§ 1710.106 Uses of loan funds. ( a ) Funds from loans made or guaranteed by RUS may be used to finance: ( 1 ) *Distribution facilities.* ( i ) The construction of new distribution facilities or systems, the cost of system improvements and removals less salvage value, the cost of ordinary replacements and removals less salvage value, needed to meet load growth requirements, improve the quality of service, or replace existing facilities.
( ii ) The purchase, rehabilitation and integration of existing distribution facilities and associated service territory when the acquisition is an incidental and necessary means of providing or improving service to persons in rural areas who are not receiving adequate central station service, and the borrower is unable to finance the acquisition from other sources. See § 1710.107.
( 2 ) *Transmission and generation facilities.* ( i ) The construction of new transmission and generation facilities or systems, the cost of system improvements and removals, less salvage value, the cost of ordinary replacements and removals less salvage value, needed to meet load growth, improve the quality of service, or replace existing facilities.
( ii ) The purchase of an ownership interest in new or existing transmission or generation facilities to serve RE Act beneficiaries.
( 3 ) *Headquarters Offices, Warehouse, and garage facilities.* The purchase, remodeling, or construction of headquarters office, other headquarters facilities, warehouse, and garage facilities required for the operation of a borrower's system. *See* paragraph (b) of this section.
( 4 ) *Interest.* The payment of interest on indebtedness incurred by a borrower to finance the construction of generation and transmission facilities during the period preceding the date such facilities are placed into service, if requested by the borrower and found necessary by RUS.
( 5 ) Certain costs incurred in demand side management, energy conservation programs and on and off grid renewable energy systems.
( 6 ) Eligible Energy Efficiency and Conservation Programs pursuant to Subpart H of this part.
( 7 ) *Cybersecurity and grid security.* Eligible cybersecurity and grid security improvements.
( 8 ) *Smart grid infrastructure.* The purchase, installation, improvements, and investments in assets needed for a robust smart grid infrastructure capability that enables the utility to operate efficiently, improve its reliability, and enhance its ability to recover from disasters, physical or cyber-attacks, carry out energy efficiency and demand side management activities, and implement renewable energy technologies and cybersecurity and grid security strategies. ( i ) Smart grid, grid security, or cybersecurity infrastructure financed under this section must relate to one or more electric utility or energy efficiency purpose. Loan proceeds under this section may not be used to solely finance retail broadband services.
( ii ) Notwithstanding paragraph (a)(8)(i) of this section, a borrower is permitted to use up to 10 percent of the amount provided under this subpart to construct, improve, or acquire broadband infrastructure related to the project financed, subject to the requirements of 7 CFR part 1980, subpart M.
( b ) In cases of financial hardship, as determined by the Administrator, loans may also be made to finance the following items: ( 1 ) General plant equipment, including furniture, office, transportation, data processing and other work equipment; and
( 2 ) Working capital required for the initial operation of a new system.
( c ) RUS will not make loans to finance the following: ( 1 ) Electric facilities, equipment, appliances, or wiring located inside the premises of the consumer, except for measures related to grid security, cybersecurity, or assets financed pursuant to an eligible EE Program, and qualifying items included in a loan for demand side management or energy resource conservation programs, or renewable energy systems.
( 2 ) Facilities to serve consumers who are not RE Act beneficiaries unless those facilities are necessary and incidental to providing or improving electric service in rural areas (*See §*1710.104).
( 3 ) Any facilities or other purposes that a State regulatory authority having jurisdiction will not approve for inclusion in the borrower's rate base or will not otherwise allow rates sufficient to repay with interest the debt incurred for the facilities or other purposes.
( d ) A distribution borrower may request a loan period of up to 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 and DSM activities will be determined on a case-by-case basis. 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 RUS requirements for loan feasibility and loan security set forth in §§ 1710.112 and 1710.113, respectively.
( e ) ( 1 ) If, in the sole discretion of the Administrator, the amount authorized for lending for municipal rate loans, hardship rate loans, and loan guarantees in a fiscal year is substantially less than the total amount eligible for RUS financing, RUS may limit the size, type, or purpose of loans approved during the fiscal year. Depending on the amount of the shortfall between the amount authorized for lending and the loan application inventory on hand for each type of loan, RUS may either reduce the amount on an equal proportion basis for all applicants for that type of loan based on the amount of funds for which the applicant is eligible or may shorten the loan period for which funding will be approved to less than the maximum of 4 years. All applications for the same type of loan approved during a fiscal year will be treated in the same manner, except that RUS will not limit funding to any borrower requesting a RUS loan or loan guarantee of $1 million or less. Should a shortfall or urgent need related to cybersecurity, grid security, or statutory preference become evident during a fiscal year, the Administrator may announce priorities in a public notice for utilizing available funds for the balance of the fiscal year.
( 2 ) If RUS limits the amount of loan funds approved for borrowers, the Administrator shall provide public notice to all electric borrowers as early as possible in the fiscal year of the manner in which funding will be limited. The portion of the loan application that is not funded during that fiscal year may, at the borrower's option, be treated as a second loan application received by RUS at a later date. This date will be determined by RUS in the same manner for all affected loans and will be based on the availability of loan funds. The second loan application shall be considered complete except that the borrower must submit a certification from a duly authorized corporate official stating that funds are still needed for loan purposes specified in the original application and must notify RUS of any changes in its circumstances that materially affects the information contained in the original loan application or the primary support documents. See § 1710.401(f).
( 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 RUS Form 740c as amended and approved by RUS, or on a construction work plan or a construction work plan amendment approved by RUS. 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.
( g ) A borrower is permitted to use up to 10 percent of the amount provided under this part to construct, improve, or acquire broadband infrastructure related to the project financed, subject to the requirements of 7 CFR part 1980, subpart M.
[57 FR 1053, Jan. 9, 1992, as amended at 58 FR 66265, Dec. 20, 1993; 60 FR 3730, Jan. 19, 1995; 62 FR 7922, Feb. 21, 1997; 64 FR 33178, June 22, 1999; 78 FR 73365, Dec. 5, 2013; 84 FR 32610, July 9, 2019; 85 FR 57081, Sept. 15, 2020; 87 FR 74498, Dec. 6, 2022; 87 FR 73436, Nov. 30, 2022]