7 CFR 1717.300, Subpart G - Federal Pre-emption in Ratemaking in Connection with Power Supply Borrowers

§ 1717.300

7 CFR Ch. XVII (1–1–03 Edition)

Subpart G—Federal Pre-emption
in Rate Making in Connection
With Power Supply Borrowers
§ 1717.300 Purpose.
This subpart contains regulations of
the Rural Utilities Service (RUS) implementing provisions of Section 4 of
the RE Act (7 U.S.C. 904) which authorize the Administrator to establish
terms and conditions of loans and implementing provisions of the RUS
wholesale power contracts and other
RUS documents which provide for the
establishment of rates to be charged by
power supply borrowers for the sale of
electric power and energy. This subpart
contains the general regulations of
RUS for the pre-emption, under certain
circumstances, which are not exclusive, of the regulation of a power supply borrower’s rates by a state regulatory authority under state law and
for the exercise of exclusive jurisdiction over rates by RUS pursuant to the
RUS documents.
§ 1717.301 Policy.
(a) RUS makes and guarantees loans
to borrowers to bring electric service
to persons in rural areas. RUS requires,
as a condition to making or guaranteeing any loans to power supply borrowers, that the borrower enter into
RUS wholesale power contracts with
its several members and assign and
pledge such contracts as security for
the repayment of loans made or guaranteed by RUS and for other loans
which, pursuant to the RE Act, RUS
has permitted to be secured pursuant
to the RUS mortgage. The RUS wholesale power contract requires, among
other matters, that the rates charged
for power and energy sold thereunder
produce revenues sufficient to enable
the power supply borrower to make
payments on account of all indebtedness of the power supply borrower. The
Administrator relies upon the RUS
wholesale power contracts together
with other RUS documents to find and
certify, as required in section 4 of the
RE Act (7 U.S.C. 904), that the security
for the loan is reasonably adequate and
the loan will be repaid within the time
agreed.
(b) RUS requires power supply borrowers to take such actions as may be

necessary to charge rates for the sale
of electric power and energy which are
sufficient to pay the principal and interest on loans made or guaranteed by
RUS in a timely manner and to meet
the requirements of the RUS wholesale
power contract and other RUS documents.
(c) With respect to power supply borrowers which are not subject to rate
regulation by a state regulatory authority, RUS requires that such borrowers establish rates and obtain RUS
approval of such rates as required by
the terms of the RUS wholesale power
contract and other RUS documents.
(d) With respect to power supply borrowers which are subject to regulation
by a state regulatory authority, RUS
does not make or guarantee a loan for
the construction, operation or enlargement of any generating plant or transmission facility unless the consent of
the state regulatory authority having
jurisdiction in the premises is first obtained.
(e) Pursuant to applicable provisions
of state law state regulatory authorities regulate many aspects of a power
supply borrowers business activities,
including such matters as the setting
of wholesale electric rates, the borrowing of money, and the mortgaging
of property. A state regulatory
authority’s jurisdiction over the rates
charged by a power supply borrower
shall be pre-empted where the Administrator has determined that such jurisdiction has compromised Federal interests, including without limitation,
the ability of the borrower to repay its
secured loans in accordance with the
terms of the RUS documents. Thereupon, RUS shall, pursuant to the RUS
documents, exercise exclusive jurisdiction over the rates charged by a power
supply borrower.
[55 FR 38646, Sept. 19, 1990; 55 FR 53100, Dec.
26, 1990]

§ 1717.302 Definitions and rules of construction.
(a) Definitions. For the purpose of this
subpart, the following terms shall have
the following meanings:
Administrator means the Administrator of RUS.
Borrower means any organization
which has an outstanding loan made or

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Rural Utilities Service, USDA

§ 1717.303

guaranteed by RUS for rural electrification. Unless otherwise stated in
the text, ‘‘borrower’’ shall mean power
supply borrower.
Loan contract means the agreement,
as amended, supplemented, or restated
from time to time, between a borrower
and RUS providing for loans made or
guaranteed pursuant to the RE Act.
Power supply borrower means any borrower engaged in the wholesale sale of
electric power and energy to distribution members either directly or though
other power supply borrowers pursuant
to RUS wholesale power contracts.
RE Act means Rural Electrification
Act of 1936, as amended (7 U.S.C. 901 et
seq.).
REA means the Rural Electrification
Administration formerly an agency of
the United States Department of Agriculture and predecessor agency to RUS
with respect to administering certain
electric and telephone loan programs.
RUS means the Rural Utilities Service, an agency of the United States Department of Agriculture established
pursuant to Section 232 of the Federal
Crop Insurance Reform and Department of Agriculture Reorganization
Act of 1994 (Pub. L. 103–354, 108 Stat.
3178), successor to REA with respect to
administering certain electric and telephone programs. See 7 CFR 1700.1.
RUS documents means the loan contract, mortgage and RUS wholesale
power contract of a power supply borrower.
RUS mortgage means the mortgage
and security agreement, as from time
to time supplemented, amended and restated, made by and among the borrower, RUS, and, if a party thereto,
third party lenders, or any other form
of mortgage or security instrument or
indenture of mortgage and deed of
trust, securing the payment of outstanding loans made or guaranteed by
RUS and other lenders.
RUS wholesale power contract means
the contract for the wholesale sale of
electric power and energy between a
power supply borrower and its member
as approved by RUS.
Secured loans shall mean outstanding
loans secured pursuant to the RUS
mortgage.
State regulatory authority means any
state board or local governing body

having jurisdiction under state law to
regulate, or in any way, approve the
electric rates charged by a power supply borrower or electric distribution
member of a power supply borrower.
(b) Rules of Construction. Unless the
context shall otherwise indicate, the
terms defined in § 1717.302(a) hereof include the plural as well as the singular,
and the singular as well as the plural.
The words ‘‘herein,’’ and ‘‘hereunder’’,
and words of similar import, refer to
this subpart as a whole. ‘‘Includes’’ and
‘‘including’’ are not limiting and ‘‘or’’
is not exclusive.
[55 FR 38646, Sept. 19, 1990, as amended at 59
FR 66440, Dec. 27, 1994]

§ 1717.303 Requirements of RUS documents.
(a) Pursuant to the terms of the RUS
documents each power supply borrower
shall establish and adjust rates for the
sale of electric power and energy in
such a manner as to assure that the
borrower will be able to make required
payments on secured loans.
(b) Pursuant to the terms of the RUS
wholesale power contract, the Board of
Directors or Board of Trustees of the
power supply borrower shall review
rates not less frequently than once
each calendar year and revise its rates
as therein set forth.1 The RUS wholesale power contract further provides
that the borrower shall notify the Administrator not less than 30 nor more
than 45 days prior to the effective date
1 The
Wholesale Power Contract, with
minor modifications which are approved by
RUS on a case by case basis, provides that
the rate charged for electric power and energy, shall produce revenues which shall be
sufficient, but only sufficient, with the revenues of the Seller from all other sources, to
meet the cost of the operation and maintenance (including without limitation, replacements, insurance, taxes and administrative
and general overhead expenses) of the generating plant transmission system and related
facilities of the Seller, the cost of any power
and energy purchased for resale hereunder by
the Seller, the cost of transmission service,
make payments on account of principal and
interest on all indebtedness of the Seller,
and to provide for the establishment and
maintenance of reasonable reserves. (Section
4. Rates (b), RUS Form 444, ‘‘Wholesale
Power Contract—Federated Cooperative’’;
Rev. 6–60.)

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§ 1717.304

7 CFR Ch. XVII (1–1–03 Edition)

of any adjustment and shall set forth
the basis upon which the rate is to be
adjusted and established. The RUS
wholesale power contract provides that
no final revision in rates shall be effective unless approved in writing by the
Administrator.
(c) Pursuant to the terms of the RUS
mortgage, each power supply borrower
must design its rates as therein set
forth and must give 90 days prior notice to RUS of any proposed change in
its general rate structure.
(Approved by the Office of Management and
Budget under control number 0572–0089)

§ 1717.304 State regulatory authority
rate jurisdiction.
(a) In the event that rate revisions
required by the terms of the RUS
wholesale power contract or other RUS
documents may be subject to the approval of a state regulatory authority,
the power supply borrower shall seek
such required approval in a timely
manner.
(b) RUS recognizes the need of state
regulatory authorities for documents,
information and records for use in connection with an application for rate approval and will consider any reasonable
request by a borrower or a state regulatory authority for such documents,
information and records. The failure of
RUS to provide requested documents,
information or records shall not limit
any rights of RUS including the right
with respect to pre-emption of the
state regulatory authority as provided
in this subpart.
(c) In the event that the state regulatory authority shall fail to act favorably upon the borrower’s application
for rate increases required by terms of
the RUS wholesale power contract or
other RUS documents, the borrower
shall pursue such legal and administrative appeals as may be available to it,
unless RUS shall approve otherwise in
writing.
§ 1717.305 Pre-emption.
(a) Inadequate rates. State regulatory
authority jurisdiction over a power
supply borrower’s rates shall be preempted by the RE Act if the Administrator shall have determined that the
borrower’s rates approved by the state
regulatory authority are, after taking

into account the borrower’s costs and
expenses, inadequate to produce revenues sufficient to permit the borrower
to make required payments on its secured loans and the borrower has failed
to make required payments on its secured loans.
(b) Public notice. The Administrator
shall:
(1) Notify the borrower and the state
regulatory authority in writing of the
determination, indicating the jurisdiction of the state regulatory authority
over the rates of the borrower has been
pre-empted pursuant to this part and
the borrower shall henceforth establish
its rates in accordance with the term
of the RUS documents.
(2) publish a notice in the FEDERAL
REGISTER informing the public of the
action.
[55 FR 38646, Sept. 19, 1990; 55 FR 53100, Dec.
26, 1990]

§ 1717.306 RUS required rates.
(a) Upon the publication in the FEDERAL REGISTER of the notice of preemption of state regulatory authority
as provided in this subpart, RUS will
exercise exclusive jurisdiction over the
rates of the borrower pursuant to the
terms of the RUS documents. The borrower shall immediately establish
rates with the approval of RUS that
are sufficient to satisfy the requirements of the RUS wholesale power contract and other RUS documents described in § 1717.303 of this subpart. The
borrower shall establish such rates notwithstanding provisions of state law,
and rules, orders or other actions of
state regulatory authorities, and notwithstanding any provision of the RUS
documents referring to such laws,
rules, orders or actions.
(b) So long as the state regulatory
authority shall be pre-empted hereunder, RUS shall be considered the
governmental regulatory body with jurisdiction over rates for the purposes of
the RUS documents and for the purposes of section 1129(a)(6) of the Bankruptcy Code of 1978, as amended (11
U.S.C. 1129(a)(6)).
(c) If a borrower, which is subject to
exclusive RUS rate jurisdiction, shall
fail to establish rates in accordance
with terms of the RUS wholesale power
contract and other RUS documents in

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Rural Utilities Service, USDA

§ 1717.351

a timely fashion, RUS may proceed to
exercise any and all rights and remedies available pursuant under the RUS
documents or otherwise.
(d) The jurisdiction of the state regulatory authority over the rates of the
borrower shall continue to be preempted hereunder until the Administrator shall in writing approve the resumption of jurisdiction by the state
regulatory authority and publish in the
FEDERAL REGISTER a notice to such effect. The Administrator shall approve
resumption only after determining
that such jurisdiction shall be exercised in a manner consistent with Federal interests.

§ 1717.309 Additional statutory preemption.
This subpart addresses pre-emption
of state law and state regulatory authority in only those specific circumstances herein described. Nothing
in this subpart waives, limits, or otherwise affects the explicit pre-emption or
pre-emption, which is implicit and
shall occur pursuant to the RE Act as
a matter of law, of state law or action
of a state regulatory authority where
such state law or such action compromises Federal interests, including
the ability of any borrower, including
power supply borrowers, to repay loans
made or guaranteed by RUS.

[55 FR 38646, Sept. 19, 1990; 55 FR 53100, Dec.
26, 1990]

§§ 1717.310–1717.349

§ 1717.307

Distribution members’ rates.

A state regulatory authority which
has been pre-empted as provided in this
subpart may continue to exercise jurisdiction, pursuant to applicable provisions of state law, over all other business affairs of the power supply borrower and over the rates of its distribution members: Provided, however, that
the state regulatory authority shall
treat any RUS approved rate for the
power supply borrower as fair and reasonable and shall not in any manner,
directly or indirectly, prevent or impede the distribution member from recovering the costs of paying the RUS
approved rates to the power supply borrower.
§ 1717.308 RUS approval of nonconforming rates.
Borrowers may request and RUS may
approve rates which do not conform
with the requirements of the RUS
wholesale power contract and other
RUS documents if RUS determines, in
its sole discretion, that such approval
is in the interests of RUS. If RUS approval is granted prior to pre-emption
hereunder, and if the state regulatory
authority shall have approved such
rates, then, so long as RUS’s approval
of the nonconforming rates remains in
effect, the jurisdiction of the state regulatory authority over the rates of the
borrower shall not be pre-empted hereunder.

[Reserved]

Subpart H—Federal Pre-emption
in Rate Making in Connection
With RUS Electric Borrowers in
Bankruptcy
SOURCE: 55 FR 38653, Sept. 19, 1990, unless
otherwise noted.

§ 1717.350 Purpose.
This subpart contains regulations of
the Rural Utilities Service (RUS) implementing provisions of section 4 of
the RE Act (7 U.S.C. 904) which authorizes the Administrator to establish
terms and conditions of loans, and provisions of the RUS documents which
provide for the establishment of rates
for electric service to be charged by
RUS electric borrowers. This subpart
contains the general regulations of
RUS for the pre-emption of the regulation by a State Regulatory Authority
under State law of an RUS borrower’s
rates and for the exercise by RUS, pursuant to the RUS documents, of exclusive jurisdiction over rates of a borrower by or against whom a case under
the Bankruptcy Code of 1978, as amended, has commenced.
§ 1717.351 Policy.
(a) RUS makes and guarantees loans
to borrowers to bring electric service
to persons in rural areas. To accomplish this objective, RUS normally requires, as a condition to making or
guaranteeing any loans to an electric
borrower, that the borrower execute

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