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Rural Utilities Service, USDA Pt. 1710

defer direct loan payment(s) and/or insured loan payment(s) and invest the

amount in a rural development project.

(b) The Administrator reserves the

right to determine that special circumstances require additional data

from borrowers before acting on a

deferment. The Administrator also reserves the right to require, as a condition of approving a loan payment

deferment pursuant to this subpart,

that the borrower execute and deliver

any amendments or supplements to its

loan documents that may be necessary

or appropriate to achieve the purposes

outlined in §1703.300.

(c) The Administrator will decide

whether the borrower is eligible for the

deferment and will notify the borrower

of the decision.

§ 1703.312 RUS review requirements.

Borrowers shall ensure that funds are

invested in the rural development

project as approved by RUS. The Administrator reserves the right to review the books and copy records of borrowers receiving loan payment

deferments as necessary to ensure that

the investments in the rural development project are in accordance with

this subpart and the representations

and purposes stated in the borrower’s

completed application. If an audit discloses that the amount deferred was

not used for the purposes stated in the

completed application, the borrower

shall be required to promptly repay the

amount deferred and the benefits of the

deferment to the borrower will be recaptured by RUS. The borrower is responsible for ensuring that disbursements and expenditures of funds covering the investment in the rural development project are properly supported with certifications, invoices,

contracts, bills of sale, cancelled

checks, or any other forms of evidence

determined appropriate by the Administrator and that such supporting material is available at the borrower’s

premises for review by the RUS field

accountant, borrower’s certified public

accountant, the Office of Inspector

General, the General Accounting Office

and any other accountant conducting

an audit of the borrower’s financial

statements for this rural development

program.

§ 1703.313 Compliance with other regulations.

(a) Investments in a rural economic

development project made by an electric borrower under this subpart are

subject to the provisions of 7 CFR part

1717, Subpart N, Investments, Loans

and Guarantees by Electric Borrowers.

(b) Investments in a rural economic

development project made by a telephone borrower under this subpart are

subject to the provisions of 7 CFR Part

1744, Post Loan Policies and Procedures Common to Guaranteed and Insured Loans.

PART 1710—GENERAL AND PRELOAN POLICIES AND PROCEDURES COMMON TO INSURED

AND GUARANTEED ELECTRIC

LOANS

Subpart A—General

Sec.

1710.1 General statement.

1710.2 Definitions and rules of construction.

1710.3 Form and bulletin revisions.

1710.4 Exception authority.

1710.5 Availability of forms.

1710.6 Applicability of certain provisions to

completed loan applications.

1710.7 Exemptions of RUS operational controls under section 306E of the RE Act.

1710.8—1710.49 [Reserved]

Subpart B—Types of Loans and Loan

Guarantees

1710.50 Insured loans.

1710.51 Loan guarantees.

1710.52—1710.99 [Reserved]

Subpart C—Loan Purposes and Basic

Policies.

1710.100 General.

1710.101 Types of eligible borrowers.

1710.102 Borrower eligibility for different

types of loans.

1710.103 Area coverage.

1710.104 Service to non-RE Act beneficiaries.

1710.105 State regulatory approvals.

1710.106 Uses of loan funds.

1710.107 Amount lent for acquisitions.

1710.108 Mergers and consolidations.

1710.109 Reimbursement of general funds

and interim financing.

1710.110 Supplemental financing.

1710.111 Refinancing.

1710.112 Loan feasibility.

1710.113 Loan security.

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§ 1710.1 7 CFR Ch. XVII (1–1–00 Edition)

1710.114 TIER, DSC, OTIER and ODSC requirements.

1710.115 Final maturity.

1710.116 [Reserved]

1710.117 Environmental considerations.

1710.118 [Reserved]

1710.119 Loan processing priorities.

1710.120 Construction standards and contracting.

1710.121 Insurance requirements.

1710.122 Equal opportunity and nondiscrimination.

1710.123 Debarment and suspension.

1710.124 Uniform Relocation Act.

1710.125 Restrictions on lobbying.

1710.126 Federal debt delinquency.

1710.127 Drug free workplace.

1710.128—1710.149 [Reserved]

Subpart D—Basic Requirements for Loan

Approval

1710.150 General.

1710.151 Required findings for all loans.

1710.152 Primary support documents.

1710.153 Additional requirements and procedures.

1710.154—1710.199 [Reserved]

Subpart E—Power Requirements Studies

1710.200 Purpose.

1710.201 Requirement to prepare a PRS—

power supply borrowers.

1710.202 Requirement to prepare a PRS—distribution borrowers.

1710.203 Basic policies and requirements for

a PRS.

1710.204 PRS work plan requirements.

1710.205 Basic criteria for RUS approval of a

PRS.

1710.206 Waiver of borrower requirements.

1710.207—1710.249 [Reserved]

Subpart F—Construction Work Plans and

Related Studies

1710.250 General.

1710.251 Construction work plans—distribution borrowers.

1710.252 Construction work plans—power

supply borrowers.

1710.253 Engineering and cost studies—addition of generation capacity.

1710.254 Alternative sources of power.

1710.255—1710.299 [Reserved]

Subpart G—Long-Range Financial

Forecasts

1710.300 General.

1710.301 Financial forecasts—distribution

borrowers.

1710.302 Financial forecasts—power supply

borrowers.

1710.303 Power cost studies—power supply

borrowers.

1710.304—1710.349 [Reserved]

Subpart H—Demand Side Management

and Renewable Energy Systems

1710.350 Purpose.

1710.351 General policy; renewable energy

systems.

1710.352 General policy; energy resource

conservation programs.

1710.353 General policy; demand side management.

1710.354 Eligible DSM activities.

1710.355 DSM loan applications.

1710.356 Integrated resource plans.

1710.357 DSM plans.

1710.358 Requirements for a DSM plan.

1710.359 DSM effects.

1710.360 Submittal of alternate documentation.

1710.361 Type and term of loans.

1710.362 Loan approval.

1710.363 Advance and documentation of use

of loan funds.

1710.364 Loan limits.

Subpart I—Application Requirements and

Procedures for Insured and Guaranteed Loans

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.

AUTHORITY: 7 U.S.C. 901 et seq., 1921 et seq.,

and 6941 et seq.

SOURCE: 57 FR 1053, Jan. 9, 1992, unless otherwise noted.

Subpart A—General

§ 1710.1 General statement.

(a) This part establishes general and

pre-loan policies and requirements that

apply to both insured and guaranteed

loans to finance the construction and

improvement of electric facilities in

rural areas, including generation,

transmission, and distribution facilities.

(b) Additional pre-loan policies, procedures, and requirements that apply

specifically to guaranteed and/or insured loans are set forth elsewhere:

(1) For guaranteed loans in 7 CFR

part 1712 and RUS Bulletins 20–22, 60–

10, 86–3, 105–5, and 111–3, or the successors to these bulletins; and

(2) For insured loans in 7 CFR part

1714 and in RUS Bulletins 60–10, 86–3,

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Rural Utilities Service, USDA § 1710.2

105–5, and 111–3, or the successors to

these bulletins.

(c) This part supersedes those portions of the following RUS Bulletins

and supplements that are in conflict.

20–5 Extensions of Payments of Principal

and Interest

20–20 Deferment of Principal Repayments

for Investment in Supplemental Lending

Institutions

20–22 Guarantee of Loans for Bulk Power

Supply Facilities

20–23 Section 12 Extensions for Energy Resources Conservation Loans

60–10 Construction Work Plans, Electric

Distribution Systems

86–3 Headquarters Facilities for Electric

Borrowers

105–5 Financial Forecast-Electric Distribution Systems

111–3 Power Supply Surveys

120–1 Development, Approval, and Use of

Power Requirements Studies

(d) When parts 1710, 1712, and 1714 are

published in final form, the bulletins

cited in paragraph (b) of this section

will be rescinded, in whole or in part,

or revised.

[57 FR 1053, Jan. 9, 1992, as amended at 58 FR

66262, Dec. 20, 1993]

§ 1710.2 Definitions and rules of construction.

(a) Definitions. For the purpose of this

part, the following terms shall have

the following meanings:

Administrator means the Administrator of RUS or his or her designee.

APRR means Average Adjusted Plant

Revenue Ratio calculated as a simple

average of the adjusted plant revenue

ratios for 1978, 1979 and 1980 as follows:

APRR

A+B

C D

= − where:

A=Distribution (plant), which equals Part E,

Line 14(e) of RUS Form 7;

B=General Plant, which equals Part E, Line

24(e) of RUS Form 7;

C=Operating Revenue and Patronage Capital,

which equals Part A, Line 1 of RUS Form

7; and

D=Cost of Power, which equals the sum of

Part A, Lines 2, 3, and 4 of RUS Form 7.

Area Coverage means the provision of

adequate electric service to the widest

practical number of rural users in the

borrower’s service area during the life

of the loan.

Borrower means any organization

that has an outstanding loan made or

guaranteed by RUS for rural electrification, or that is seeking such financing.

Bulk Transmission Facilities means the

transmission facilities connecting

power supply facilities to the subtransmission facilities, including both the

high and low voltage sides of the transformer used to connect to the subtransmission facilities, as well as related supervisory control and data acquisition

systems.

Call provision has the same meaning

as ‘‘prepayment option’’.

Consolidation means the combination

of 2 or more borrower or nonborrower

organizations, pursuant to state law,

into a new successor organization that

takes over the assets and assumes the

liabilities of those organizations.

Consumer means a retail customer of

electricity, as reported on RUS Form 7,

Part R, Lines 1–7.

Demand side management (DSM)

means the deliberate planning and/or

implementation of activities to influence consumer use of electricity provided by a distribution borrower to

produce beneficial modifications to the

system load profile. Beneficial modifications to the system load profile ordinarily improve load factor or otherwise help in utilizing electric system

resources to best advantage consistent

with acceptable standards of service

and lowest system cost. Load profile

modifications are characterized as

peak clipping, valley filling, load shifting, strategic conservation, strategic

load growth, and flexible load profile.

(See, for example, publications of the

Electric Power Research Institute

(EPRI), 3412 Hillview Avenue, Palo

Alto, CA 94304, especially ‘‘DemandSide Management Glossary’’ EPRI TR–

101158, Project 1940–25, Final Report,

October 1992.) DSM includes energy

conservation programs. It does not include sources of electrical energy such

as renewable energy systems, fuel cells,

or traditionally fueled generation, such

as fossil or nuclear fueled generators.

Distribution Borrower means a borrower that sells or intends to sell electric power and energy at retail in rural

areas.

94

§ 1710.2 7 CFR Ch. XVII (1–1–00 Edition)

Distribution Facilities means all electrical lines and related facilities beginning at the consumer’s meter base, and

continuing back to and including the

distribution substation.

DSC means Debt Service Coverage of

the borrower calculated as:

DSC

ABC

D = + +

Where:

All amounts are for the same calendar year

and are based on the RUS system of accounts and RUS Forms 7 and 12. References

to line numbers in the RUS Forms 7 and 12

refer to the June 1994 version of RUS Form

7 and the December 1993 version of RUS

Form 12, and will apply to corresponding

information in future versions of the

forms;

A=Depreciation and Amortization Expense of

the borrower, which equals Part A, Line 12

of RUS Form 7 (distribution borrowers) or

Section A, Line 20 of RUS Form 12a (power

supply borrowers);

B=Interest expense on total long-term debt

of the borrower, which equals Part A, Line

15 of RUS Form 7 or Section A, Line 22 of

RUS Form 12a, except that interest expense shall be increased by 1⁄3 of the

amount, if any, by which restricted rentals

of the borrower (Part M, Line 3 of RUS

Form 7 or Section K, Line 4 of RUS Form

12h) exceed 2 percent of the borrower’s equity (RUS Form 7, Part C, Line 36 [Total

Margins & Equities] less Line 26 [Regulatory Assets] or RUS Form 12a, Section B,

Line 38 [Total Margins & Equities] less

Line 28 [Regulatory Assets]);

C=Patronage Capital or Margins of the borrower, which equals Part A, Line 28 of RUS

Form 7 or Section A, Line 35 of RUS Form

12a; and

D=Debt Service Billed (RUS + other), which

equals the sum of all payments of principal

and interest required to be made on account of total long-term debt of the borrower during the calendar year, plus 1⁄3 of

the amount, if any, by which restricted

rentals of the borrower (Part M, Line 3 of

RUS Form 7 or Section K, Line 4 of RUS

Form 12h) exceed 2 percent of the borrower’s equity (RUS Form 7, Part C, Line

36 [Total Margins & Equities] less Line 26

[Regulatory Assets] or RUS Form 12a, Section B, Line 38 [Total Margins & Equities]

less Line 28 [Regulatory Assets]);

DSM activities means activities of the

type referred to in §1710.354(f).

DSM plan means a plan that describes the implementation at the distribution level of the DSM activities

identified in the integrated resource

plan as having positive net benefits.

See §1710.357.

Electric system means all of the borrower’s interests in all electric production, transmission, distribution, conservation, load management, general

plant and other related facilities,

equipment or property and in any

mine, well, pipeline, plant, structure or

other facility for the development, production, manufacture, storage, fabrication or processing of fossil, nuclear, or

other fuel or in any facility or rights

with respect to the supply of water, in

each case for use, in whole or in major

part, in any of the borrower’s generating plants, including any interest or

participation of the borrower in any

such facilities or any rights to the output or capacity thereof, together with

all lands, easements, rights-of-way,

other works, property, structures, contract rights and other tangible and intangible assets of the borrower in each

case used or useful in such electric system.

Equity means total margins and equities, which equals Part C, Line 33 of

RUS Form 7 (distribution borrowers) or

Section B, Line 34 of RUS Form 12a

(power supply borrowers).

Final maturity means the final date

on which all outstanding principal and

accrued interest on an electric loan is

due and payable.

Five percent hardship rate means an

interest rate of 5 percent applicable to

a hardship rate loan.

Fund advance period means the period

of time during which the Government

may advance loan funds to the borrower. See 7 CFR 1714.56.

Generation Facilities means the generating plant and related facilities, including the building containing the

plant, all fuel handling facilities, and

the stepup substation used to convert

the generator voltage to transmission

voltage, as well as related energy management (dispatching) systems.

Hardship rate loan means a loan made

at the 5 percent hardship rate pursuant

to 7 CFR 1714.8.

Insured Loan means a loan made pursuant to Section 305 of the RE Act, and

may include a direct loan made under

Section 4 of the RE Act.

Integrated Resources Plan (IRP) means

a plan resulting from the planning and

95

Rural Utilities Service, USDA § 1710.2

selection process for new energy resources that evaluates the benefits and

costs of the full range of alternatives,

including new generating capacity,

power purchases, DSM programs, system operating efficiency, and renewable energy systems.

Interest rate cap means a maximum

interest rate of 7 percent applicable to

certain municipal rate loans as set

forth in §1710.7.

Interest rate term means a period of

time selected by the borrower for the

purpose of determining the interest

rate on an advance of funds. See 7 CFR

1714.6.

Loan means any loan made or guaranteed by RUS.

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.

Loan Feasibility means that the borrower has the capability of repaying

the loan in full as scheduled, in accordance with the terms of the mortgage,

note, and loan contract.

Loan Guarantee means a loan guarantee made by RUS pursuant to the RE

Act.

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 RUS 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.

Merger means the combining, pursuant to state law, of borrower or nonborrower organizations into an existing

survivor organization that takes over

the assets and assumes the liabilities

of the merged organizations.

Mortgage means any and all instruments creating a lien on or security interest in the borrower’s assets in connection with loans or guarantees under

the RE Act.

Municipal rate loan means a loan

made at a municipal interest rate pursuant to 7 CFR 1714.5.

ODSC means Operating Debt Service

Coverage of the electric system calculated as:

ODSC

ABC

D = + +

Where:

All amounts are for the same calendar year

and are based on the RUS system of accounts and RUS Form 7. References to line

numbers in the RUS Form 7 refer to the

June 1994 version of the form, and will

apply to corresponding information in future versions of the form;

A=Depreciation and Amortization Expense of

the electric system, which usually equals

Part A, Line 12 of RUS Form 7;

B=Interest expense on total long-term debt

of the electric system, which usually

equals Part A, Line 15 of RUS Form 7, except that such interest expense shall be increased by 1⁄3 of the amount, if any, by

which restricted rentals of the electric system (usually Part M, Line 3 of RUS Form

7) exceed 2 percent of the borrower’s equity

(RUS Form 7, Part C, Line 36 [Total Margins & Equities] less Line 26 [Regulatory

Assets]);

C=Patronage Capital & Operating Margins of

the electric system, which usually equals

Part A, Line 20 of RUS Form 7, plus cash

received from the retirement of patronage

capital by suppliers of electric power and

by lenders for credit extended for the Electric System; and

D=Debt Service Billed (RUS + other), which

equals the sum of all payments of principal

and interest required to be made on account of total long-term debt of the electric system during the calendar year, plus

1⁄3 of the amount, if any, by which restricted rentals of the Electric System

(usually Part M, Line 3 of RUS Form 7) exceed 2 percent of the borrower’s equity

(RUS Form 7, Part C, Line 36 [Total Margins & Equities] less Line 26 [Regulatory

Assets]).

Off-grid renewable energy system

means an energy source which is not

electrically attached to the grid. Offgrid systems are operated as an island

and will have no direct impact on a

utility system’s physical operations.

96

§ 1710.2 7 CFR Ch. XVII (1–1–00 Edition)

An off-grid system need not meet electric utility power quality standards.

On-grid renewable energy system

means an energy source electrically attached to an existing grid. It can be attached on either side of a consumer’s

meter. On-grid systems are operated as

part of the overall utility system and

have a direct impact on a utility system’s operations. An on-grid system

must meet electric utility power quality and safety standards.

Ordinary Replacement means replacing one or more units of plant, called

‘‘retirement units’’, with similar units

when made necessary by normal wear

and tear, damage beyond repair, or obsolescence of the facilities.

OTIER means Operating Times Interest Earned Ratio of the electric system

calculated as:

OTIER

A B

A = +

Where:

All amounts are for the same calendar year

and are based on the RUS system of accounts and RUS Form 7. References to line

numbers in the RUS Form 7 refer to the

June 1994 version of the form, and will

apply to corresponding information in future versions of the form;

A=Interest expense on total long-term debt

of the electric system, which usually

equals Part A, Line 15 of RUS Form 7, except that such interest expense shall be increased by 1⁄3 of the amount, if any, by

which restricted rentals of the electric system (usually Part M, Line 3 of RUS Form

7) exceed 2 percent of the borrower’s equity

(RUS Form 7, Part C, Line 36 [Total Margins & Equities] less Line 26 [Regulatory

Assets]); and

B=Patronage Capital & Operating Margins of

the electric system, which usually equals

Part A, Line 20 of RUS Form 7, plus cash

received from the retirement of patronage

capital by suppliers of electric power and

by lenders for credit extended for the Electric System.

Power Requirements Study (PRS)

means the thorough study of a borrower’s electric loads and the factors

that affect those loads in order to determine, as accurately as practicable,

the borrower’s future requirements for

energy and capacity.

Power Supply Borrower means a borrower that sells or intends to sell electric power at wholesale to distribution

or power supply borrowers pursuant to

RUS wholesale power contracts.

Prepayment option means a provision

included in the loan documents to

allow the borrower to prepay all or a

portion of an advance on a municipal

rate loan on a date other than a rollover maturity date. See 7 CFR 1714.9.

PRR means Plant Revenue Ratio calculated as:

PRR =

A

B C− where:

A = Total Utility Plant, which equals Part C,

Line 3 of RUS Form 7;

B = Operating Revenue and Patronage Capital, which equals Part A, Line 1 of RUS

Form 7; and

C = Cost of Power, which equals the sum of

Part A, Lines 2, 3, and 4 of RUS Form 7.

PRS Work Plan means the plan that

sets forth the resources, methods,

schedules, and milestones to be used in

the preparation and maintenance of a

power requirements study.

RE Act means the Rural Electrification Act of 1936, as amended (7 U.S.C.

901 et seq.).

RE Act beneficiary means a person,

business, or other entity that is located in a rural area.

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.

Renewable energy system means a

source of energy (kWh) used to meet

borrower electric load that is fueled by

any of the following technologies: Hydropower, geothermal, biomass, municipal waste, solar thermal, photovoltaic,

wind, fuel cells not fueled by fossil

fuels. See, for example, ‘‘Renewable

Resources in U.S. Electricity Supply,’’

February 1993, Publication number

DOE/EIA 0561, published by the Department of Energy, Energy Information

Administration, Forrestal Building,

EI–231, Washington, DC 20585.

Retirement Unit means a substantial

unit of property, which when retired,

with or without being replaced, is accounted for by removing its book cost

from the plant account.

Rollover maturity date means the last

day of an interest rate term.

97

Rural Utilities Service, USDA § 1710.2

Rural area means any area of the

United States, its territories and insular possessions (including any area

within the Federated States of Micronesia, the Marshall Islands, and the Republic of Palau) not included within

the boundaries of any urban area, as

defined by the Bureau of the Census.

For purposes of the ‘‘rural area’’ definition, the character of an area is determined at the time of the initial loan to

furnish or improve service in the area.

(i) For initial RUS loans made prior

to November 1, 1993, the RE Act defined

‘‘rural area’’ to mean any area of the

United States not included within the

boundaries of any city, village, or borough having a population exceeding

1500. An area determined to be a ‘‘rural

area’’ for the purposes of an initial

loan made prior to November 1, 1993,

shall continue to be considered a

‘‘rural area.’’

(ii) For initial RUS loans made on or

after November 1, 1993, this definition

shall apply. In determining the character of the area, RUS will rely on the

Bureau of the Census designation.

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.

Subtransmission Facilities means the

transmission facilities that connect

the high voltage side of the distribution substation to the low voltage side

of the bulk transmission or generating

facilities, as well as related supervisory control and data acquisition facilities.

System Improvement means the change

or addition to electric plant facilities

to improve the quality of electric service or to increase the quantity of electric power available to RE Act beneficiaries.

TIER means Times Interest Earned

Ratio of the borrower calculated as:

TIER

A B

A = +

Where:

All amounts are for the same calendar year

and are based on the RUS system of accounts and RUS Forms 7 and 12. References

to line numbers in the RUS Forms 7 and 12

refer to the June 1994 version of RUS Form

7 and the December 1993 version of RUS

Form 12, and will apply to corresponding

information in future versions of the

forms;

A=Interest expense on total long-term debt

of the borrower, which equals Part A, Line

15 of RUS Form 7 or Section A, Line 22 of

RUS Form 12a, except that interest expense shall be increased by 1⁄3 of the

amount, if any, by which restricted rentals

of the borrower (Part M, Line 3 of RUS

Form 7 or Section K, Line 4 of RUS Form

12h) exceed 2 percent of the borrower’s equity (RUS Form 7, Part C, Line 36 [Total

Margins & Equities] less Line 26 [Regulatory Assets] or RUS Form 12a, Section B,

Line 38 [Total Margins & Equities] less

Line 28 [Regulatory Assets]); and

B=Patronage Capital or Margins of the borrower, which equals Part A, Line 28 of RUS

Form 7 or Section A, Line 35 of RUS Form

12a.

Total Assets means Part C, Line 26 of

RUS Form 7 (distribution borrowers) or

Section B, Line 27 of RUS Form 12a

(power supply borrowers).

Total Utility Plant means Part C, Line

3 of RUS Form 7 (distribution borrowers) or Section B, Line 27 of RUS

Form 12a (power supply borrowers).

Transmission Facilities means all electrical lines and related facilities, including certain substations, used to

connect the distribution facilities to

generation facilities. They include

bulk transmission and subtransmission

facilities.

Urban area is defined by the Bureau

of the Census as an area comprising all

territory, population, and housing

units in urbanized areas and in places

of 2500 or more persons outside urbanized areas. More specifically, ‘‘urban’’

consists of territory, persons, and

housing units in:

(i) Places of 2500 or more persons incorporated as cities, villages, boroughs

(except in Alaska and New York), and

towns (except in the six New England

States, New York, and Wisconsin), but

excluding the rural portions of ‘‘extended cities.’’

(ii) Census designated places of 2500

or more persons.

(iii) Other territory, incorporated or

unincorporated, included in urbanized

areas.

98

§ 1710.3 7 CFR Ch. XVII (1–1–00 Edition)

Urbanized area means an urbanized

area as defined by the Bureau of the

Census in notices published periodically in the FEDERAL REGISTER. Generally an urbanized area is characterized as an area that comprises a place

and the adjacent densely settled territory that together have a minimum

population of 50,000 people.

(b) Rules of Construction. Unless the

context otherwise indicates, ‘‘includes’’

and ‘‘including’’ are not limiting, and

‘‘or’’ is not exclusive. The terms defined in paragraph (a) of this part include the plural as well as the singular,

and the singular as well as the plural.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5,

1992, as amended at 58 FR 66263, Dec. 20, 1993;

59 FR 495, Jan. 4, 1994; 59 FR 66440, Dec. 27,

1994; 60 FR 3730, Jan. 19, 1995; 60 FR 67400,

Dec. 29, 1995]

§ 1710.3 Form and bulletin revisions.

References in this part to RUS or

REA forms or line numbers in RUS or

REA forms are based on RUS or REA

Form 7 and Form 12 dated December

1992, unless otherwise indicated. These

references will apply to corresponding

information in future versions of the

forms. The terms ‘‘RUS form’’, ‘‘RUS

standard form’’, ‘‘RUS specification’’,

and ‘‘RUS bulletin’’ have the same

meanings as the terms ‘‘REA form’’,

‘‘REA standard form’’, ‘‘REA specification’’, and ‘‘REA bulletin’’, respectively, unless otherwise indicated.

[59 FR 66440, Dec. 27, 1994]

§ 1710.4 Exception authority.

Consistent with the RE Act and other

applicable laws, the Administrator

may waive or reduce any requirement

imposed by this part or other RUS regulations on an electric borrower, or a

lender whose loan is guaranteed by

RUS, if the Administrator determines

that imposition of the requirement

would adversely affect the Government’s financial interest.

§ 1710.5 Availability of forms.

Information about the availability of

RUS forms and publications cited in

this part is available from Administrative Services Division, Rural Utilities

Service, United States Department of

Agriculture, Washington, DC 20250–1500.

These RUS forms and publications may

be reproduced.

§ 1710.6 Applicability of certain provisions to completed loan applications.

(a) Certain new or revised policies

and requirements set forth in this part,

which are listed in this paragraph,

shall not apply to a pending loan application that has been determined by

RUS to be complete as of January 9,

1992, the date of publication of such

policies and requirements in the FEDERAL REGISTER. This exception does

not apply to loan applications received

after said date, nor to incomplete applications pending as of said date. This

exception applies only to the following

provisions:

(1) Paragraph 1710.115(b)—with respect to limiting loan maturities to the

expected useful life of the facilities financed;

(2) Section 1710.116—with respect to

the requirement to develop and follow

an equity development plan;

(3) Paragraph 1710.151(f)—with respect to the borrower providing satisfactory evidence that a state regulatory authority will allow the facilities to be included in the rate base or

otherwise allow sufficient revenues to

repay the loan;

(4) Paragraphs 1710.250(b), 1710.251(a),

and 1710.252(a)—with respect to the requirement that improvements, replacements, and retirements of generation

plant be included in a Construction

Work Plan; and

(5) Paragraph 1710.300(d)(5)—with respect to the requirement that a borrower’s financial forecast include a

sensitivity analysis of a reasonable

range of assumptions for each of the

major variables in the forecast.

(b) Certain provisions of this part

apply only to loans made on or after

February 10, 1992. These provisions are

identified in the individual sections of

this part.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5,

1992, as amended at 58 FR 66263, Dec. 20, 1993]

§ 1710.7 Exemptions of RUS operational controls under section 306E

of the RE Act.

(a) General policy. (1) Section 306E of

the RE Act directs the Administrator

99

Rural Utilities Service, USDA § 1710.7

to issue interim final regulations to

minimize approval rights, requirements, restrictions, and prohibitions

imposed on the operations of electric

borrowers whose net worth exceeds 110

percent of the outstanding loans made

or guaranteed to the borrower by RUS.

The section also directs the Administrator, when requested by a private

lender providing financing for capital

investments by such borrowers, to

offer, without delay, to share the government’s lien on the borrowers’ systems or subordinate the government’s

lien on the property financed by the

private lender.

(2) In issuing the regulations, the Administrator is authorized to establish

requirements, guided by the practices

of private lenders with respect to similar credit risks, to ensure that the security, including the assurance of repayment, for loans made or guaranteed

by RUS will remain reasonably adequate. If the regulations are not issued

within 180 days of enactment of section

306E, the Administrator may not, until

the regulations are issued, require

prior approval of, or establish any requirement, restriction, or prohibition,

with respect to the operations of any

electric borrower that meets the 110

percent ratio.

(3) Nothing in section 306E limits the

authority of the Administrator to establish terms and conditions on the use

of funds from loans made or guaranteed

by RUS, to establish loan feasibility

criteria and other requirements for the

approval of RUS loans or loan guarantees, such as those set forth in this

part, or to take any other action specifically authorized by law.

(4) This section addresses the application of section 306E of the RE Act to

RUS operational controls and other requirements that apply in general to

RUS borrowers. The application of section 306E to lien accommodations and

subordinations is set forth in 7 CFR

1717.860 and 1717.904.

(5) The exemptions granted by this

section, 7 CFR 1717.860, and 7 CFR

1717.904 apply only to RUS controls and

approval rights. They do not affect the

controls and approval rights of other

co-mortgagees under the RUS mortgage.

(6) For purposes of this section, the

terms ‘‘default,’’ ‘‘financed or funded

by RUS,’’ ‘‘interchange agreement,’’

‘‘interconnection agreement,’’ ‘‘loan

documents,’’ ‘‘pooling agreement,’’

‘‘power supply contract,’’ and ‘‘wheeling agreement’’ have the meanings as

set forth in 7 CFR 1717.602.

(b) Determination of ratio. The following principles and procedures will

apply to the calculation of net worth

as a ratio, expressed as a percent, to

the outstanding balance of all loans

made or guaranteed to the borrower by

RUS, hereinafter called the borrower’s

‘‘net worth to RUS debt ratio’’, or simply ‘‘the ratio’’:

(1) For purposes of determining

whether a borrower is exempt from approvals, requirements, restrictions, or

prohibitions imposed by RUS with respect to borrower operations, i.e.,

‘‘operational controls,’’ the ratio normally will be based on data as of December 31. Net worth will be based on

the year-end financial and statistical

reports submitted by borrowers to

RUS, and outstanding loans made or

guaranteed by RUS will be based on

RUS’s records. The financial and statistical reports (Form 7 for distribution

borrowers and Form 12a for power supply borrowers) are subject to RUS review and revision, and they must comply with RUS’s system of accounts and

accounting principles set forth in 7

CFR part 1767. Since sinking fund depreciation is not approved under 7 CFR

part 1767, net worth for borrowers using

sinking fund depreciation will be calculated as if the borrower had been

using straight line depreciation;

(2) Net worth will be calculated by

taking total margins and equities

(from Part C of RUS Form 7 for distribution borrowers, or Section B of

RUS Form 12a for power supply borrowers) and subtracting assets properly

recordable in account 182.2, Unrecovered Plant and Regulatory Study

Costs, and account 182.3, Other Regulatory Assets, as defined in 7 CFR part

1767; and

(3) By no later than July 1 of each

year, RUS will notify each borrower in

writing of its exemption status. If the

borrower’s net worth to RUS debt ratio

exceeds 110 percent based on the most

recent year-end data, the borrower will

100

§ 1710.7 7 CFR Ch. XVII (1–1–00 Edition)

be exempt from the operational controls exempted under paragraph (c) of

this section until subsequently notified

in writing by RUS that it is no longer

exempt.

(c) Borrower operations exempted from

RUS controls. Borrowers who are notified by RUS in writing that their net

worth to RUS debt ratio exceeds 110

percent are exempted from the operational controls of the RUS mortgage

and loan contract listed in this paragraph. These controls, which are implemented through RUS regulations and

other documents, are as follows:

(1) RUS approval of extensions and additions. RUS approval of extensions and

additions to borrowers’ electric systems, except for the following:

(i) Extensions and additions financed

by RUS;

(ii) Construction, procurement, or

leasing of generating facilities, regardless of the source of funding, if the

combined capacity of the facilities to

be built, procured, or leased, including

any future facilities included in the

planned project, will exceed 25

megawatts in the case of power supply

borrowers, or the lesser of 5 megawatts

or 30 percent of the borrower’s equity

in the case of distribution borrowers;

(iii) Acquisition or leasing of existing

electric facilities or systems in service,

regardless of the source of funding,

whose purchase price, or capitalized

value in the case of a lease, exceeds 10

percent of the borrower’s net utility

plant; and

(iv) Construction, procurement, or

leasing of electric facilities, regardless

of the source of funding, to serve a customer whose annual kWh purchases or

maximum annual kW demand in the

foreseeable future is projected to exceed 25 percent of the borrower’s total

kWh sales or maximum kW demand in

the year immediately preceding the acquisition or start of construction;

(2) Long-range engineering plans and

construction work plans. RUS approval

of long-range engineering plans and

CWPs if the borrower does not intend

to seek RUS financing for any of the

facilities, equipment or other purposes

included in those plans. However, if requested by RUS, a borrower must provide an informational copy of such

plans to RUS;

(3) Plans and specifications. RUS approval of plans and specifications for

construction not financed by RUS;

(4) Standard forms of construction contracts, and engineering and architectural

services contracts. RUS requirements to

use standard forms of contracts for

construction, procurement, engineering services, and architectural services, if the construction, procurement

or services are not financed by RUS. To

be eligible for this waiver the contracts

used must not contain any provisions

that prohibit or restrict the assignment of the contracts to the government upon the exercise by RUS of its

remedies under security instruments

securing loans made or guaranteed by

RUS;

(5) Contract bidding requirements. RUS

requirements regarding the competitive bidding of construction contracts,

if the construction is not financed by

RUS;

(6) RUS approval of contracts. (i) Construction contracts and architectural

and engineering contracts. RUS approval of contracts for construction

and procurement and for architectural

and engineering services, if such construction, procurement or services are

not financed by RUS.

(ii) Large retail power contracts. RUS

approval of contracts to sell electric

power to retail customers except when

the contract is for longer than 2 years

and the kWh sales or kW demand for

any year covered by the contract exceeds 25 percent of the borrower’s total

kWh sales or maximum kW demand for

the year immediately preceding execution of the contract. This exemption

applies regardless of the source of funding of any plant extensions, additions

or improvements that may be involved

in connection with the contract.

(iii) Power supply arrangements. (A)

RUS approval of power supply contracts (including but not limited to

economy energy sales and emergency

power and energy sales), interconnection agreements, interchange agreements, wheeling agreements, pooling

agreements, and any other similar

power supply arrangements subject to

approval by RUS, if they have a term

of 2 years or less. Amendments to said

power supply arrangements are also exempted from RUS approval provided

101

Rural Utilities Service, USDA § 1710.7

that the amendment does not extend

the term of the arrangement for more

than 2 years beyond the date of the

amendment.

(B) Any amendment to a schedule or

exhibit contained in any power supply

arrangement subject to RUS approval

that merely has the effect of either altering a list of interconnection or delivery points or changing the value of a

variable term (but not the formula

itself) contained in a formulary rate or

charge.

(C) The exemptions under this paragraph (c)(6)(iii) apply regardless of

whether the borrower is a seller or purchaser of the services furnished by the

contracts or arrangements, and regardless of whether or not a Federal power

marketing agency is a party to any of

them.

(iv) System management and maintenance contracts. RUS approval of contracts for the management and operation of a borrower’s electric system or

for the maintenance of the electric system, if such contracts do not cover all

or substantially all of the electric system.

(v) Other contracts. [Reserved];

(7) RUS approval of general manager.

RUS approval of the selection of a borrower’s manager and employment contract, provided that the borrower is not

in default under its loan documents or

any other agreement with RUS. Nothing herein shall limit the right of RUS

under the loan documents to request

termination of the employment of a

manager in the event of a default by

the borrower;

(8) Board of directors. RUS approval of

compensation of a borrower’s board of

directors;

(9) Certain expenditures. (i) RUS approval of expenditures for legal, accounting, and supervisory services by a

borrower. However, while expenditures

for accounting do not require RUS approval, the selection of a certified public accountant by the borrower to prepare audited reports required by RUS

remains subject to RUS approval.

(ii) RUS approval of expenditures for

engineering services by a borrower, if

such engineering services will not be financed by RUS;

(10) Banks. RUS approval of banks or

other depositories used by a borrower.

However, without the prior written approval of RUS, a borrower shall not deposit funds from loans made or guaranteed by RUS in any bank or other depository that is not insured by the Federal Deposit Insurance Corporation or

other Federal agency acceptable to

RUS, or in any account not so insured.

(11) Certain equipment. RUS approval

of the purchase of data processing

equipment and system control equipment by a borrower, if the equipment

is not financed by RUS;

(12) Notification of rate changes. Requirement that distribution borrowers

notify RUS in writing of proposed

changes in electric rates 90 days prior

to the effective date of such rates. Instead, the required notification period

shall be 30 days, and such notification

shall be required only if requested by

RUS;

(13) Consolidations and mergers. RUS

approval of mergers and consolidations, and conveyances or transfers of

the mortgaged property substantially

as an entirety, if the following conditions are met:

(i) Such consolidation, merger, conveyance or transfer shall be on such

terms as shall fully preserve the lien

and security of the mortgage and the

rights and powers of the mortgagees;

(ii) The entity formed by such consolidation or with which the borrower

is merged or the corporation which acquires by conveyance or transfer the

mortgaged property substantially as an

entirety shall execute and deliver to

the mortgagees a mortgage supplemental in recordable form and containing an assumption by such successor entity of the due and punctual

payment of the principal of and interest on all of the outstanding notes and

the performance and observance of

every covenant and condition of the

mortgage;

(iii) Immediately after giving effect

to such transaction, no default under

the mortgage shall have occurred and

be continuing;

(iv) The borrower shall have delivered to the mortgagees a certificate of

its general manager or other officer, in

form and substance satisfactory to

each of the mortgagees, which shall

state that such consolidation, merger,

102

§ 1710.7 7 CFR Ch. XVII (1–1–00 Edition)

conveyance or transfer and such supplemental mortgage comply with this

section and that all conditions precedent herein provided for relating to

such transaction have been complied

with;

(v) The borrower shall have delivered

to the mortgagees an opinion of counsel in form and substance satisfactory

to each of the mortgagees; and

(vi) The entity formed by such consolidation or with which the borrower

is merged or the corporation which acquires by conveyance or transfer the

mortgaged property substantially as an

entirety shall be an entity:

(A) Having equity equal to at least

27% of its total assets on a pro forma

basis after giving effect to such transaction;

(B) Having a pro forma TIER of not

less than 1.50 and a pro forma DSC of

not less than 1.25 for each of the two

preceding calendar years; and

(C) Having net utility plant equal to

or greater than 1.0 times its total longterm debt on a pro forma basis;

(14) Sale, lease, or transfer of capital assets. RUS approval for a distribution

borrower to sell, lease, or transfer capital assets, if the following conditions

are met:

(i) The borrower is not in default;

(ii) In the most recent year for which

data are available, the borrower

achieved a TIER of at least 1.5, DSC of

at least 1.25, OTIER of at least 1.1, and

ODSC of at least 1.1, in each case based

on the average or the best 2 out of the

3 most recent years;

(iii) The sale, lease, or transfer of assets will not reduce the borrower’s existing or future requirements for energy or capacity being furnished to the

borrower under any wholesale power

contract which has been pledged as security to the government;

(iv) Fair market value is obtained for

the assets;

(v) The aggregate value of assets

sold, leased, or transferred in any 12-

month period is less than 10 percent of

the borrower’s net utility plant prior

to the transaction;

(vi) The proceeds of such sale, lease,

or transfer, less ordinary and reasonable expenses incident to such transaction, are immediately:

(A) Applied as a prepayment of all

notes secured under the mortgage

equally and ratably;

(B) In the case of dispositions of

equipment, materials or scrap, applied

to the purchase of other property useful in the borrower’s utility business;

or

(C) Applied to the acquisition of construction of utility plant; and

(vii) If the borrower has an RUS-approved wholesale power contract with a

power supply borrower (seller), the circumstances of the sale, lease or transfer of capital assets conform with the

conditions in such contract under

which the seller may not withhold its

consent to the sale, lease or transfer;

(15) Limitations on distributions. RUS

approval for a borrower to declare or

pay dividends, pay or determine to pay

patronage refunds, retire patronage

capital, or make any other cash distributions, if the following conditions

are met:

(i) After giving effect to the distribution, the borrower’s equity will be

greater than or equal to 30 percent of

its total assets;

(ii) The borrower is current on all

payments due on all notes secured

under the mortgage;

(iii) The borrower is not otherwise in

default under its loan documents; and

(iv) After giving effect to the distribution, the borrower’s current and

accrued assets will be not less than its

current and accrued liabilities.

(d) RUS requirements and operational

controls not exempted. All requirements

and operational controls contained in

the RUS mortgage and loan contract,

or otherwise imposed on borrowers pursuant to statute or regulation, that are

not specifically listed in paragraph (c)

of this section are not exempted and

shall continue to apply according to

their terms. Examples of such requirements and controls not exempted are

listed in this paragraph for the convenience of the public. This list is not exhaustive, and the absence of a requirement or control from this list in no

way means that the requirement or

control has been exempted:

(1) Requirements and operational

controls contained in the RUS mortgage or loan contract that are necessary to ensure that the security for

103

Rural Utilities Service, USDA § 1710.50

loans made or guaranteed by RUS is

reasonably adequate and that the loans

will be repaid, or to accomplish other

fundamental purposes of the RE Act.

Some of these also represent terms and

conditions with respect to the use by

borrowers of the proceeds of loans

made or guaranteed by RUS. Together,

these controls include, but are not limited to, the following:

(i) Area coverage requirements set

forth in the loan contract and in

§1710.103;

(ii) Requirement that certain borrowers maintain, on an ongoing basis,

a power requirements study and a

power requirements study work plan,

as set forth in §§1710.201 and 1710.202;

(iii) Requirement that borrowers follow RUS construction standards and

use RUS accepted materials, as set

forth in §1710.41, §1710.45, and 7 CFR

part 1728;

(iv) Requirement that borrowers

maintain, on an ongoing basis, a longrange engineering plan and a construction work plan, as set forth in

§1710.250(b);

(v) Requirement that borrowers set

rates for electric service sufficient to

maintain certain coverage ratios, as

set forth in §1710.114;

(vi) Certain RUS approvals of retirements of capital credits in excess of

amounts specifically authorized in the

mortgage;

(vii) RUS approval of borrower investments, loans, guarantees, and

other obligations under 7 CFR part

1717, subpart N;

(viii) RUS requirements on accounting, auditing, irregularities, financial

reporting, and access to books and

records;

(ix) Requirement that borrowers

record the mortgage and mortgage

amendments;

(x) Requirement that the mortgagor

maintain and preserve the priority lien

of the mortgage and defend title to the

mortgaged property;

(xi) Requirements on maintenance

and repair of the mortgaged property;

(xii) Requirements on insurance of

the mortgaged property; and

(xiii) Certain RUS approvals of borrower mergers and consolidations; and

(2) Requirements imposed on borrowers pursuant to statute or regulation and not specifically exempted by

paragraph (c) of this section. See, for

example, §§1710.122 through 1710.127.

(e) Rescission of exemptions if borrower

defaults. If a borrower is in default with

respect to any requirement of its mortgage, loan contract with RUS, or any

other agreement with RUS that has

not been exempted pursuant to paragraph (c) of this section or other RUS

regulations, upon written notice to the

borrower RUS may rescind all or any

part of the exemptions granted pursuant to paragraph (c) of this section or

other RUS regulations. The reinstated

requirements and controls will remain

in effect until RUS determines that

they are no longer needed to help ensure that the security, including the

assurance of repayment, for loans made

or guaranteed by RUS will remain reasonably adequate.

(f) Reinstated controls. If RUS controls

are reinstated because the borrower defaults or its net worth falls below 110

percent of RUS debt, such controls and

approval rights will apply to all applicable subsequent actions of the borrower, including without limitation

the amendment of contracts that the

borrower entered into while eligible for

an exemption under this section.

[60 FR 67401, Dec. 29, 1995, as amended at 62

FR 27930, May 22, 1997]

§§ 1710.8—1710.49 [Reserved]

Subpart B—Types of Loans and

Loan Guarantees

§ 1710.50 Insured loans.

RUS makes insured loans under section 305 of the RE Act.

(a) Municipal rate loans. The standard

interest rate on an insured loan made

on or after November 1, 1993, is the municipal rate, which is the rate determined by the Administrator to be

equal to the current market yield on

outstanding municipal obligations with

remaining periods to maturity, up to 35

years, similar to the interest rate term

selected by the borrower. In certain

cases, an interest rate cap of 7 percent

may apply. The interest rate term and

rollover maturity date for a municipal

rate loan will be determined pursuant

to 7 CFR part 1714, and the borrower

104

§ 1710.51 7 CFR Ch. XVII (1–1–00 Edition)

may elect to include in the loan documents a prepayment option (call provision).

(b) Hardship rate loans. RUS makes

hardship rate loans at the 5 percent

hardship rate to qualified borrowers

meeting the criteria set forth in 7 CFR

1714.8

[58 FR 66263, Dec. 20, 1993]

§ 1710.51 Loan guarantees.

RUS provides financing through 100

percent loan guarantees made under

sections 306 and 306A of the RE Act.

RUS also provides 90 percent loan guarantees under section 311 of the RE Act

to enable borrowers to secure financing

from certain private lenders. The loan

guarantees are made for a term of up

to 35 years, and the interest rate is established at a rate agreed to by the

borrower and the lender, with RUS

concurrence. The guarantee applies to

the repayment of both principal and interest.

[58 FR 66264, Dec. 20, 1993]

§§ 1710.52—1710.99 [Reserved]

Subpart C—Loan Purposes and

Basic Policies

§ 1710.100 General.

RUS makes loans and loan guarantees to finance the construction of

electric distribution, transmission and

generation facilities, including system

improvements and replacements required to furnish and improve electric

service in rural areas, and for demand

side management, energy conservation

programs, and on grid and off grid renewable energy systems. In some circumstances, RUS may finance selected

operating expenses of its borrowers.

Loans made or guaranteed by the Administrator of RUS will be made in

conformance with the Rural Electrification Act of 1936, as amended (7

U.S.C. 901 et seq.), and 7 CFR chapter

XVII. RUS provides certain technical

assistance to borrowers when necessary

to aid the development of rural electric

service and to protect loan security.

[58 FR 66264, Dec. 20, 1993]

§ 1710.101 Types of eligible borrowers.

(a) RUS makes loans to corporations,

states, territories, and subdivisions and

agencies thereof; municipalities; people’s utility districts; and cooperative,

nonprofit, limited-dividend, or mutual

associations that provide or propose to

provide:

(1) The retail electric service needs of

rural areas, or

(2) The power supply needs of distribution borrowers under the terms of

power supply arrangements satisfactory to RUS.

(b) In making loans, RUS gives preference to states, territories, and subdivisions and agencies thereof; municipalities; people’s utility districts; and

cooperative, nonprofit, or limited-dividend associations. RUS does not make

loans to individual consumers.

(c) For the purpose of determining

eligibility of a distribution borrower

not in default on the repayment of a

loan made or guaranteed under the RE

Act for a loan, loan guarantee, or lien

accommodation, a default by a borrower from which a distribution borrower purchases wholesale power shall

not:

(1) Be considered a default by the distribution borrower;

(2) Reduce the eligibility of the distribution borrower for assistance under

the RE Act; or

(3) Be the cause, directly or indirectly, of imposing any requirement or

restriction on the borrower as a condition of the assistance, except such requirements or restrictions as are necessary to implement a debt restructuring agreed on by the power supply

borrower and RUS.

(d) For the purpose of determining

the eligibility of a distribution borrower, RUS will consider whether the

distribution borrower is current on its

obligations to its wholesale power supplier under the RUS wholesale power

contract.

(e) Nothing in paragraph (c) of this

section relieves any distribution borrower that is a member of a power supply borrower in default on its obligations to RUS or operating under a debt

restructuring agreement, of requirements set forth in RUS regulations, including, without limitation,

105

Rural Utilities Service, USDA § 1710.103

§1710.112(b)(6), or of any terms and conditions that the Administrator may

otherwise impose on any borrower as a

condition of obtaining a loan or loan

guarantee (including, in appropriate

cases, member guarantees).

(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 the former borrower’s complete

loan application is received by RUS.

The determination of whether an area

is rural will be based on the Census

designation of the area at the time of

the reapplication for a loan, if the area

is not served by electric facilities financed by RUS. If the area is served by

electric facilities financed by RUS, it

will continue to be considered rural.

(g) Former borrowers that have prepaid all, or portions of outstanding insured and direct loans in accordance

with RUS regulations must comply

with the provisions of 7 CFR part 1786

before being considered eligible to borrow additional funds from RUS.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5,

1992. Revised and redesignated at 58 FR 66264,

Dec. 20, 1993]

§ 1710.102 Borrower eligibility for different types of loans.

(a) Insured loans under section 305. Insured loans are normally reserved for

the financing of distribution and subtransmission facilities of both distribution and power supply borrowers, including, under certain circumstances,

the implementation of demand side

management, energy conservation programs, and on grid and off grid renewable energy systems. In accordance

with §1710.110, the Administrator may

require the borrower to obtain no more

than 30 percent of the total debt financing required for a proposed project

by means of a supplemental loan from

another lender without an RUS guarantee.

(b) One hundred percent loan guarantees under section 306. Both distribution

and power supply borrowers are eligible

for 100 percent loan guarantees under

section 306 of the RE Act for any or all

of the purposes set forth in §1710.106,

including, under certain circumstances, the implementation of demand side management, energy conservation programs, and on grid and off

grid renewable energy systems. (See 7

CFR part 1712). These guarantees are

normally used to finance bulk transmission and generation facilities, but

they may also be used to finance distribution and subtransmission facilities. If a borrower applies for a section

306 loan guarantee to finance all or a

portion of distribution and subtransmission facilities, such request will not

affect the borrower’s eligibility for an

insured loan to finance any remaining

portion of said facilities or for any future insured loan to finance other distribution or subtransmission facilities.

A section 306 loan guarantee, however,

may not be used to guarantee a supplemental loan required by §1710.110.

(c) One hundred percent loan guarantees under section 306A. Under section

306A of the RE Act, both distribution

and power supply borrowers are eligible

under certain conditions to use an existing section 306 guarantee to refinance advances made on or before July

2, 1986 from a loan made by the Federal

Financing Bank. (See 7 CFR part 1786.)

(d) [Reserved]

(e) Ninety percent guarantees of private-sector loans under section 311. Under

section 311 of the RE Act, both distribution and power supply borrowers

in the state of Alaska are eligible

under certain conditions to obtain

from RUS a 90 percent guarantee of a

private-sector loan to refinance their

Federal Financing Bank loans. (See 7

CFR part 1786.)

[57 FR 2832, Jan. 24, 1992, as amended at 58

FR 66264, Dec. 20, 1993]

§ 1710.103 Area coverage.

(a) Borrowers shall make a diligent

effort to extend electric service to all

unserved persons within their service

area who:

(1) Desire electric service; and

(2) Meet all reasonable requirements

established by the borrower as a condition of service.

(b) If economically feasible and reasonable considering the cost of providing such service and/or the effects

on all consumers’ rates, such service

106

§ 1710.104 7 CFR Ch. XVII (1–1–00 Edition)

shall be provided, to the maximum extent practicable, at the rates and minimum charges established in the borrower’s rate schedules, without the

payment by such persons, other than

seasonal or temporary consumers, of a

contribution in aid of construction. A

seasonal consumer is one that demands

electric service only during certain

seasons of the year. A temporary consumer is a seasonal or year-round consumer that demands electric service

over a period of less than five years.

(c) Borrowers may assess contributions in aid of construction provided

such assessments are consistent with

the policy set forth in this section.

[57 FR 1053, Jan. 9, 1992, as amended at 60 FR

67404, Dec. 29, 1995]

§ 1710.104 Service to non-RE Act beneficiaries.

(a) To the greatest extent practical,

loans are limited to providing and improving electric facilities to serve consumers that are RE Act beneficiaries.

When it is determined by the Administrator to be necessary in order to furnish or improve electric service in

rural areas, loans may, under certain

circumstances, be made to finance

electric facilities to serve consumers

that are not RE Act beneficiaries.

(b) Loan funds may be approved for

facilities to 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.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5,

1992, as amended at 58 FR 66264, Dec. 20, 1993]

§ 1710.105 State regulatory approvals.

(a) In States where a borrower is required to obtain approval of a project

or its financing from a state regulatory

authority, RUS may require that such

approvals be obtained, if feasible for

the borrower to do so, before the following types of loans are approved by

RUS:

(1) Loans requiring an Environmental

Impact Statement;

(2) Loans to finance generation and

transmission facilities, when the loan

request for such facilities is $25 million

or more; and

(3) Loans for the purpose of assisting

borrowers to implement demand side

management and energy conservation

programs and on and off grid renewable

energy systems.

(b) At minimum, in the case of all

loans in states where state regulatory

approval is required of the project or

its financing, such state approvals will

be required before loan funds are advanced.

(c) In cases where state regulatory

authority approval has been obtained,

but the borrower has failed to proceed

with the project in a timely manner according to the schedule contained in

the borrower’s project design manual,

or if there are cost overruns or other

developments that threaten loan feasibility or security, RUS may require the

borrower to obtain a reaffirmation of

the project and its financing from the

state authority before any additional

loan funds are advanced.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5,

1992, as amended at 58 FR 66265, Dec. 20, 1993]

§ 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

107

Rural Utilities Service, USDA § 1710.106

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) Warehouse and garage facilities.

The purchase, remodeling, or construction of 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.

(b) In cases of financial hardship, as

determined by the Administrator,

loans may also be made to finance the

following items:

(1) The headquarters office and other

headquarters facilities in addition to

those cited in paragraph (a)(4) of this

section;

(2) General plant equipment, including furniture, office, transportation,

data processing and other work equipment; and

(3) 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 qualifying items included in a loan for demand side management or energy resource conservation programs, or on or

off grid 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; and

(4) Any facilities or other specific

purposes that were included in a loan

made or guaranteed by RUS that the

borrower has prepaid or that has been

rescinded.

(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 is

determined on a case by case basis. The

loan period for DSM activities will be

determined in accordance with

§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 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

of all loans of that type 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 an RUS loan or

loan guarantee of $1 million or less.

(2) If RUS limits the amount of loan

funds approved for borrowers, the Administrator shall notify all electric

borrowers early in the fiscal year of

108

§ 1710.107 7 CFR Ch. XVII (1–1–00 Edition)

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 7 CFR 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.

[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]

§ 1710.107 Amount lent for acquisitions.

The maximum amount that will be

lent for an acquisition is limited to the

value of the property, as determined by

RUS. If the acquisition price exceeds

this amount, the borrower shall provide the remainder without RUS financial assistance.

§ 1710.108 Mergers and consolidations.

(a) RUS encourages its borrowers to

consider merging or consolidating with

another electric borrower when such

action will contribute to greater operating efficiency and financial soundness.

(b) After a merger or consolidation,

RUS will give priority consideration

per §1710.119 to the processing of loans

for the surviving system to finance the

integration and rehabilitation of electric facilities, if necessary, and the improvement or extension of electric

service in rural areas. Such priority

consideration will also be given in the

case of a borrower that has merged or

consolidated with an electric system

that has not previously received RUS

financial assistance, if such system was

serving primarily rural residents at the

time of the merger or consolidation

and such rural residents will continue

to be served by the merged or consolidated system. RUS does not make

loans for costs incurred in effectuating

mergers or consolidations, such as

legal expenses or feasibility study

costs.

§ 1710.109 Reimbursement of general

funds and interim financing.

(a) Borrowers may request that a

loan include funds to reimburse general

funds and/or replace interim financing

used to finance equipment and facilities that were included in an RUS-approved construction work plan, work

plan amendment or other RUS-approved plan, and for which loan funds

have not been provided by RUS. Such

reimbursement and/or replacement of

interim financing may include the direct costs of procurement and construction, as well as the related cost of

engineering, architectural, environmental and other studies and plans

needed to support the project, when

such cost is capitalized as part of the

cost of the facilities.

(b) If procurement and/or construction of the equipment and facilities

was completed prior to the current

loan period, reimbursement, including

replacement of interim financing, will

be limited, except in cases of extreme

109

Rural Utilities Service, USDA § 1710.110

financial hardship as determined by

the Administrator, to the cost of procurement and construction completed

during the period immediately preceding the current loan period, as specified in paragraph (c) of this section. As

defined in §1710.2, the loan period begins on the date shown on page 1 of

RUS Form 740c, Cost Estimates and

Loan Budget for Electric Borrowers.

(c)(1) The period immediately preceding the current loan period for

which reimbursement and replacement

of interim financing is authorized

under paragraph (b) of this section is as

follows:

(i) The number of months agreed to

by RUS and the borrower for complete

loan applications received by RUS before February 10, 1992;

(ii) 36 months for complete loan applications received from February 10,

1992 through February 10, 1993; or

(iii) 24 months for complete loan applications received after February 10,

1993.

(2) Policies for reimbursement of general funds and interim financing following certain mergers, consolidations,

and transfers of systems substantially

in their entirety are set forth in 7 CFR

1717.154.

(d) If the reimbursement of general

funds and/or replacement of interim financing is for approved expenditures

for equipment and facilities whose procurement and/or construction is completed during the current loan period,

the time limits of paragraph (c) of this

section do not apply.

[57 FR 1053, Jan. 9, 1992, as amended at 58 FR

66265, Dec. 20, 1993; 61 FR 66870, Dec. 19, 1996]

§ 1710.110 Supplemental financing.

(a) Except in the case of financial

hardship as determined by the Administrator, and following certain mergers,

consolidations, and transfers of systems substantially in their entirety as

set forth in 7 CFR 1717.154, applicants

for a municipal rate loan will be required to obtain a portion of their loan

funds from a supplemental source without an RUS guarantee, in the amounts

set forth in paragraph (c) of this section. RUS will normally grant a lien

accommodation to the supplemental

lender. RUS does not require supplemental financing in conjunction with

an RUS guaranteed loan. However, if a

borrower elects to obtain supplemental

financing in conjunction with a guaranteed loan, the granting of RUS’s loan

guarantee may be conditioned on the

borrower’s obtaining supplemental financing.

(b) The terms and conditions of supplemental financing and any security

offered to the supplemental lender are

subject to RUS approval. Generally,

supplemental loans must have the

same final maturity and be amortized

in the same manner as RUS loans made

concurrently. Borrowers may elect to

repay the loans either in substantially

equal periodic installments covering

interest and principal, or in periodic

installments that include interest and

level amortization of principal.

(c) Supplemental financing required for

municipal rate loans—(1) Distribution

borrowers. (i) Distribution borrowers

that had, as of December 31, 1980, an

average consumer density of 2 or fewer

consumers per mile or an average adjusted plant revenue ratio (APRR), as

defined in §1710.2, of over 9.0 shall obtain supplemental financing equal to 10

percent of their loan request.

(ii) All other distribution borrowers

must obtain supplemental financing

according to their plant revenue ratio

(PRR), as defined in §1710.2, based on

the most recent year-end data available on the date of loan approval, as

follows:

PRR Supplemental loan

percentage

9.00 and above ........................................ 10

8.01–8.99 ................................................. 20

8.00 and below ........................................ 30

(iii) If a distribution borrower enters

into a merger, consolidation, or transfer of system substantially in its entirety, and the provisions of 7 CFR

1717.154(b) do not apply, required supplemental financing will be determined

as follows for loans approved by RUS

after December 19, 1996. If one of the

merging parties met the criteria in

paragraph (c)(1)(i) of this section prior

to the effective date of the merger consolidation or transfer, the borrower

will be required to obtain supplemental

financing equal to 10 percent of any

loan funds requested for facilities to

110

§ 1710.111 7 CFR Ch. XVII (1–1–00 Edition)

serve consumers located in the territory formerly served by the ‘‘paragraph

(c)(1)(i)’’ borrower. The required

amount of supplemental financing for

the rest of the loan will be determined

according to the provisions of paragraph (c)(1)(ii) of this section.

(2) Power supply borrowers. The supplemental loan proportion required of a

power supply borrower is based on the

simple arithmetic mean of the supplemental loan proportions required of the

borrower’s distribution members.

(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) of

this section, 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) × C] ¥ D

where:

A = The total funds ($) actually advanced

from the first loan, including both RUS

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 RUS 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×C1)+(B×C2)¥D

where:

A = The total funds ($) actually advanced

from the first loan, including both RUS

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 RUS

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.

(d) Supplemental financing will not

be required in connection with hardship rate loans. Borrowers that qualify

for hardship rate loans but elect to

take municipal rate loans instead, will

be required to obtain supplemental financing pursuant to this section, unless at the time of loan approval, there

are no funds remaining available for

hardship loans, in which case supplemental financing will not be required.

[57 FR 1053, Jan. 9, 1992, as amended at 58 FR

66265, Dec. 20, 1993; 60 FR 3730, Jan. 19, 1995;

61 FR 66870, Dec. 19, 1996]

§ 1710.111 Refinancing.

(a) RUS makes loans or loan guarantees to refinance the outstanding indebtedness of borrowers in the following cases:

(1) Loans or loan guarantees to refinance long-term debt owed by borrowers to the Tennessee Valley Authority fpr credit extended under the

111

Rural Utilities Service, USDA § 1710.112

terms of the Tennessee Valley Authority Act of 1933, as amended.

(2) Loan guarantees made in accordance with the provisions of section

306A of the RE Act to prepay a loan (or

any loan advance thereunder) made by

the Federal Financing Bank.

(b) In certain circumstances, RUS

may make a loan to replace interim financing obtained for the construction

of facilities (See §1710.109).

§ 1710.112 Loan feasibility.

(a) RUS will make a loan only if

there is reasonable assurance that the

loan, together with all outstanding

loans and other obligations of the borrower, will be repaid in full as scheduled, in accordance with the mortgage,

notes, and loan contracts. The borrower must provide evidence satisfactory to the Administrator that the

loan will be repaid in full as scheduled,

and that all other obligations of the

borrower will be met.

(b) Based on evidence submitted by

the borrower and other information,

RUS will use the following criteria to

evaluate loan feasibility:

(1) Projections of power requirements, rates, revenues, expenses, margins, and other factors for the present

system and proposed additions are

based on reasonable assumptions and

adequate supporting data and analysis,

including analysis of a range of assumptions for the significant variables,

when required by §1710.300(d)(5).

(2) Projected revenues from the rates

proposed by the borrower are adequate

to meet the required TIER and DSC ratios based on the borrower’s total

costs, including the projected maximum debt service cost of the new loan.

(3) The economics of the borrower’s

operations and service area are such

that consumers can reasonably be expected to pay the proposed rates required to cover all expenses and meet

RUS TIER and DSC requirements, and

the borrower can reasonably compete

with other utilities and other energy

sources to prevent substantial load loss

while providing satisfactory service to

its consumers.

(4) Risks of possible loss of substantial loads from large consumers or

from load concentrations in particular

industries will not substantially impair

loan feasibility.

(5) Risks of loss of portions of the

borrower’s service territory from annexation or other causes will not substantially impair loan feasibility. If

there appears to be a substantial risk,

RUS may require additional information from the borrower, such as a summary and analysis of the risk by the

borrower; state, county or local planning reports having information on

projected growth or expansion plans of

local communities; annexation plans of

the municipalities in question; and any

other relevant information.

(6) In states where rates or investment decisions are subject to approval

by state regulatory authorities, there

is reasonable expectation that such approvals will be forthcoming to enable

repayment of the loan in full according

to its terms.

(7) The experience and performance

of the system’s management is acceptable.

(8) In the case of joint ventures, the

borrower has sufficient management

control or other contractual safeguards

with respect to the construction and

operation of the jointly owned facility

to ensure that the borrower’s interests

are protected and the credit risk is

minimized.

(9) The borrower has implemented

adequate financial and management

controls and there are and have been

no significant financial or other irregularities.

(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.

112

§ 1710.113 7 CFR Ch. XVII (1–1–00 Edition)

(c) RUS considers a loan to be feasible only if the borrower’s electric system is year 2000 compliant, or if the

borrower provides RUS with evidence,

satisfactory to RUS, that it is taking

measures necessary to ensure that its

electric system will be year 2000 compliant on or before December 31, 1999.

Year 2000 compliant means that product performance and function are not

affected by dates before, during, and a

reasonable time after the year 2000.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5,

1992, as amended at 60 FR 3731, Jan. 19, 1995;

63 FR 51793, Sept. 29, 1998]

§ 1710.113 Loan security.

(a) RUS makes loans only if, in the

judgment of the Administrator, the security therefor is reasonably adequate

and the loan will be repaid according to

its terms within the time agreed.

(b) RUS generally requires that borrowers provide it with a first lien on all

of the borrower’s real and personal

property, including intangible personal

property and any property acquired

after the date of the loan. This lien

shall be in the form of a mortgage by

the borrower to the Government or a

deed of trust between the borrower and

a trustee satisfactory to the Administrator, together with such security

documents as RUS may deem necessary in a particular case.

(c)(1) When a borrower is unable by

reason of preexisting encumbrances, or

otherwise, to furnish a first mortgage

lien on its entire system the Administrator may accept other forms of security, such as a pledge of revenues, if he

or she determines such security is reasonably adequate and the form and nature thereof is otherwise acceptable.

(2) The Administrator, at his or her

discretion, may approve the use of an

indenture patterned after those indentures commonly used by utilities engaged in private market financing, in

lieu of a mortgage as the security instrument for loans to power supply

borrowers. The use of an indenture will

be by mutual agreement of the borrower and the Administrator. The

terms of each indenture and related

loan agreement will be negotiated on a

case by case basis to best meet the

needs of the individual borrower and

the Government. The provisions of the

indenture and loan contract shall control, notwithstanding any provisions of

7 CFR Chapter XVII which may be in

conflict therewith.

(d) In the case of loans that include

the financing of electric facilities that

are operated as an integral component

of a non-RUS financed system (such as

generation and transmission facilities

co-owned with other electric utilities),

the borrower shall, in addition to the

mortgage lien on all of the borrower’s

electric facilities, furnish adequate assurance, in the form of contractual or

other security arrangements, that the

system will be operated on an efficient

and continuous basis. Satisfactory evidence must also be provided that the

non-RUS financed system is financially

sound and under capable management.

Examples of such evidence include financial reports, annual reports, Security and Exchange Commission 10K reports if the system is required to file

them, credit reports from Standard and

Poor’s, Moodys or other recognized

sources, reports to state regulatory authorities and the Federal Energy Regulatory Commission, and evidence of a

successful track record in related construction projects.

(e) Additional controls on the borrower’s financial, investment and managerial activities appear in the loan

contract and mortgage required by

RUS.

[57 FR 1053, Jan. 9, 1992, as amended at 62 FR

7665, Feb. 20, 1997]

§ 1710.114 TIER, DSC, OTIER and

ODSC requirements.

(a) General. Requirements for coverage ratios are set forth in the borrower’s mortgage, loan contract, or

other contractual agreements with

RUS. The requirements set forth in

this section apply to borrowers that receive a loan approved by RUS on or

after February 10, 1992. Nothing in this

section, however, shall reduce the coverage ratio requirements of a borrower

that has contractually agreed with

RUS to a higher requirement.

(b) Coverage ratios. (1) Distribution

borrowers. The minimum coverage ratios required of distribution borrowers,

whether applied on an annual or average basis, are a TIER of 1.50, DSC of

1.25, OTIER of 1.1, and ODSC of 1.1.

113

Rural Utilities Service, USDA § 1710.114

OTIER and ODSC shall apply to distribution borrowers that receive a loan

approved by RUS on or after January

29, 1996.

(2) The minimum coverage ratios required of power supply borrowers,

whether applied on an annual or average basis, are a TIER of 1.05 and DSC of

1.00.

(3) When new loan contracts are executed, the Administrator may, case by

case, increase the coverage ratios of

distribution and power supply borrowers above the levels cited in paragraphs (b)(1) and (b)(2), respectively, of

this section if the Administrator determines that the higher ratios are required to ensure reasonable security

for and/or the repayment of loans made

or guaranteed by RUS. Also, the Administrator may, case by case, reduce

said coverage ratios if the Administrator determines that the lower ratios

are required to ensure reasonable security for and/or the repayment of loans

made or guaranteed by RUS. Policies

for coverage ratios following certain

mergers, consolidations, and transfers

of systems substantially in their entirety are in 7 CFR 1717.155.

(4) If a distribution borrower has in

service or under construction a substantial amount of generation and associated transmission plant financed at

a cost of capital substantially higher

than the cost of funds under section 305

of the RE Act, then the Administrator

may establish, in his or her sole discretion, blended levels for TIER, DSC,

OTIER, and ODSC based on the respective shares of total utility plant represented by said generation and associated transmission plant and by distribution and other transmission plant.

(c) Requirements for loan feasibility. To

be eligible for a loan, borrowers must

demonstrate to RUS that they will, on

a pro forma basis, earn the coverage ratios required by paragraph (b) of this

section in each of the years included in

the borrower’s long-range financial

forecast prepared in support of its loan

application, as set forth in subpart G of

this part.

(d) Requirements for maintenance of

coverage ratios—(1) Prospective requirement. Borrowers must design and implement rates for utility service to provide sufficient revenue (along with

other revenue available to the borrower in the case of TIER and DSC) to

pay all fixed and variable expenses, to

provide and maintain reasonable working capital and to maintain on an annual basis the coverage ratios required

by paragraph (b) of this section. Rates

must be designed and implemented to

produce at least enough revenue to

meet the requirements of this paragraph under the assumption that average weather conditions in the borrower’s service territory will prevail in

the future, including average system

damage and outages due to weather

and the related costs. Failure to design

and implement rates pursuant to the

requirements of this paragraph shall be

an event of default upon notice provided in accordance with the terms of

the borrower’s mortgage or loan contract.

(2) Retrospective requirement. The average coverage ratios achieved by a

borrower in the 2 best years out of the

3 most recent calendar years must

meet the levels required by paragraph

(b) of this section. If a borrower fails to

achieve these average levels, it must

promptly notify RUS in writing. Within 30 days of such notification or of the

borrower being notified in writing by

RUS, whichever is earlier, the borrower, in consultation with RUS, must

provide a written plan satisfactory to

RUS setting forth the actions that will

be taken to achieve the required coverage ratios on a timely basis. Failure

to develop and implement a plan satisfactory to RUS shall be an event of default upon notice provided in accordance with the terms of the borrower’s

mortgage or loan contract.

(3) Fixed and variable expenses, as used

in this section, include but are not limited to: all taxes, depreciation, maintenance expenses, and the cost of electric

power and energy and other operating

expenses of the electric system, including all obligations under the wholesale

power contract, all lease payments

when due, and all principal and interest payments on outstanding indebtedness when due.

(e) Requirements for advance of funds.

(1) If a borrower applying for a loan has

failed to achieve the coverage ratios

required by paragraph (b) of this section during the latest 12 month period

114

§ 1710.115 7 CFR Ch. XVII (1–1–00 Edition)

immediately preceding approval of the

loan, or if any of the borrower’s average coverage ratios for the 2 best years

out of the most recent 3 calendar years

were below the levels required in paragraph (b) of this section, RUS may

withhold the advance of loan funds

until the borrower has adopted an annual financial plan and operating budget satisfactory to RUS and taken such

other action as RUS may require to

demonstrate that the required coverage ratios will be maintained in the

future and that the loan will be repaid

with interest within the time agreed.

Such other action may include, for example, increasing system operating efficiency and reducing costs or adopting

a rate design that will achieve the required coverage ratios, and either placing such rates into effect or taking action to obtain regulatory authority approval of such rates. If failure to

achieve the coverage ratios is due to

unusual events beyond the control of

the borrower, such as unusual weather,

system outage due to a storm or regulatory delay in approving rate increases, then the Administrator may

waive the requirement that the borrower take the remedial actions set

forth in this paragraph, provided that

such waiver will not threaten loan feasibility.

(2) With respect to any outstanding

loan approved by RUS on or after February 10, 1992, if, based on actual or

projected financial performance of the

borrower, RUS determines that the

borrower may not achieve its required

coverage ratios in the current or future

years, RUS may withhold the advance

of loan funds until the borrower has

taken remedial action satisfactory to

RUS.

[60 FR 67404, Dec. 29, 1995, as amended at 61

FR 66871, Dec. 19, 1996]

§ 1710.115 Final maturity.

(a) RUS is authorized to make loans

and loan guarantees with a final maturity of up to 35 years. The borrower

may elect a repayment period for a

loan not longer than the expected useful life of the facilities, not to exceed

35 years. Most of the electric facilities

financed by RUS have a long useful

life, often approximating 35 years.

Some facilities, such as load management equipment and Supervisory Control and Data Acquisition equipment,

have a much shorter useful life due, in

part, to obsolescence. Operating loans

to finance working capital required for

the initial operation of a new system

are a separate class of loans and usually have a final maturity of less than

10 years.

(b) Loans made or guaranteed by

RUS 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 RUS. RUS

Form 740c, Cost Estimates and Loan

Budget for Electric Borrowers, submitted as part of the loan application

must include, as a note, either a statement certifying that at least 90 percent

of the loan funds are for facilities that

have a useful life of 33 years or longer,

or a schedule showing the costs and

useful life of those facilities with a useful life of less than 33 years. The 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 RUS. In other

states, if the rates proposed by the borrower are not deemed appropriate by

RUS, RUS 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 (for availability

of bulletins, see §1710.5.). 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

115

Rural Utilities Service, USDA § 1710.124

be determined by RUS. Due to the uncertainty of predictions over an extended period of time, RUS may add up

to 2 years to the composite average

useful life of the facilities in order to

determine final maturity.

(c) [Reserved]

(d) The Administrator may approve a

repayment period longer than the expected useful life of the facilities financed, up to 35 years, if a longer final

maturity is required to ensure repayment of the loan and loan security is

adequate.

(e) The final maturity of a loan established pursuant to the provisions of

this section shall not be extended as a

result of extending loan payments

under section 12(a) of the RE Act.

[58 FR 66265, Dec. 20, 1993, as amended at 60

FR 3731, Jan. 19, 1995]

§ 1710.116 [Reserved]

§ 1710.117 Environmental considerations.

Borrowers are required to comply

with 7 CFR part 1794, which sets forth

applicable requirements of the National Environmental Policy Act

(NEPA), as amended (42 U.S.C. 4321 et

seq.); the Council on Environmental

Quality Regulations for Implementing

the Procedural Provisions of NEPA (40

CFR parts 1500–1508); and certain other

statutes, regulations and orders. Borrowers must also comply with any

other applicable Federal or state environmental laws and regulations.

§ 1710.118 [Reserved]

§ 1710.119 Loan processing priorities.

(a) Generally loans are processed in

chronological order based on the date

the complete application is received in

the Regional office.

(b) The Administrator may give priority to processing loans that are required to meet the following needs:

(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); or

(4) To correct serious safety problems, other than those resulting from

borrower mismanagement or negligence.

(c) The Administrator may also

change the normal order of processing

loan applications when it is necessary

to ensure that all loan authority for

the fiscal year is utilized.

[57 FR 1053, Jan. 9, 1992, as amended at 61 FR

66871, Dec. 19, 1996]

§ 1710.120 Construction standards and

contracting.

Borrowers shall follow all RUS requirements regarding construction

work plans, construction standards, approved materials, construction and related contracts, inspection procedures,

and bidding procedures.

§ 1710.121 Insurance requirements.

Borrowers are required to comply

with certain requirements with respect

to insurance and fidelity coverage as

set forth in 7 CFR part 1788.

§ 1710.122 Equal opportunity and nondiscrimination.

Borrowers are required to comply

with certain regulations on nondiscrimination in program services and

benefits and on equal employment opportunity as set forth in RUS Bulletins

20–15 and 20–19 or their successors; 7

CFR parts 15 and 15b; and 45 CFR part

90.

§ 1710.123 Debarment and suspension.

Borrowers are required to comply

with certain requirements on debarment and suspension as set forth in 7

CFR part 3017.

§ 1710.124 Uniform Relocation Act.

Borrowers are required to comply

with applicable provisions of 49 CFR

part 24, which sets forth the requirements of the Uniform Relocation Assistance and Real Property Acquisition

116

§ 1710.125 7 CFR Ch. XVII (1–1–00 Edition)

Policy Act of 1970 (Pub. L. 91–646; 84

Stat. 1894), as amended by the Uniform

Relocation Act Amendments of 1987

(Pub. L. 100–17; 101 Stat. 246–256) and

the Intermodal Surface Transportation

Efficiency Act of 1991.

§ 1710.125 Restrictions on lobbying.

Borrowers are required to comply

with certain requirements with respect

to restrictions on lobbying activities.

See 7 CFR part 3018.

§ 1710.126 Federal debt delinquency.

(a) Prior to approval of a loan or advance of funds, a borrower must report

to RUS whether or not it is delinquent

on any Federal debt, such as Federal

income tax obligations or a loan or

loan guarantee from another Federal

agency. If delinquent, the reasons for

the delinquency must be explained, and

RUS will take such explanation into

consideration in deciding whether to

approve the loan or advance of funds.

(b) Applicants for a loan or loan

guarantee must also certify that they

have been informed of the collection

options the Federal government may

use to collect delinquent debt.

§ 1710.127 Drug free workplace.

Borrowers are required to comply

with the Drug Free Workplace Act of

1988 (Pub. L. 100–690, title V, subtitle D)

and the Act’s implementing regulations (7 CFR part 3017) when a borrower

receives a Federal grant or enters into

a procurement contract awarded pursuant to the provisions of the Federal Acquisition Regulation (title 48 CFR) to

sell to a Federal agency property or

services having a value of $25,000 or

more.

§§ 1710.128—1710.149 [Reserved]

Subpart D—Basic Requirements

for Loan Approval

§ 1710.150 General.

The RE Act and prudent lending

practice require that the Administrator make certain findings before approving an electric loan or loan guarantee. The borrower shall provide the

evidence determined by the Administrator to be necessary to make these

findings.

§ 1710.151 Required findings for all

loans.

(a) Area coverage. Adequate electric

service will be made available to the

widest practical number of rural users

in the borrower’s service area during

the life of the loan. See §1710.103.

(b) Feasibility. The loan is feasible

and it will be repaid on time according

to the terms of the mortgage, note, and

loan contract. At any time after the

original determination of feasibility,

the Administrator may require the borrower to demonstrate that the loan remains feasible if there have been, or

are anticipated to be, material changes

in the borrower’s costs, loads, rates,

rate disparity, revenues, or other relevant factors from the time that feasibility was originally determined. See

§1710.112 and subpart G of this part.

(c) Security. RUS will have a first lien

on the borrower’s total system or other

adequate security, and adequate financial and managerial controls will be included in loan documents. See

§1710.113.

(d) Interim financing. For loans that

include funds to replace interim financing, there is satisfactory evidence

that the interim financing was used for

purposes approved by RUS and that the

loan meets all applicable requirements

of this part.

(e) Facilities for nonrural areas. Whenever a borrower proposes to use loan

funds for the improvement, expansion,

construction, or acquisition of electric

facilities 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

§1710.104.

(f) Facilities to be included in rate base.

In states having jurisdiction, the borrower has provided satisfactory evidence based on the information available, such as an opinion of counsel,

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. Such

evidence may be based on, but not necessarily limited to, the provisions of

applicable state laws; the rules and

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Rural Utilities Service, USDA § 1710.201

policies of the state authority; precedents in other similar cases; statements made by the state authority;

any assurances given to the borrower

by the state authority; and other relevant information and experience.

§ 1710.152 Primary support documents.

The following primary support documents and studies must be prepared by

the borrower for approval by RUS in

order to support a loan application:

(a) Power requirements study (PRS).

This study provides the borrower and

RUS with an understanding of the borrower’s system loads, the factors influencing those loads, and valid estimates

of future loads. It provides a basis for

projecting annual kWh sales and revenues, and for engineering estimates of

plant additions required to accommodate the forecasted loads. The requirements for a PRS and the circumstances

under which one must be submitted to

RUS are set forth in subpart E of this

part.

(b) Construction work plan (CWP). The

CWP shall specify and document the

capital investments required to serve a

borrower’s planned new loads, improve

service reliability and quality, and

service the changing needs of existing

loads. The requirements for a CWP are

set forth in subpart F of this part.

(c) Long-range financial forecasts. RUS

encourages borrowers to maintain on a

current basis a long-range financial

forecast, which should be used by a

borrower’s board of directors and manager to guide the system toward its financial goals. The forecast submitted

in support of a loan application shall

show the projected results of future actions planned by the board of directors.

The requirements for a long-range financial forecast are set forth in subpart G of this part.

(d) Borrower’s environmental report

(BER). This document is used to determine what effect the construction of

the facilities included in the construction work plan will have on the environment. In developing a BER a borrower shall follow the policy and procedural requirements set forth in 7 CFR

part 1794. After reviewing the BER,

RUS will determine whether additional

environmental studies will be required.

§ 1710.153 Additional requirements

and procedures.

Additional requirements and procedures for obtaining RUS financial assistance are set forth in 7 CFR part 1712

for loan guarantees, and in 7 CFR part

1714 for insured loans.

§§ 1710.154—1710.199 [Reserved]

Subpart E—Power Requirements

Studies

§ 1710.200 Purpose.

This subpart sets forth the policies,

procedures and criteria for the preparation, approval and use of power requirements studies (PRSs) and PRS

work plans. A PRS is a thorough study

of a borrower’s electric loads and the

factors that affect those loads in order

to determine, as accurately as practicable, the borrower’s future requirements for energy and capacity. The

PRS of a power supply borrower includes and integrates the PRSs of its

member systems.

§ 1710.201 Requirement to prepare a

PRS—power supply borrowers.

(a) A power supply borrower having

total assets of $300 million or more

shall:

(1) Meet one of the following two requirements:

(i) Prepare and obtain RUS approval

of a new PRS not less frequently than

every 3 years, which shall include new

or revised equations and models, and

annually update the PRS in the intervening years based on new data and assumptions, but not necessarily new or

revised equations and models, and file

the annual updates with RUS; or

(ii) Prepare and obtain RUS approval

of a new PRS not less frequently than

every 2 years, which shall include new

or revised equations and models;

(2) Maintain a current PRS work

plan approved by RUS which shall set

forth the resources, methods, schedules

and milestones required for the preparation and maintenance of the PRS;

and

(3) Provide a current PRS approved

by RUS in support of any request for

RUS financial assistance or for RUS

approval of long-term power contracts

or other actions as appropriate.

118

§ 1710.202 7 CFR Ch. XVII (1–1–00 Edition)

(b) A power supply borrower with

total assets of less than $300 million is

not required to have a current, RUSapproved PRS on an ongoing basis but

is required to provide a current, RUSapproved PRS in support of:

(1) An application for an RUS loan or

loan guarantee if said loan or guarantee exceeds $25 million or 10 percent

of the borrower’s total utility plant,

whichever is smaller; and

(2) Requests for RUS approval of

long-term power contracts or other actions, as may be required by RUS on a

case by case basis.

(c) A power supply borrower that is a

member of another power supply borrower that has total assets of $300 million or more is subject to the requirements of §1710.201(a), except that such

member is not required to have a separate PRS work plan. The distribution

members of such a power supply borrower are also subject to the requirements of §1710.201(a), except that such

members are not required to have separate PRS work plans.

(d) At the borrower’s request, RUS

may extend for up to 3 months the

time frames set forth in §1710.201(a)(1)

if RUS determines the borrower is in

substantial compliance with its RUSapproved work plan and significant

changes in existing PRS models and assumptions are not required.

(e) For purposes of paragraphs (a)(3)

and (b) of this section, the determination of whether a borrower’s PRS is

current will be made by RUS at the

time financial assistance or other RUS

action is requested. The borrower may

be required to update the PRS to incorporate the most recently available operating data and other information.

§ 1710.202 Requirement to prepare a

PRS—distribution borrowers.

(a) If a distribution borrower is a

member of a power supply borrower

that has total assets of $300 million or

more, it must meet the requirements of

§1710.201(a), except for the requirement

to prepare a work plan, which is the responsibility of the power supply borrower. Certain other distribution borrowers, as set forth in §1710.201(c), are

also subject to provisions of

§1710.201(a).

(b) All other distribution borrowers,

including unaffiliated distribution systems as well as members of power supply borrowers with total assets of less

than $300 million, must either:

(1) Meet the requirements of

§1710.201(a), if the distribution borrower owns generation and bulk transmission plant valued at $300 million or

more, or

(2) Meet the requirements of

§1710.201(b), except that the loan

threshold set forth in paragraph (b)(1)

in the case of these distribution borrowers shall be $3 million and 10 percent of total utility plant.

§ 1710.203 Basic policies and requirements for a PRS.

(a) A PRS or PRS update must be

completed and submitted to RUS on a

timely basis to enable prompt review

by RUS.

(b) A PRS completed more than 12

months prior to submission will not be

considered by RUS.

(c) Adequate coordination is required

between power supply borrowers and

their members in the preparation of

their respective PRSs or PRS updates.

(d) To facilitate RUS review of the

PRS work plan and the PRS, the borrower shall make available to RUS appropriate staff for consultation, and all

essential documentation, data, and

other relevant information, in formats

acceptable to RUS, that support the

PRS work plan and the PRS.

(e) Notwithstanding any other provisions of this subpart, any power supply

or distribution borrower may be required to prepare a new or updated

PRS, or to maintain a current PRS on

an ongoing basis, if required for RUS to

determine loan feasibility, to ensure

loan security, or to consider requests

submitted for approval under a borrower’s loan contract or mortgage.

(f) All PRSs shall include the following information, using a format approved by RUS, unless such information has already been provided to RUS

in the PRS work plan or other submissions:

(1) A discussion of the scope of the

PRS, including the proposed uses of the

information developed for planning

119

Rural Utilities Service, USDA § 1710.204

load management and energy efficiency programs, plant investments,

and financial requirements;

(2) A discussion of the borrower personnel, consultants, data, and other resources used in the preparation of the

PRS;

(3) A discussion of the procedures

used to collect, validate, process, and

update the data used in the study;

(4) Documentation of the analysis

and modeling of the borrower’s electric

system loads and other pertinent information used in the PRS. All relevant

data, primary sensitivity analyses and

other substantive procedures used to

test significant assumptions and to

generate the load estimates and related

factors must be included in the PRS or

otherwise made available to RUS, and

clearly identified, sourced and dated;

(5) An analysis of the borrower’s past,

existing, and future electric system

loads of RE Act beneficiaries and others, including explanation and documentation of all substantive assumptions, primary sensitivity analyses and

other substantive considerations used

to prepare the estimates. Areas of analysis shall normally include, but are not

limited to: developing land use patterns; potential losses of load due to

annexation or other causes; prospective

residential and commercial development; probable rate levels; the effects

of rates and competition from neighboring utilities on loads; existing and

anticipated patterns of energy usage

and appliance saturation; and availability of alternative energy sources.

Load management, conservation, and

power marketing considerations must

also be included;

(6) A discussion and analysis of alternative scenarios, which shall be required for all PRSs submitted to RUS

for approval after January 1, 1993. Normally, unless waived by RUS under

§1710.206, the borrower shall provide a

discussion and analysis of the following

five scenarios:

(i) Most-probable economic assumptions, with normal weather;

(ii) Most-probable economic assumptions, with severe weather causing

higher loads;

(iii) Most-probable economic assumptions, with mild weather causing lower

loads;

(iv) Normal weather with more pessimistic macroeconomic assumptions

causing lower loads; and

(v) Normal weather with more optimistic macroeconomic assumptions

causing higher loads;

(7) Completed RUS Forms 341 and 345

and 10 years data from RUS Form 7

part R. Computer-generated facsimiles

may be used if acceptable in form to

RUS. Graphs, tables, spreadsheets or

other exhibits shall be included as appropriate;

(8) A discussion and documentation

of the coordination activities between

a power supply borrower and its RUSborrower members, as applicable, and

between the borrower and RUS. If a

power supply borrower and any member disagree on an issue or estimate,

RUS will provide assistance, if requested, in attempting to resolve the

disagreement;

(9) The borrower’s general manager’s

recommendation to the board of directors on adoption of the PRS; and

(10) Approval of the PRS by the borrower’s board of directors.

(g) A PRS and its essential supporting data and analysis shall be retained in the borrower’s records until

the next new PRS is approved by RUS.

(h) Completed PRSs submitted to

RUS for approval prior to the effective

date of this part, as well as PRSs prepared under work plans approved by

RUS prior to the effective date of this

part, may meet the requirements of

paragraph (f) of this section or corresponding requirements of RUS Bulletin 120–1, at the option of the borrower. All other PRSs must meet the

requirements of paragraph (f) of this

section.

§ 1710.204 PRS work plan requirements.

(a) All borrowers required to prepare

and maintain a PRS on an ongoing

basis are required to prepare and obtain RUS approval of a PRS work plan,

except for those borrowers that are

members of a power supply borrower

that is required to prepare a PRS work

plan. The PRS work plan shall establish the resources, methods, schedules,

and milestones to be used in the preparation and maintenance of the PRS.

120

§ 1710.205 7 CFR Ch. XVII (1–1–00 Edition)

(b) A power supply borrower’s work

plan shall include the member inputs

and coordination mechanisms required

for the preparation of its PRS as well

as the PRSs of the system’s members.

Member concurrences in the work plan

are required before the plan is submitted to RUS for approval. The member systems, as well as the power supply borrower, are required to follow the

work plan in preparing their respective

PRS.

(c) A PRS work plan must be approved by the borrower’s board of directors.

(d) A borrower may amend its work

plan subject to RUS approval. A new or

revised work plan may be required by

RUS if RUS concludes the existing plan

will not result in a satisfactory PRS on

a timely basis.

(e) In addition, a PRS work plan

shall:

(1) Identify the borrower and, as applicable, member personnel that will

serve as project leaders or liaisons with

the authority to make decisions and

commit resources within the scope of

the work plan;

(2) Provide for residential consumer

surveys at least every 3 years to obtain

data on appliance and equipment saturation and electricity demand, when

residential demand is 50 percent or

more of total kWh sales. In the case of

a power supply borrower, such surveys

shall be coordinated with the borrower’s members. They may be based

on the aggregation of member-based

samples or on a system-wide sample,

provided that the latter provides for

relevant regional breakdowns as appropriate;

(3) Provide for all other data collection and verification, analyses, modeling, and documentation required in

§1710.203; and

(4) Provide for an ongoing RUS review of the PRS.

(f) Generally, a work plan shall cover

a period of 1 to 3 years.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5,

1992]

§ 1710.205 Basic criteria for RUS approval of a PRS.

RUS will use the following basic criteria in deciding whether to approve a

PRS:

(a) The borrower objectively analyzed

all relevant factors that influence the

consumption of electricity and the requirements for generation and transmission capacity;

(b) The borrower accurately analyzed

power requirements stemming from RE

Act beneficiaries and non-RE Act beneficiaries;

(c) The borrower developed adequate

supporting data, used valid assumptions, analyzed a reasonable range of

relevant alternative assumptions and

scenarios, and used valid and verifiable

analytical techniques and models;

(d) The borrower provided RUS with

adequate documentation and assistance to allow for a thorough and independent review;

(e) In the case of a power supply borrower, the preparation of the work plan

and PRS was adequately coordinated

with its members; and

(f) The PRS was recommended for approval by the borrower’s general manager and has been approved by the borrower’s board of directors.

§ 1710.206 Waiver of borrower requirements.

For good cause shown by the borrower, the Administrator may waive

any of the requirements applicable to

borrowers in this subpart if the Administrator determines that waiving the

requirement will not significantly affect accomplishment of the objectives

of this subpart and if the requirement

imposes a substantial burden on the

borrower. The waiver must be requested in writing by the borrower’s

general manager.

(Approved by the Office of Management and

Budget under control number 0572–0032)

§§ 1710.207—1710.249 [Reserved]

Subpart F—Construction Work

Plans and Related Studies

§ 1710.250 General.

(a) An ongoing, integrated planning

system is needed by borrowers to determine their short-term and long-term

needs for plant additions, improvements, replacements, and retirements.

The primary components of the system

consist of long-range engineering

plans, construction work plans (CWPs),

121

Rural Utilities Service, USDA § 1710.250

CWP amendments, and special engineering and cost studies. Long range

engineering plans identify plant investments required over a period of 10

years or more. CWPs specify and document plant requirements for the shortterm, usually 2 to 3 years, and special

engineering and cost studies are used

to support CWPs and to identify and

document requirements for specific

items or purposes, such as load management equipment, System Control

and Data Acquisition equipment, sectionalizing investments, and additions

of generation capacity and associated

transmission plant.

(b) Generally, all borrowers are required to maintain up-to-date long

range engineering plans approved by

their boards of directors. Current CWPs

approved by the borrower’s board must

also be developed and maintained for

distribution and transmission facilities

and for improvements and replacements of generation facilities. All such

distribution, transmission or generation facilities must be included in the

respective CWPs regardless of the

source of financing.

(c) A long range engineering plan

specifies and supports the major system additions, improvements, replacements, and retirements needed for an

orderly transition from the existing

system to the system required 10 or

more years in the future. The planned

future system should be based on the

most technically and economically

sound means of serving the borrower’s

long-range loads in a reliable and environmentally acceptable manner, and it

should ensure that planned facilities

will not become obsolete prematurely.

(d) A CWP shall include investment

cost estimates and supporting engineering and cost studies to demonstrate the need for each proposed facility or activity and the reasonableness of the investment projections and

the engineering assumptions used in

sizing the facilities. The CWP must be

consistent with the borrower’s long

range engineering plan and both documents must be consistent with the borrower’s RUS-approved power requirements study.

(e) Applications for a loan or loan

guarantee from RUS (new loans or

budget reclassifications) must be supported by a current CWP approved by

both the borrower’s board of directors

and RUS. RUS approval of these plans

relates only to the facilities, equipment, and other purposes to be financed by RUS, and means that the

plans provide an adequate basis from a

planning and engineering standpoint to

support RUS financing. RUS approval

of the plans does not mean that RUS

approves of the facilities, equipment,

or other purposes for which the borrower is not seeking RUS financing. If

RUS disagrees with a borrower’s estimate of the cost of one or more facilities for which RUS financing is sought,

RUS may adjust the estimate after

consulting with the borrower and explaining the reasons for the adjustment.

(f) Except as provided in paragraph

(g) of this section, to be eligible for

RUS financing, the facilities, including

equipment and other items, included in

a CWP must be approved by RUS before

the start of construction. This requirement also applies to any amendments

to a CWP required to add facilities to a

CWP or to make significant physical

changes in the facilities already included in a CWP. Provision for funding

of ‘‘minor projects’’ under an RUS loan

guarantee is permitted on the same

basis as that discussed for insured loan

funds in 7 CFR part 1721, Post-Loan

Policies and Procedures for Insured

Electric Loans.

(g) In the case of damage caused by

storms and other natural catastrophes,

a borrower may proceed with emergency repair work before a CWP or

CWP amendment is prepared by the

borrower and approved by RUS, without loosing eligibility for RUS financing of the repairs. The borrower must

notify the RUS regional office in writing, not later than 45 days after the

natural catastrophe, of its preliminary

estimates of damages and repair costs.

Not later than 120 days after the natural catastrophe, the borrower must

submit to RUS for approval, a CWP or

CWP amendment detailing the repairs.

(h) A CWP may be amended or augmented when the borrower can demonstrate the need for the changes.

(i) A borrower’s CWP or special engineering studies must be supported by a

Borrower’s Environmental Report, and

122

§ 1710.251 7 CFR Ch. XVII (1–1–00 Edition)

when necessary by an Environmental

Analysis or Environmental Impact

Statement, as set forth in 7 CFR 1794 or

required by other Federal or state regulations or laws.

(j) All engineering activities required

by this subpart must be performed by

qualified engineers, who may be staff

employees of the borrower or outside

consultants.

(k) Upon written request from a borrower, RUS may waive in writing certain requirements with respect to longrange engineering plans and CWPs if

RUS determines that such requirements impose a substantial burden on

the borrower and that waiving the requirements will not significantly affect

the accomplishment of the objectives

of this subpart. For example, if a borrower’s load is forecast to remain constant or decline during the planning

period, RUS may waive those portions

of the plans that relate to load growth.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5,

1992, as amended at 60 FR 67405, Dec. 29, 1995;

64 FR 33178, June 22, 1999]

§ 1710.251 Construction work plans—

distribution borrowers.

(a) All distribution borrowers must

maintain a current CWP approved by

their board of directors covering all

new construction, improvements, replacements, and retirements of distribution and transmission plant, and

improvements replacements, and retirements of any generation plant.

Construction of new generation capacity need not be included in a CWP but

must be specified and supported by specific engineering and cost studies. (See

§1710.253.)

(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 RUS financing, whether or not

RUS financial assistance will be sought

or be available for certain facilities.

Any RUS 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.

(c) The facilities, equipment and

other items included in a distribution

borrower’s CWP may include:

(1) Line extensions required to connect consumers, improve service reliability or improve voltage conditions;

(2) Distribution tie lines to improve

reliability of service and voltage regulation;

(3) Line conversions and changes required to improve existing services or

provide additional capacity for new

consumers;

(4) New substation facilities or additions to existing substations;

(5) Transmission and substation facilities required to support the distribution system;

(6) Distribution equipment required

to serve new consumers or to provide

adequate and dependable service to existing consumers, including replacement of existing plant facilities;

(7) Residential security lights;

(8) Communications equipment and

meters;

(9) Headquarters facilities;

(10) Improvements, replacements, and

retirements of generation facilities;

(11) Load management equipment,

automatic sectionalizing facilities, and

centralized System Control and Data

Acquisition equipment. Load management equipment 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

(12) The cost of engineering, architectural, environmental and other studies

and plans needed to support the construction of facilities, when such cost

is capitalized as part of the cost of the

facilities.

[57 FR 1053, Jan. 9, 1992; 57 FR 4513, Feb. 5,

1992, as amended at 60 FR 3731, Jan. 19, 1995;

60 FR 67405, Dec. 29, 1995]

§ 1710.252 Construction work plans—

power supply borrowers.

(a) All power supply borrowers must

maintain a current CWP approved by

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Rural Utilities Service, USDA § 1710.253

the borrower’s board of directors covering all new construction, improvements, replacements, and retirements

of distribution and transmission plant,

and improvements, replacements, and

retirements of generation plant. Applications for RUS financial assistance

for such facilities must be supported by

a current, RUS-approved CWP. Construction of new generation capacity

need not be included in a CWP but

must be specified and supported by specific engineering and cost studies.

(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 RUS 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.

(c) Facilities, equipment, and other

items included in a power supply borrower’s CWP may include:

(1) Distribution and related facilities

as set forth in §1710.251(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 Systems Control

and Data Acquisition equipment, including communications, dispatching

and sectionalizing equipment, and load

management equipment;

(3) The borrower’s proportionate

share of transmission facilities required to tie together the operating

systems of supporting power pools and

to connect with adjacent power suppliers;

(4) Improvements and replacements

of generation facilities; and

(5) The cost of engineering, architectural, environmental and other studies

and plans needed to support the construction of facilities, when such cost

is capitalized as part of the cost of the

facilities.

(d) A CWP for transmission facilities

shall normally include studies of load

flows, voltage regulation, and stability

characteristics to demonstrate system

performance and needs.

[57 FR 1053, Jan. 9, 1992, as amended at 60 FR

3731, Jan. 19, 1995; 60 FR 67405, Dec. 29, 1995]

§ 1710.253 Engineering and cost studies—addition of generation capacity.

(a) The construction or purchase of

additional generation capacity and associated transmission facilities by a

power supply or distribution borrower,

including the replacement of existing

capacity, shall be supported by comprehensive project-specific engineering

and cost studies as specified by RUS.

The studies shall cover a period from

the beginning of the project to at least

10 years after the start of commercial

operation of the facilities.

(b) The studies must include comprehensive economic present-value

analyses of the costs and revenues of

the available self-generation, load

management, energy conservation, and

purchased-power options, including assessments of service reliability and financing requirements and risks. Requirements for analyzing purchasedpower options are set forth in §1710.254.

(c) Generally, studies of self-generation, load management, and energy

conservation options shall include, as

appropriate, analyses of:

(1) Capital and operating costs;

(2) Financing requirements and risks;

(3) System reliability;

(4) Alternative unit sizes;

(5) Alternative types of generation;

(6) Fuel alternatives;

(7) System stability;

(8) Load flows; and

(9) System dispatching.

(d) At the request of a borrower,

RUS, in its sole discretion, may waive

specific requirements of this section if

such requirements imposed a substantial burden on the borrower and if such

waiver will not significantly affect the

accomplishment of the objectives of

this subpart.

124

§ 1710.254 7 CFR Ch. XVII (1–1–00 Edition)

§ 1710.254 Alternative sources of

power.

(a) General. (1) RUS will make loans

to finance the construction of generation facilities by distribution or power

supply borrowers and transmission facilities by power supply borrowers only

under the following conditions if said

borrowers do not already own and operate such types of facilities:

(i) Where no adequate and dependable

source of power is available to meet

the consumers’ needs; or

(ii) Where the rates offered by other

power sources would result in a higher

cost of power to the consumers than

the cost from facilities financed by

RUS, and the amount of the power cost

savings that would result from the

RUS-financed facilities bears a significant relationship to the amount of the

proposed loan.

(2) If a borrower already owns and operates the types of facilities included

in a loan request, then a loan for the

purposes set forth in paragraph (a)(1) of

this section, as well as for the construction of transmission facilities by

a distribution borrower, will be considered and evaluated by RUS in terms of

whether the proposed facilities constitute the most effective and economical means of meeting the power requirements of the consumers.

(b) Loan requests for addition of generation capacity, including replacement of existing capacity, will be accepted by RUS only when the applicant

has satisfactorily completed the investigations of possible alternative

sources of power as set forth in this

section. The investigations must be coordinated in advance with RUS. The

capacity in question may be owned

solely by the borrower or owned on an

undivided ownership basis with other

utilities.

(c) The applicant is required to

search out and attempt to utilize capacity available from RUS borrowers

and other organizations before developing plans for additional generation

capacity. The applicant shall:

(1) Solicit power and energy purchase

proposals from all reasonable potential

sources of power, such as other electric

cooperatives, investor-owned utilities,

municipal utility organizations, and

Federal and state power authorities.

(2) Except as herein exempted, solicit

proposals from independent power producers, including co-generators, to determine the terms and conditions

under which these producers can supply the additional power and energy

needs of the applicant, without RUS financial assistance. Such solicitations

shall be placed in at least three national newspapers or trade publications, and they shall meet all planning,

coordination or other requirements imposed by state authorities, as well as

RUS’s environmental requirements.

The following projects are exempted

from this requirement to solicit proposals:

(i) Additions to or replacements of

generation capacity of less than 10

megawatts.

(ii) Modifications of existing generation units if any resulting increase in

generation capacity does not exceed 10

percent of the capacity of the existing

unit.

(d) The applicant will evaluate all alternative proposals on an economic,

present-value basis, giving consideration to cost-effectiveness, reliability

of service, the short- and long-term financial viability of the supplier, and

the financial risk to the borrower and

its creditors. The applicant will keep

RUS fully informed on these evaluations and provide supporting information and analysis as requested by RUS.

(e) After evaluation of all proposals

and having informed RUS of the results, the applicant will be expected to

negotiate final proposals with the entities submitting the best acceptable offers, if any, keeping RUS fully informed. All contracts entered into

shall either be approved in advance by

the Administrator or contain language

to the effect that the contract is not

valid until approved in writing by the

Administrator. The Administrator will

approve such contracts in a timely

manner provided that the borrower has

met all applicable requirements, including RUS’s environmental requirements, and provided adequate evidence

that the alternative selected is the

most economical and effective alternative.

(f) RUS may make independent inquiries with potential power suppliers

as to the availability of power to meet

125

Rural Utilities Service, USDA § 1710.300

borrowers’ needs. Information developed by RUS will be shared with borrowers at their request.

(g) Further details of RUS requirements for financing of generation and

bulk transmission facilities are set

forth in 7 CFR part 1712.

(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.

(Approved by the Office of Management and

Budget under control number 0572–0032)

§§ 1710.255—1710.299 [Reserved]

Subpart G—Long-Range Financial

Forecasts

§ 1710.300 General.

(a) RUS encourages borrowers to

maintain a current long-range financial forecast. The forecast should be

used by the board of directors and the

manager to guide the system towards

its financial goals.

(b) A borrower must prepare, for RUS

review and approval, a long-range financial forecast, approved by its board

of directors, in support of its loan application. The forecast must demonstrate that the borrower’s system is

economically viable and that the proposed loan is financially feasible. Loan

feasibility will be assessed based on the

criteria set forth in §1710.112.

(c) The financial forecast and related

projections submitted in support of a

loan application shall include:

(1) The projected results of future actions planned by the borrower’s board

of directors;

(2) The financial goals established for

margins, TIER, DSC, equity, and levels

of general funds to be invested in plant;

(3) A pro forma balance sheet, statement of operations, and general funds

summary projected for each year during the forecast period;

(4) A full explanation of the assumptions, supporting data, and analysis

used in the forecast, including the

methodology used to project loads,

rates, revenue, power costs, operating

expenses, plant additions, and other

factors having a material effect on the

balance sheet and on financial ratios

such as equity, TIER, and DSC;

(5) Current and projected cash flows;

(6) Projections of future borrowings

and the associated interest and principal expenses required to meet the

projected investment requirements of

the system;

(7) Current and projected kW and

kWh energy sales;

(8) Current and projected unit prices

of significant variables such as retail

and wholesale power prices, average

labor costs, and interest;

(9) Current and projected system operating costs, including, but not limited to, wholesale power costs, depreciation expenses, labor costs, and debt

service costs;

(10) Current and projected revenues

from sales of electric power and energy;

(11) Current and projected non-operating income and expense;

(12) A discussion of the historical experience of the borrower, and in the

case of a power supply borrower its

member systems as appropriate, with

respect to the borrower’s market competitiveness as it relates to the rates

charged for electricity, competition

from other fuels, and other factors. Additional data and analysis may be required by RUS on a case by case basis

to assess the probable future competitiveness of those borrowers that have a

history of serious competitive problems; and

(13) An analysis of the effects of

major factors, such as projected increases in rates charged for electricity,

on the ability of the borrower, and in

the case of a power supply borrower its

member systems, to compete with

neighboring utilities and other energy

sources.

(d) The following plans, studies and

assumptions shall be used in developing the financial forecast:

(1) The RUS-approved CWP;

(2) RUS-approved power requirements

data;

(3) The current rate schedules or new

rates already approved by the board of

directors;

(4) Future plant additions and operating expenses projected at anticipated

126

§ 1710.301 7 CFR Ch. XVII (1–1–00 Edition)

future cost levels rather than in constant dollars, with the annual rate of

inflation for major items specified; and

(5) A sensitivity analysis may be required by RUS on a case-by-case basis

taking into account such factors as the

number and type of large power loads,

projections of future borrowings and

the associated interest, projected

loads, projected revenues, and the probable future competitiveness of the borrower. When RUS determines that a

sensitivity analysis is necessary for

distribution borrowers, the variables to

be tested will be determined by the

General Field Representative in consultation with the borrower and the regional office. The regional office will

consult with the Power Supply Division in the case of generation projects

for distribution borrowers. For power

supply borrowers, the variables to be

tested will be determined by the borrower and the Power Supply Division.

(e) The financial forecast shall use

the accrual method, as approved by

RUS, for analyzing costs and revenues,

and, as applicable, compare the economic results of the various alternatives on a present value basis.

[57 FR 1053, Jan. 9, 1992, as amended at 63 FR

53277, Oct. 5, 1998]

§ 1710.301 Financial forecasts—distribution borrowers.

(a) Financial forecasts prepared by

distribution borrowers shall cover at

least a ten-year period, unless a shorter period is authorized by other RUS

regulations.

(b) In addition to the requirements

set forth in §1710.300 of this part, financial forecasts prepared by distribution

borrowers in support of a loan application shall:

(1) Include expenditures for any

maintenance determined to be needed

in the current system’s operation and

maintenance review and evaluation in

order to comply with mortgage covenants and prudent utility practice;

(2) Fully explain the basis for the

power cost projections used. Generally,

the power supplier’s most recent forecasted rates shall be used; and

(3) Use RUS Form 325 or computergenerated equivalent reports.

§ 1710.302 Financial forecasts—power

supply borrowers.

(a) The requirements of this section

apply only to financial forecasts submitted by power supply borrowers in

support of a loan from RUS. The financial forecast prepared by power supply

borrowers shall demonstrate the effects

that the addition of generation, transmission and any distribution facilities

will have on the power supply borrower’s sales, costs, and revenues, and

on the cost of power to the member distribution systems.

(b) The financial forecast shall cover

a period of 10 years. RUS may request

projections for a longer period of time

if RUS deems necessary.

(c) Financial forecasts prepared in

support of loan applications to finance

additional generation capacity shall

include a power cost study as set forth

in §1710.303.

(d) In addition to the requirements

set forth in §1710.300, financial forecasts prepared by power supply borrowers shall:

(1) Identify all plans for generation

and transmission capital additions and

system operating expenses on a yearby-year basis, beginning with the

present and running for 10 years, unless

a longer period of time has been requested by RUS.

(2) Integrate projections of operation

and maintenance expenses associated

with existing plant with those of new

proposed facilities to determine total

costs of system operation as well as the

costs of new generation and generation-related facilities;

(3) Provide an in-depth analysis of

the regional markets for power if loan

feasibility depends to any degree on a

borrower’s ability to sell surplus power

while its system loads grow to meet

the planned capacity of a proposed

plant;

(4) If not previously submitted, furnish RUS with all material information on operating agreements, ownership agreements, fuel contracts and

any other special agreements that affect annual cost projections, as may be

required by RUS on a case by case

basis; and

(5) Include sensitivity analysis if required by RUS pursuant to

§1710.300(d)(5).

127

Rural Utilities Service, USDA § 1710.350

(e) The projections shall be coordinated in advance with RUS so that

agreement can be reached on major aspects of the economic studies. These

include, but are not limited to, projections of future kW and kWh requirements, RE Act beneficiary loads, electricity prices, revenues from system

and off-system power sales, the cost of

prospective plant additions, interest

and depreciation rates, fuel costs, cost

escalation factors, the discount rate,

and other factors.

(f) The projections, analysis, and supporting information must be included

in a report that will provide RUS with

the information needed to:

(1) Understand and compare various

power supply plans;

(2) Determine that the facilities to be

financed will perform satisfactorily;

and

(3) Determine that the overall system

is economically viable and the loan is

financially feasible and secure.

[57 FR 1053, Jan. 9, 1992, as amended at 63 FR

53278, Oct. 5, 1998]

§ 1710.303 Power cost studies—power

supply borrowers.

(a) All applications for financing of

additional generation capacity and the

associated bulk transmission facilities

shall be supported by a power cost

study to demonstrate that the proposed generation and associated transmission facilities are the most economical and effective means of meeting the borrower’s power requirements.

This study usually is a separate study

but it may be integrated with the financial forecast required by §1710.302.

(b) A power cost study shall include

the following basic elements:

(1) A study of all reasonably available self-generation, purchased-power,

load management, and energy conservation alternatives as set forth in

§§1710.253 and 1710.254;

(2) A present-value analysis of the

costs of the alternatives and their effects on total power costs, covering a

period of at least 10 years beyond the

projected in-service date of the facilities;

(3) A description of proposed new

power-purchase contracts or revisions

to existing contracts, and an analysis

of the effects on power costs;

(4) Use of sensitivity analyses to determine the vulnerability of the alternatives to a reasonable range of assumptions about fuel costs, failure to

achieve projected load growth, changes

in operating and financing costs, and

other major factors, if the financial

forecast is used in support of a loan or

loan guarantee that exceeds the smaller of $25 million or 10 percent of the

borrower’s total utility plant. Individual sensitivity analyses need not be

duplicated if they have been included

in other materials submitted to RUS;

and

(5) Assessment of the financial risks

of the various alternatives, especially

as between capital-intensive and noncapital-intensive alternatives, under

the range of assumptions set forth in

paragraph (b)(4) of this section.

(c) Power cost studies must use current, RUS-approved power requirements data, and all major assumptions

are subject to RUS approval. Alternative assumptions about projected

power requirements may be used, however, in conjunction with the sensitivity analyses required by paragraph

(b)(4) of this section.

(Approved by the Office of Management and

Budget under control number 0572–0032)

§§ 1710.304—1710.349 [Reserved]

Subpart H—Demand Side Management and Renewable Energy Systems

SOURCE: 59 FR 496, Jan. 4, 1994, unless otherwise noted.

§ 1710.350 Purpose.

This subpart sets forth RUS policies

and procedures with regard to loans

and loan guarantees to RUS borrowers

for the purpose of implementing their

demand side management (DSM) plans,

energy conservation programs, and ongrid and off-grid renewable energy systems. The Administrator reserves the

right to determine if loans for purposes

under this subpart will be made to a

borrower in default under its mortgage

and loan contract. As is the case with

all other RUS loans, loans for purposes

under this subpart will not be made to

individuals.

128

§ 1710.351 7 CFR Ch. XVII (1–1–00 Edition)

§ 1710.351 General policy; renewable

energy systems.

(a) Off-grid renewable energy systems

will be considered the same as DSM activities and will qualify for either insured loans or loan guarantees pursuant to §1710.102.

(b) On-grid renewable energy systems

will be treated as a generation resource

and will be eligible only for loan guarantees pursuant to §1710.102. Existing

RUS policy with respect to generation

resources shall generally apply.

(c) RUS loans for renewable energy

systems will be made only for systems

utilizing technologies that are proven

and commercially available.

§ 1710.352 General policy; energy resource conservation programs.

This subpart does not replace the energy resource conservation program financed by deferments of loan principal.

§ 1710.353 General policy; demand side

management.

(a) RUS will make loans for the purpose of assisting electric borrowers to

implement RUS approved demand side

management plans. For the purposes of

this regulation energy conservation

programs are included as a DSM activity.

(b) RUS will treat demand-side and

supply-side resources on an equal basis.

All requirements applicable to loans

for traditional electric facilities will

apply to loans for DSM. In addition the

requirements set forth in this subpart

will apply.

(c) DSM will be considered a distribution loan purpose, eligible for either insured loans or loan guarantees pursuant to §1710.102.

(d) RUS will conduct its own evaluation, as specified in this subpart, of a

borrower’s DSM activities before making a determination on the disposition

of a borrower’s loan application.

(e) RUS loans for DSM activities will

be made only for systems utilizing

technologies that are proven and commercially available.

(f) In general, RUS will require pilot

project testing of DSM activities new

to the borrower.

(g) If the borrower’s IRP, DSM plan,

project construction and/or financing,

and/or rate recovery is subject to the

approval of state authorities, the borrower must obtain such approvals before RUS will approve a loan for any

purpose for which an RUS approved

DSM plan or IRP is required under this

subpart.

§ 1710.354 Eligible DSM activities.

DSM activities that are projected to

result in more efficient use of electric

system resources and which are consistent with an RUS approved Integrated Resource Plan (IRP) and DSM

plan may be eligible for financing. Examples of such DSM activities, which

are not mutually exclusive, are as follows:

(a) General information and education;

(b) Purchase and installation of borrower owned or consumer owned equipment or materials, including:

(1) Heating, ventilation, air conditioning;

(2) Building envelope;

(3) Appliances;

(4) Load control;

(5) Lighting and lighting control;

(6) Thermal storage; and

(7) Efficient motors and drives;

(c) Rebates for DSM equipment and

facilities;

(d) Fuel switching for dual fuel applications where one of the energy

sources is electricity; and

(e) Pilot DSM projects.

§ 1710.355 DSM loan applications.

(a) Any loan application which includes funds for DSM must include all

loan support documents required for a

loan for electric facilities, and must

demonstrate that requirements for

need, loan feasibility and loan security

are satisfied. In addition, the application must be supported by an RUS approved IRP, except as provided in

§1710.356(a)(1), and an RUS approved

DSM plan.

(b) DSM loans will be made to provide financing for DSM activities

planned to be implemented within a

two year period.

§ 1710.356 Integrated resource plans.

(a)(1) An RUS approved IRP is required for all loans that include funds

for DSM activities, unless the cumulative total of all previous DSM loans

129

Rural Utilities Service, USDA § 1710.357

and the loan under consideration for

that applicant is less than 1 percent of

the applicant’s total utility plant.

(2) An RUS approved IRP is required

for all loans that include funds for ongrid renewable energy systems.

(3) An RUS approved IRP is required

for all loans that include funds for offgrid renewable energy systems unless

the Administrator determines that an

IRP is not needed to determine that

the loan is both feasible and secure

pursuant to §§1710.112 and 1710.113, respectively.

(b)(1) When an IRP is required, a distribution borrower that is a member of

a power supply borrower must use the

IRP prepared by the power supply borrower for its overall system. This IRP

must have been coordinated with all of

the member systems and it must have

been approved by the board of directors

of the power supply borrower. Because

of the relationship between the power

supply borrower and its members under

which the loans incurred by the power

supply borrower are primarily to construct, improve or acquire facilities

that benefit all members directly or indirectly, the security of loans to all

parties is interlinked. Consequently,

DSM activities and renewable energy

activities must be coordinated among

all parties to insure that the activities

of one member do not jeopardize the financial integrity or loan security of

any other member or that of the power

supply borrower.

(2) A distribution system that is not

a member of an RUS financed power

supply borrower shall prepare its own

IRP. An IRP developed by a distribution borrower that is not a member of

a power supply borrower need only address its own system, but shall include

an analysis of the effects of its DSM

activities on its wholesale power costs.

(c) The IRP shall identify supply side

and demand side options and analyze

their benefits and costs in order to provide adequate and reliable electric

service to consumers at the lowest cost

for the system as a whole.

(d) The IRP shall include necessary

features for system operation, such as

diversity, reliability, dispatchability,

and other factors of risk; and it shall

take into account the ability to verify

energy and cost savings achieved

through DSM, energy conservation,

and renewable energy systems, and the

projected durability of such savings

measured over time.

(e) The following elements also included in a DSM plan, pursuant to

§§1710.357 and 1710.358, shall be included

except where RUS determines that

they are not necessary:

(1) Load shape objectives;

(2) Wholesale power pricing policy

and costs, and their relationship to the

proposed DSM activities;

(3) Ownership and costs of DSM related hardware;

(4) Incentive and marketing costs;

(5) Communication and control costs;

and

(6) Monitoring methods and costs.

(f) The IRP shall analyze the DSM effects set forth in §1710.359.

§ 1710.357 DSM plans.

(a) A DSM plan approved by the borrower’s board of directors is required in

support of a loan that includes funds

for DSM activities or for off-grid renewable energy systems. The DSM plan

shall address the borrower’s existing

and proposed activities for the same

period covered by the Long-Range Financial Forecast submitted in support

of the loan application.

(b)(1) A DSM plan prepared by a

member of a power supply borrower

must be consistent with the IRP prepared by the power supply borrower.

(2) A DSM plan prepared by a distribution borrower that is not a member of an RUS financed power supply

borrower must be consistent with the

borrower’s own IRP.

(c) The level of detail required in the

DSM plan is dependent on several factors, for example:

(1) Size and term of loan;

(2) Financial impact of loan on the

borrower;

(3) Probability of realization of the

estimated impacts;

(4) Magnitude of the estimated effects; and

(5) Potential effects, if any, on other

distribution members of a power supply

borrower.

(d) RUS will consider effects of proposed and existing DSM plans on government loan security, rates, revenue

requirements, competitiveness, other

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§ 1710.358 7 CFR Ch. XVII (1–1–00 Edition)

distribution borrowers, power supply

borrowers or other industry recognized

tests as applicable.

§ 1710.358 Requirements for a DSM

plan.

A DSM plan shall include:

(a) A list of the DSM activities to be

financed by the loan including details

on implementation such as beginning

and completion dates and estimated

draw downs of loan funds;

(b) An analysis of the borrower’s existing and proposed DSM activities, including sources of financing and projections of the effects of those activities as set forth in §1710.359;

(c) System specific load research and

DSM pilot projects as required by

§1710.353(f);

(d) A benefit/cost and net present

value cash flow analysis of each DSM

activity included in the plan. Benefits

and costs must be expressed in the

same units where possible. Short term

and long term impacts must be addressed. Who benefits and who pays

must be clearly identified. Objectives

of a DSM plan shall be stated in terms

of load profile adjustments by customer rate class and/or market segment. The benefit/cost analysis shall

include the following steps:

(1) Identification of objectives, alternatives, and effects;

(2) Simulation of impacts on the system and its consumers, and the probable costs and benefits, including sensitivity/probability and scenario analysis; and

(3) Selection of DSM activities;

(e) An outline of monitoring and reporting procedures to evaluate the performance of the implemented DSM

plan;

(f) A narrative discussing the following:

(1) Scope of the DSM plan;

(2) Resources used to develop the

DSM plan;

(3) Internal and external data collection and analysis;

(4) Analysis method used to screen

and evaluate the projected programs;

(5) Analysis of existing and projected

plans; and

(6) Coordination activities with

power supplier.

§ 1710.359 DSM effects.

The IRP and the DSM plan shall consider and discuss the expected effects

of the borrower’s DSM activities. The

expected effects to be considered and

discussed includes, but are not limited

to, the following:

(a) Effects on the utility (supply side

effects):

(1) Operations;

(2) Maintenance;

(3) Environmental compliance;

(4) Capacity planning, including

deferment of capacity and reliability of

capacity;

(5) DSM equipment including purchase, operation and maintenance considerations;

(6) Transmission and distribution effects;

(7) Administrative costs, including

administrative and general costs, program costs, DSM planning costs, integration of supply and DSM planning,

marketing costs, incentive costs, infrastructure support, monitoring and

evaluation costs, bidding costs; and

(8) Revenues and rates;

(b) Effects on consumers (demand

side effects):

(1) Equipment purchases;

(2) Operation costs;

(3) Maintenance costs;

(4) Supply voltage quality;

(5) Availability of service and reliability (outages);

(6) Change in benefits received from

appliances and housing;

(7) Convenience (availability of

equipment, appliances and services);

(8) Change in comfort and air quality

levels of buildings; and

(9) Rates, billing level and elasticity;

(c) Effects on competitiveness;

(d) Effects on other member distribution systems of the power supply borrower; and

(e) Effects on power supply borrower.

§ 1710.360 Submittal of alternate documentation.

(a) The borrower may have performed

analysis and prepared comparable documentation for other purposes, such as

for a state regulatory commission.

This information may be acceptable to

RUS as an IRP or a DSM plan if the

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Rural Utilities Service, USDA § 1710.364

borrower demonstrates that the alternative information meets the goals and

objectives of this subpart.

(b) The borrower shall advise RUS of

all material information provided to

other lenders or other governmental

authorities relating to their DSM

plans. This information shall be provided to RUS as requested.

§ 1710.361 Type and term of loans.

(a) The final maturity of loans for

purposes under this subpart shall be determined by RUS based on the expected

life of needed capital improvements,

expected cost recovery periods, the expected life of program benefits, the certainty of these benefits, and matching

costs and benefits.

(b) RUS will normally consider final

maturities for DSM loans of up to 5

years. Longer loan terms, not to exceed

10 years, for loans for these purposes

will be considered if the borrower can

satisfactorily demonstrate to the Administrator an acceptable basis for

doing so and can demonstrate that the

loan will be feasible and secure pursuant to §§1710.112 and 1710.113, respectively, for the longer period. As used in

this paragraph, renewable energy resource equipment and facilities are not

considered a DSM purpose. Maturities

for such loans will be limited to the expected useful life of the equipment and

facilities.

§ 1710.362 Loan approval.

The amount and scope of loans approved by RUS under this subpart are

subject to the discretion of RUS. Applications will be evaluated on the merits

of the proposals as outlined in the

plans specified in this subpart. RUS approval of a loan for purposes under this

subpart and/or RUS approval of IRPs

and DSM plans does not relieve a borrower of its responsibilities under this

subpart or constitute a representation

or warranty by RUS to the borrower or

any person that its IRP or DSM plan

will work as described therein.

§ 1710.363 Advance and documentation

of use of loan funds.

(a) Loan funds for on-grid renewable

energy systems will be advanced using

the same procedure as loans for other

electric system facilities.

(b) Loan funds for DSM activities. (1)

Funds for these purposes shall be advanced and used only for the specific

projects and purposes detailed in the

loan application and supporting documents. Generally funds shall be drawn

down on a reimbursement basis. The

borrower shall certify completion of

work according to the DSM plan.

(2) The borrower shall maintain accounting and plant records sufficient

to document the cost and location of

DSM activities and to support loan

fund advances and disbursements.

(3) All cost associated with DSM

projects related to construction, operations or maintenance, shall be accumulated using the borrower’s work

order procedure. An individual work

order or work orders shall be used to

record and control the costs of each

DSM project. Daily time and material

reports referenced to the DSM activity

shall be kept to record labor and materials used as the activity(ies) is completed.

(4) All other disbursements for DSM

activities must be properly supported

by invoices, contracts, or other forms

of evidence required by RUS regulations. All such supporting material

shall be available at the borrower’s

premises for review by the RUS Field

Accountant, borrower’s certified public

accountant and other authorized parties as applicable. Costs of DSM activities related to operations and maintenance should be charged to expense in

the month incurred. Departures from

this prescribed accounting must be approved by RUS subject to the provisions of 7 CFR 1767.13.

(c) Requirements on advance of funds

for all insured electric loans are in 7

CFR part 1721, subpart B.

§ 1710.364 Loan limits.

Cumulative loans DSM activities at

the time of loan approval for, including

energy conservation programs and offgrid renewable energy systems, shall

not exceed the lesser of:

(a) Twenty percent of the borrower’s

equity at the time of the loan or any

time during amortization of the loan;

or

(b) An amount approved for such purposes in a final non-appealable order by

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§ 1710.400 7 CFR Ch. XVII (1–1–00 Edition)

the applicable regulatory body for inclusion in the borrower’s rate base.

Subpart I—Application Requirements and Procedures for Insured and Guaranteed Loans

SOURCE: 60 FR 3731, Jan. 19, 1995, unless

otherwise noted.

§ 1710.400 Initial contact.

(a) Loan applicants that do not have

outstanding loans from RUS should

write to the Rural Utilities Service Administration, United States Department of Agriculture, Washington, DC

20250–1500. A field or headquarters staff

representative may be assigned by RUS

to visit the applicant and discuss its financial needs and eligibility. Borrowers that have outstanding loans

should contact their assigned RUS general field representative (GFR) or, in

the case of a power supply borrower,

the Director, Power Supply Division.

Borrowers may consult with RUS field

representatives and headquarters staff,

as necessary.

(b) Before submitting an application

for an insured loan the borrower shall

ascertain from RUS the amount of supplemental financing required, as set

forth in §1710.110. If the borrower is applying for either a municipal rate loan

subject to the interest rate cap or a

hardship rate loan, the application

must provide a preliminary breakdown

of residential consumers either by

county or by census tract. Final data

must be included with the application.

See §1710.401(a)(8).

§ 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

RUS Form 726, Checklist for Electric

Loan Application, or a computer generated equivalent 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 RUS.

The board resolution shall include:

(i) The requested loan amount, loan

term, final maturity, and method of

amortization (§1710.110(b));

(ii) The sources and amounts of any

supplemental or other financing;

(iii) Authorization for RUS to release

appropriate information to supplemental or other lender(s), and authorization for these lenders to release appropriate information to RUS; 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) RUS 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

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Rural Utilities Service, USDA § 1710.401

such materials and funds to be applied

against the capital requirements estimated for the loan period.

(ii) Useful life of facilities financed by

the loan. Form 740c must include, as a

note, either a statement certifying

that at least 90 percent of the loan

funds are for facilities that have a useful life of 33 years or longer, or a schedule showing the costs and useful life of

those facilities with a useful life of less

than 33 years. This statement or schedule will be used to determine the final

maturity of the loan. See §1710.115.

(iii) 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 RUS

Form 740c. See §1710.109. If the borrower is not requesting reimbursement,

this schedule need not be submitted.

(iv) 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) RUS 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

RUS financing for any warehouse and

service type facilities included, and

funding requested for such facilities

shown on RUS 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 RUS Form 7; power supply borrowers shall use RUS Form 12. The

form shall contain the most recent

data available, which shall not be more

than 60 days old when received by RUS.

(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. This statement and the statements from counsel required by paragraphs (a)(7) and (15) of this section

may be combined into a single document.

(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

RUS loan, loan guarantee, or lien accommodation, if the requested loan

would cause the borrower to exceed its

previously authorized debt limit, or if

RUS otherwise determines it necessary. If there has been no material

change to the real property owned by

the borrower since the most recent

RUS 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 RUS:

(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 RUS 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

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§ 1710.401 7 CFR Ch. XVII (1–1–00 Edition)

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, RUS 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

§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 §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

§1710.124.

(12) Lobbying. The following information on lobbying is required pursuant

to 7 CFR part 3018 and §1710.125. Borrowers applying for both insured and

guaranteed financing should consult

RUS 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 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 RUS, or if this is a borrower’s first

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Rural Utilities Service, USDA § 1710.401

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 §§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. This

certification shall be included, 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 RUS approval.

(18) Additional supporting data. Additional supporting data may be required

by RUS 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 RUS, 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 §§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 RUS

with the following primary support

documents pursuant to §1710.152:

(1) Along with the loan application,

the borrower shall submit to RUS a

Long-Range Financial Forecast

(LRFF), that meets the requirements

of subpart G of this part. 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 RUS’s acceptance of the

loan application, the borrower shall

submit to RUS 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 RUS in a single

application package. The information

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§§ 1710.402—1710.403 7 CFR Ch. XVII (1–1–00 Edition)

required by paragraph (c)(2) of this section is generally submitted to, and approved by RUS before the application

is submitted.

(2) To facilitate loan review, RUS

urges borrowers to ensure that their

applications contain all of the information required by this section before

submitting the application to RUS.

Borrowers may consult with RUS field

representatives and headquarters staff

as necessary for assistance in preparing

loan applications.

(3) RUS may, in its discretion, return

an application to the borrower if the

application is not materially complete

to the satisfaction of RUS within 10

months of receipt of any of the items

listed in paragraph (a) or (b) of this

section. RUS 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 RUS if satisfactory

evidence is provided that all of the information required by this section will

be submitted to RUS 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 RUS to approve a loan is

materially complete in form and substance satisfactory to RUS.

(f) Change in borrower circumstances. A

borrower shall, after submitting a loan

application, promptly notify RUS 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, RUS 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 part 1714.

(Approved by the Office of Management and

Budget under control numbers 0572–0017,

0572–0032 and 0572–1013.)

§§ 1710.402—1710.403 [Reserved]

§ 1710.404 Additional requirements.

Additional requirements for insured

electric loans are set forth in 7 CFR

part 1714.

§ 1710.405 Supplemental financing documents.

(a) The borrower is responsible for

ensuring that the loan documents required for supplemental financing pursuant to §1710.110 are executed in a

timely fashion. These documents are

subject to RUS approval.

(b) Security. Any security offered by

the borrower to a supplemental lender

is subject to RUS approval.

§ 1710.406 Loan approval.

(a) A loan is approved when the Administrator signs the administrative

findings.

(b) If the loan is not approved, RUS

will notify the borrower of the reason.

§ 1710.407 Loan documents.

Following approval of a loan, RUS

will forward the loan documents to the

borrower for execution, delivery, recording, and filing, as directed by RUS.

PART 1714—PRE-LOAN POLICIES

AND PROCEDURES FOR INSURED

ELECTRIC LOANS

Subpart A—General

Sec.

1714.1 [Reserved]

1714.2 Definitions.

1714.3 Applicability of provisions.

1714.4 Interest rates.

1714.5 Determination of interest rates on

municipal rate loans.

1714.6 Interest rate term.

1714.7 Interest rate cap.

1714.8 Hardship rate loans.

1714.9 Prepayment of insured loans.

1714.10—1714.49 [Reserved]

Subpart B—Terms of Insured Loans

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.