' transmission investment is more complicated than 
generation or distribution projects in any assessment of the extent to 
which a transmission facility serves persons in rural areas, 
particularly regional transmission and inter-regional transmission. As 
noted above, the properties of electricity are such that once a project 
is interconnected to a grid that serves both urban and rural areas, 
there is no practical way to direct a given project's output to only 
persons in rural areas. The proposed rule provides that the Financing 
Percentage for transmission projects will be determined by considering 
only the Rural Percentage of the electric utility systems that have 
assumed responsibility for the repayment of the loan(s) provided by RUS 
for the transmission project (``Sponsoring Utilities''). A Sponsoring 
Utility may be either an owner or an offtaker or both. If the 
Sponsoring Utility is an owner but not obligated under an offtake 
agreement, the owner system must demonstrate physical benefit to their 
system, not merely financial gain associated with their ownership of 
the line.
    In multi sponsor transmission cases, RUS expects that the Financing 
Percentage that is arrived at will be less than 100 percent. The size 
of a multi sponsored transmission project is typically large and would 
typically involve multiple lenders and investors; as such, the cost and 
time constraints associated with involving participating lenders are 
relatively less burdensome and the need for 100 percent RUS financing 
is not a prerequisite for the Agency to be responsive to this large 
scale transmission market.
    The following two options for determining the Financing Percentage 
for transmission projects recognize that there may be significant 
complications in trying to assess load flows or simple GIS data to 
arrive at the Rural Percentage using the actual location or load flow 
impact of the transmission asset:
    Method T1 The rulemaking proposes a Financing Percentage of 100 
percent for a transmission investment only in the following cases: a 
transmission project wholly owned by an existing utility system 
borrower(s), 100 percent of a fractional interest owned by an existing 
borrower, or 100 percent of the lines needed to meet the investment 
requirements imposed on an existing borrower as a member of an 
integrated transmission system.
    Method T2 For other than existing borrowers, it is proposed that 
RUS will finance a percentage of the applicant(s) financial commitment 
to a transmission investment equal to the Rural Percentage using 
methods R1, R2 or R3 above. The applicant must be a Sponsoring Utility 
for determining the Rural Percentage.
    As presently proposed, there is no overall cap on the amount of RUS 
financing that can be borrowed by a hybrid system rural/urban utility 
for multiple transmission investments. Comments are specifically 
requested on this issue.
    The permutations and combinations for possible ownership and 
capital structures for all projects are potentially infinite. The 
proposed rulemaking reserves to RUS the ultimate discretion in how the 
proposed parameters are to be applied.
    Finally, this proposed rulemaking also includes other minor changes 
intended to modernize the loan application process and accommodate 
generation projects that use renewable fuel that are proposed to meet 
an RPS imposed by the applicable jurisdictional authority. RUS proposes 
that RPS related generation projects using renewable fuel need not be 
demonstrated to be a least cost option and the requirement that the 
applicants solicit proposals from alternative providers for such 
projects is deemed to be met for such projects. Also, RUS proposes that 
smart grid facilities be expressly identified in the construction work 
plans submitted to the Agency for approval.

List of Subjects in 7 CFR Part 1710

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

    For reasons set forth in the preamble, the Rural Utilities Service 
proposes to amend 7 CFR part 1710, as follows:

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

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 A--General

0
2. Amend Sec.  1710.2 by adding definitions for ``June 2008 Borrower,'' 
'' Sponsoring Utility,'' and ``Utility'' in alphabetical order to read 
as follows:


Sec.  1710.2  Definitions and rules of construction.

    (a) * * *
* * * * *
    June 2008 Borrower means a borrower that had an outstanding loan as 
of June 18, 2008 made under titles I through V of the RE Act.
* * * * *
    Sponsoring Utility means a Utility that assumes responsibility for 
the repayment of the loan(s) provided by RUS for a transmission 
project. The Sponsoring Utility may be either an owner or an offtaker 
or both. If the Sponsoring Utility is an owner but not obligated under 
an offtake agreement, the owner system must demonstrate physical 
benefit to their system, not merely financial gain associated with 
their ownership of the line.
* * * * *
    Utility means an entity in the business of providing retail 
electric service to Consumers (distribution entity) or an entity in the 
business of providing wholesale electric supply to distribution 
entities (generation entity) or an entity in the business of providing 
transmission service to distribution or generation entities 
(transmission entity), where, in each case, the entities provide the 
applicable service using self-owned or controlled assets under a 
published tariff that the entity and any associated regulatory agency 
may adjust.
* * * * *

Subpart C--Loan Purposes and Basic Policies

0
3. Amend Sec.  1710.101 by revising paragraph (f) to read as follows:


Sec.  1710.101  Types of eligible borrowers.

* * * * *
    (f) Except as provided in paragraph (g) of this section, former 
borrowers that have paid off all outstanding loans may reapply for a 
loan to serve RE Act beneficiary loads accruing from the time

[[Page 33762]]

the former borrower's complete loan application is received by RUS.
* * * * *
0
4. Amend Sec.  1710.104 by revising paragraph (b) to read as follows:


Sec.  1710.104  Service to non-RE Act beneficiaries.

* * * * *
    (b) Loan funds may be approved for facilities that serve non-RE Act 
beneficiaries only if:
    (1) The primary purpose of the loan is to furnish or improve 
service for RE Act beneficiaries; and
    (2) The use of loan funds to serve non-RE Act beneficiaries is 
necessary and incidental to the primary purpose of the loan; or
    (3) The requirements of Sec. Sec.  1710.116 and 1710.117 of this 
subpart are satisfied.
0
5. Add Sec.  1710.116 to read as follows:


Sec.  1710.116  Rural Determination.

    (a) General. This section shall be used to determine the rural 
eligibility for all applicants. Borrowers serving, directly or 
indirectly, any person located within a rural area, shall be considered 
eligible for financing as provided in this section and Sec.  1710.117.
    (b) Rural Cap. Rural Cap means the aggregate amount of generation 
in megawatt hours (MWh) that RUS will finance for a given Utility. The 
amount may be measured in terms of either installed capacity or annual 
energy sales.
    (c) Rural Percentage. Except as provided in paragraph (d) of this 
section, the percentage of rural persons served relative to the total 
population in the service territory of a Utility shall be considered to 
be the Rural Percentage. RUS retains the ultimate authority for 
determining the Rural Percentage and the Rural Percentage shall be re-
evaluated with each loan request.
    (d) June 2008 Borrowers. The Rural Percentage for June 2008 
Borrowers that have not acquired any new service territory since June 
18, 2008 shall be 100 percent.
    (e) Report and supporting documentation. It is the Borrower's 
responsibility to work with the applicable Utility to estimate the 
Rural Percentage and provide RUS with a report acceptable to RUS 
estimating the Rural Percentage. The report and supporting 
documentation must be verifiable by RUS or a third party acceptable to 
RUS.
    (f) Methods for calculating the Rural Percentage. The borrower may 
use any one of the following four methods to estimate the Rural 
Percentage, except as otherwise noted.
    (1) Method R1 Identify all meters currently located within the 
service territory for the applicable Utility excluding sale for resale 
meters. Determine the rural meters and total meters using data on meter 
locations in the format utilized by geographic information software 
(GIS) and using data available from the Census Bureau. The Rural 
Percentage shall be equal to the fraction that results from dividing 
the number of rural meters by the number of total meters.
    (2) Method R2 Identify all meters located within the service 
territory for the applicable Utility excluding sale for resale meters. 
Determine the rural meters and total meters for the area using data 
available from the Census Bureau. Determine the rural, and total MWh 
sold during the previous calendar year. The Rural Percentage shall be 
equal to the fraction that results from dividing the number of rural 
MWh by the total MWh sold. Borrowers may use peak demand (megawatts) in 
place of MWh sales to calculate the rural fraction.
    (3) Method R3 Identify the geographic area of the service territory 
for the applicable Utility using landmarks such as highways, rivers or 
boundaries of political jurisdictions. Determine the urban and total 
population for the area using data available from the U.S. Bureau of 
the Census (Census Bureau). Additional data from other sources 
acceptable from RUS may also be used to refine the result arrived at 
using Census Bureau data. The Rural Percentage shall be equal to the 
fraction that results from dividing the rural population by the total 
population. This method is only to be used if GIS data on meter 
locations is not available.
    (4) Method R4 (i) This method may only be used for small generation 
projects that serve loads approximately 50 megawatts (MW) or less and 
are located in a rural area, at least 10 miles from an urban center, or 
for small generation projects that are located in an urban area where a 
benefit can be clearly demonstrated for a rural area such as a project 
that results in relief of congestion at a constrained delivery point 
that feeds a rural area.
    (ii) Perform a load flow study in and around a proposed generation 
plant site. Identify a boundary which coincides with the geographic 
area beyond which power from the proposed plant does not flow during 
low consumer demand conditions. Use either Methods R1, R2 or R3 to 
determine the Rural Percentage for the identified area.
0
6. Redesignate Sec.  1710.117 as Sec.  1710.118, and add a new Sec.  
1710.117 to read as follows:


Sec.  1710.117  Financing Percentage.

    (a) General. This section shall be used to determine the eligible 
percentage of financing for projects included in loan applications 
submitted to RUS.
    (b) Financing Percentage. Projects serving persons in rural areas 
shall be eligible for financing from RUS for up to 100 percent of 
eligible costs or such other lower percentage as provided in this 
section unless otherwise reduced pursuant to either an equity or other 
underwriting requirement determined by RUS, including but not limited 
to a requirement that other lenders participate in the financing. The 
percentage of total project costs determined to be eligible for RUS 
financing shall be the Financing Percentage.
    (c) June 2008 Borrowers. The Financing Percentage for June 2008 
Borrowers shall be 100 percent limited only by an underwriting 
requirement as may be determined by RUS pursuant to paragraph (b) of 
this section.
    (d) Generation. The following three options may be used for 
determining the maximum Financing Percentage for generation projects. 
Applicants must provide RUS with estimates and support documentation 
for the option selected by the applicant. The percentage of generation 
capacity or energy financed in all or part by RUS for utility systems 
other than June 2008 Borrowers may not exceed the applicable Rural Cap.
    (1) Method G1. Multiply the Rural Percentage times the coincident 
peak demand recorded for the applicable Utility service area as 
measured during the most recently completed calendar year. RUS may 
provide up to 100 percent of the debt for a given generation asset or 
fleet of assets until the cumulative nameplate capacity financed by RUS 
reaches the Rural Cap for a nonprofit utility system. RUS may provide 
up to 100 percent of the debt for a given generation asset or fleet of 
assets until the cumulative nameplate capacity financed by RUS reaches 
the lesser of the Rural Cap, the applicable state renewable portfolio 
standard or 20 percent of the coincident peak as measured in megawatts 
for a for-profit utility system.
    (2) Method G2. Multiply the Rural Percentage times the total energy 
sold within the system for the most recently completed calendar year. 
The result is a Rural Cap measured in energy hours. RUS may provide up 
to 100 percent of the debt for a given generation asset or fleet of 
assets until the cumulative

[[Page 33763]]

capacity financed by RUS reaches the Rural Cap for a nonprofit utility 
system. RUS may provide 100 percent of the debt for a given generation 
asset or fleet of assets until the cumulative capacity financed by RUS 
reaches the lesser of the Rural Cap, the applicable state renewable 
portfolio standard or 20 percent as measured in energy hours for a for-
profit utility system.
    (3) Method G3. Multiply the Rural Percentage times the total 
project cost for a specific asset. This establishes the maximum 
financing cap measured in dollars for each asset. RUS may provide 
financing for no more than this amount of the debt.
    (e) Transmission. Transmission that is dedicated to interconnecting 
a specific generation facility shall be considered incidental to and 
part of that project for purposes of determining the related Financing 
Percentage and as such be calculated pursuant to paragraph (d) of this 
section. The following two options may be used for determining the 
maximum Financing Percentage for stand-alone bulk or other 
interconnecting transmission lines. Applicants must provide RUS with 
estimates and support documentation for the option selected by the 
applicant.
    (1) Method T1 June 2008 Borrowers may seek financing for 100 
percent for a transmission investment only in the following cases: a 
transmission project wholly owned by existing borrower(s), 100 percent 
of a fractional interest owned by an existing borrower, or 100 percent 
of the lines needed to meet the investment requirements imposed on an 
existing borrower as a member of an integrated transmission system.
    (2) Method T2 In cases where the applicant is not a June 2008 
Borrower, RUS will finance a percentage of the applicant(s) financial 
commitment to a transmission investment equal to the Rural Percentage 
using methods R1, R2 or R3 of paragraph (f) in Sec.  1710.116. The 
applicant must be a Sponsoring Utility for determining the Rural 
Percentage.
    (f) Distribution. Applicant must provide RUS with estimates and 
support documentation for one of the following two options for 
determining the maximum Financing Percentage for distribution projects.
    (1) Method D1 The Financing Percentage is equal to the Rural 
Percentage as determined by Methods R1, R2, or R3 described in 
paragraph (f) of Sec.  1710.116. All projects in the system may be 
financed up to this percentage regardless of physical location.
    (2) Method D2 The Financing Percentage may be up to 100 percent of 
the costs of the projects located in rural areas; the Financing 
Percentage would be zero for projects located in urban areas.
    (g) Financing Percentage for Energy Efficiency Projects. Applicants 
must provide RUS with estimates and support documentation for 
determining the maximum Financing Percentage using the following method 
for energy efficiency projects:
    Method EE1 The Financing Percentage may be up to 100 percent of the 
costs of the projects located in rural areas; the Financing Percentage 
shall be zero for projects located in urban areas.
0
7. Amed Sec.  1710.119 by revising paragraph (b) to read as follows:


Sec.  1710.119  Loan processing priorities.

* * * * *
    (b) The Administrator may give priority to processing loans that 
are required to meet the following criteria:
    (1) To restore electric service following a major storm or other 
catastrophe;
    (2) To bring existing electric facilities into compliance with any 
environmental requirements imposed by Federal or state law that were 
not in effect at the time the facilities were originally constructed;
    (3) To finance the capital needs of borrowers that are the result 
of a merger, consolidation, or a transfer of a system substantially in 
its entirety, provided that the merger, consolidation, or transfer has 
either been approved by RUS or does not need RUS approval pursuant to 
the borrower's loan documents (See 7 CFR 1717.154);
    (4) To correct serious safety problems, other than those resulting 
from borrower mismanagement or negligence;
    (5) To finance generation facilities that use renewable fuel; or
    (6) To build transmission facilities in order to deliver the energy 
produced by generating facilities that use renewable fuel.
* * * * *

Subpart D--Basic Requirements for Loan Approval

0
8. Amend Sec.  1710.151 by revising paragraph (e) to read as follows:


Sec.  1710.  151 Required finding for all loans.

* * * * *
    (e) Facilities for nonrural areas. Whenever a borrower proposes to 
use loan funds for the improvement, expansion, construction, or 
acquisition of electric projects for non-RE Act beneficiaries, there is 
satisfactory evidence that such funds are necessary and incidental to 
furnishing or improving electric service for RE Act beneficiaries (see 
Sec.  1710.104) or the requirements of Sec. Sec.  1710.116 and 1710.117 
are satisfied.
* * * * *

Subpart F--Construction Work Plans and Related Studies

0
9. Amend Sec.  1710.251 by revising paragraphs (c)(8) through (c)(10) 
to read as follows:


Sec.  1710.251  Construction work plans--distribution borrowers.

* * * * *
    (c) * * *
    (8) Headquarters facilities;
    (9) Improvements, replacements, and retirements of generation 
facilities;
    (10) Smart grid facilities including communications equipment, 
smart meters, load management equipment, automatic sectionalizing 
facilities, and centralized System Control and Data Acquisition 
equipment. Load management equipment and other smart devices eligible 
for financing, including the related costs of installation, is limited 
to capital equipment designed to influence the time and manner of 
consumer use of electricity, which includes peak clipping and load 
shifting. To be eligible for financing, such equipment must be owned by 
the borrower, although it may be located inside or outside a consumer's 
premises; and
* * * * *
0
10. Amend Sec.  1710.252 by revising paragraphs (c) (2) and (c)(4) to 
read as follows:


Sec.  1710.252  Construction work plans--power supply borrowers.

* * * * *
    (c) * * *
    (2) Transmission facilities required to deliver the power needed to 
serve the existing and planned new loads of the borrower and its 
members, and to improve service reliability, including tie lines for 
improved reliability of service, line conversions, improvements and 
replacements, new substations and substation improvements and 
replacements, and smart grid facilities such as Systems Control and 
Data Acquisition equipment, including automated dispatching, 
communications and sectionalizing equipment, and load management 
equipment;
* * * * *
    (4) Improvements and replacements of generation facilities, 
including generation facilities that use renewable fuel; and
* * * * *

[[Page 33764]]

Subpart F--Construction Work Plan and Related Studies


Sec.  1710.253  [Amended]

0
11. Amend Sec.  1710.253 as follows:
0
a. Revise paragraph (c)(1) and redesignate pargraphs (c)(2) through 
(c)(9) as (c)(3) through (c)(10), respectively, and add a new paragraph 
(c)(2); and
0
b. Redesignate paragraph (d) as paragraph (e) and add a new pargraph 
(d);


Sec.  1710.253  Engineering and cost studies--addition of generation 
capacity.

* * * * *
    (c) * * *
    (1) Capital;
    (2) Operation and maintenance costs;
* * * * *
    (d) The requirements of paragraphs (c)(4), (c)(5), and (c)(6) of 
this section shall not apply in the case of generation projects using 
renewable fuel that are proposed to meet a renewable portfolio standard 
imposed by the applicable jurisdictional authority.
0
12. Amend Sec.  1710.254 by adding paragraph (a)(1)(iii) and revising 
paragraphs (g) and (h) to read as follows:


Sec.  1710.254  Alternative sources of power.

    (a) * * *
    (1) * * *
    (iii) Where a generation project using renewable fuel is proposed 
to meet a renewable portfolio standard imposed by the applicable 
jurisdictional authority.
* * * * *
    (g) The requirements of this section supplement the RUS 
requirements for financing of generation and bulk transmission 
facilities as set forth elsewhere in this part.
    (h) At the request of a borrower, RUS, in its sole discretion may 
waive specific requirements of paragraphs (b) through (e) of this 
section if such waiver is required to prevent unreasonable delays in 
obtaining generation capacity that could result in system reliability 
problems, or, in the case of renewable projects proposed to meet a 
renewable portfolio standard imposed by the applicable jurisdictional 
authority, the requirements of this section shall be deemed to be met.

    Dated: May 30, 2013.
John Padalino,
Acting Administrator, Rural Utilities Service.
[FR Doc. 2013-13309 Filed 6-4-13; 8:45 am]
BILLING CODE 3410-15-P