```

[Code of Federal Regulations]
[Title 7, Volume 11, Parts 1600 to 1899]
[Revised as of January 1, 2000]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1710]

[Page 91-136]
 
PART 1710--GENERAL AND PRE-LOAN 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.

[[Page 92]]

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

Sec. 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,

[[Page 93]]

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]

Sec. 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:
[GRAPHIC] [TIFF OMITTED] TC16SE91.000

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 
``Demand-Side 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.

[[Page 94]]

    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:
    [GRAPHIC] [TIFF OMITTED] TR29DE95.000
    
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 
Sec. 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 Sec. 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

[[Page 95]]

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 Sec. 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:
[GRAPHIC] [TIFF OMITTED] TR29DE95.001

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. Off-grid systems are operated as an 
island and will have no direct impact on a utility system's physical 
operations.

[[Page 96]]

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:
[GRAPHIC] [TIFF OMITTED] TR29DE95.002

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:
    [GRAPHIC] [TIFF OMITTED] TC16SE91.001
    
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.

[[Page 97]]

    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:
[GRAPHIC] [TIFF OMITTED] TR29DE95.003

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.

[[Page 98]]

    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]

Sec. 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]

Sec. 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.

Sec. 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.

Sec. 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]

Sec. 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

[[Page 99]]

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

[[Page 100]]

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

[[Page 101]]

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,

[[Page 102]]

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 long-term 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

[[Page 103]]

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 
Sec. 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 Secs. 1710.201 and 1710.202;
    (iii) Requirement that borrowers follow RUS construction standards 
and use RUS accepted materials, as set forth in Sec. 1710.41, 
Sec. 1710.45, and 7 CFR part 1728;
    (iv) Requirement that borrowers maintain, on an ongoing basis, a 
long-range engineering plan and a construction work plan, as set forth 
in Sec. 1710.250(b);
    (v) Requirement that borrowers set rates for electric service 
sufficient to maintain certain coverage ratios, as set forth in 
Sec. 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, Secs. 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]

Secs. 1710.8--1710.49  [Reserved]

              Subpart B--Types of Loans and Loan Guarantees

Sec. 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

[[Page 104]]

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]

Sec. 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]

Secs. 1710.52--1710.99  [Reserved]

               Subpart C--Loan Purposes and Basic Policies

Sec. 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]

Sec. 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,

[[Page 105]]

Sec. 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]

Sec. 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 Sec. 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 Sec. 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 Sec. 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]

Sec. 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

[[Page 106]]

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]

Sec. 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]

Sec. 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]

Sec. 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 Sec. 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

[[Page 107]]

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 Sec. 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 Sec. 1710.355. The Administrator may approve a loan 
period shorter than the period requested by the borrower, if in the 
Administrator's sole discretion, a loan made for the longer period would 
fail to meet RUS requirements for loan feasibility and loan security set 
forth in Secs. 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

[[Page 108]]

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]

Sec. 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.

Sec. 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 Sec. 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.

Sec. 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

[[Page 109]]

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 Sec. 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]

Sec. 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 Sec. 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 
Sec. 1710.2, based on the most recent year-end data available on the 
date of loan approval, as follows:

------------------------------------------------------------------------
                                                       Supplemental loan
                         PRR                               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

[[Page 110]]

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)  x  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 x C<INF>1</INF>)+(B x C<INF>2</INF>)-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.
C<INF>1</INF> = The proportion (%) of supplemental financing required on 
the old loan according to paragraphs (a), (c)(1) and (c)(2) of this 
section.
C<INF>2</INF> = 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]

Sec. 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

[[Page 111]]

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 
Sec. 1710.109).

Sec. 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 Sec. 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.

[[Page 112]]

    (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]

Sec. 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]

Sec. 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.

[[Page 113]]

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

[[Page 114]]

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]

Sec. 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 
Sec. 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

[[Page 115]]

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]

Sec. 1710.116  [Reserved]

Sec. 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.

Sec. 1710.118  [Reserved]

Sec. 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]

Sec. 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.

Sec. 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.

Sec. 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.

Sec. 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.

Sec. 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

[[Page 116]]

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.

Sec. 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.

Sec. 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.

Sec. 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.

Secs. 1710.128--1710.149  [Reserved]

             Subpart D--Basic Requirements for Loan Approval

Sec. 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.

Sec. 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 Sec. 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 Sec. 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 Sec. 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 
Sec. 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

[[Page 117]]

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.

Sec. 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.

Sec. 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.

Secs. 1710.154--1710.199  [Reserved]

                  Subpart E--Power Requirements Studies

Sec. 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.

Sec. 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.

[[Page 118]]

    (b) A power supply borrower with total assets of less than $300 
million is not required to have a current, RUS-approved PRS on an 
ongoing basis but is required to provide a current, RUS-approved 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 Sec. 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 
Sec. 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 Sec. 1710.201(a)(1) if RUS determines the 
borrower is in substantial compliance with its RUS-approved 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.

Sec. 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 Sec. 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 Sec. 1710.201(c), 
are also subject to provisions of Sec. 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 Sec. 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 Sec. 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.

Sec. 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

[[Page 119]]

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 Sec. 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 RUS-borrower 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.

Sec. 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.

[[Page 120]]

    (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 Sec. 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]

Sec. 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.

Sec. 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)

Secs. 1710.207--1710.249  [Reserved]

         Subpart F--Construction Work Plans and Related Studies

Sec. 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),

[[Page 121]]

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 
short-term, 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

[[Page 122]]

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 long-range 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]

Sec. 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 Sec. 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]

Sec. 1710.252  Construction work plans--power supply borrowers.

    (a) All power supply borrowers must maintain a current CWP approved 
by

[[Page 123]]

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 
Sec. 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]

Sec. 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 purchased-power options are set 
forth in Sec. 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.

[[Page 124]]

Sec. 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

[[Page 125]]

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)

Secs. 1710.255--1710.299  [Reserved]

                Subpart G--Long-Range Financial Forecasts

Sec. 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 Sec. 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

[[Page 126]]

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]

Sec. 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 Sec. 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 computer-generated equivalent reports.

Sec. 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 Sec. 1710.303.
    (d) In addition to the requirements set forth in Sec. 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 year-by-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 
Sec. 1710.300(d)(5).

[[Page 127]]

    (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]

Sec. 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 Sec. 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 Secs. 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 non-capital-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)

Secs. 1710.304--1710.349  [Reserved]

     Subpart H--Demand Side Management and Renewable Energy Systems

    Source: 59 FR 496, Jan. 4, 1994, unless otherwise noted.

Sec. 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 on-grid 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.

[[Page 128]]

Sec. 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 Sec. 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 
Sec. 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.

Sec. 1710.352  General policy; energy resource conservation programs.

    This subpart does not replace the energy resource conservation 
program financed by deferments of loan principal.

Sec. 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 Sec. 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.

Sec. 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.

Sec. 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 
Sec. 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.

Sec. 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

[[Page 129]]

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 on-grid renewable energy systems.
    (3) An RUS approved IRP is required for all loans that include funds 
for off-grid 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 Secs. 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 
Secs. 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 
Sec. 1710.359.

Sec. 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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distribution borrowers, power supply borrowers or other industry 
recognized tests as applicable.

Sec. 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 Sec. 1710.359;
    (c) System specific load research and DSM pilot projects as required 
by Sec. 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.

Sec. 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.

Sec. 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

[[Page 131]]

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.

Sec. 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 
Secs. 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.

Sec. 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.

Sec. 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.

Sec. 1710.364  Loan limits.

    Cumulative loans DSM activities at the time of loan approval for, 
including energy conservation programs and off-grid 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

[[Page 132]]

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.

Sec. 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 Sec. 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 Sec. 1710.401(a)(8).

Sec. 1710.401  Loan application documents.

    (a) All borrowers. All applications for electric loans shall include 
the documents listed in this paragraph. The first page of the 
application shall be a list of the documents included in the 
application. The borrower may use 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 (Sec. 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

[[Page 133]]

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 Sec. 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 Sec. 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

[[Page 134]]

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 Sec. 1710.122.
    (10) Form AD-1047, Certification Regarding Debarment, Suspension, 
and Other Responsibility Matters--Primary Covered Transactions. This 
statement certifies that the borrower will comply with certain 
regulations on debarment and suspension required by Executive Order 
12549, Debarment and Suspension (3 CFR, 1986 Comp., p. 189). See 7 CFR 
part 3017 and Sec. 1710.123.
    (11) Uniform Relocation Act assurance statement. This assurance, 
which need not be resubmitted if previously submitted, provides that the 
borrower shall comply with 49 CFR part 24, which implements the Uniform 
Relocation Assistance and Real Property Acquisition Policy Act of 1970, 
as amended by the Uniform Relocation Act Amendments of 1987 and 1991. 
See Sec. 1710.124.
    (12) Lobbying. The following information on lobbying is required 
pursuant to 7 CFR part 3018 and Sec. 1710.125. Borrowers applying for 
both insured and guaranteed financing should consult 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

[[Page 135]]

application for a loan under the RE Act:
    (i) The borrower's articles of incorporation currently in effect, as 
filed with the appropriate state office, setting forth the borrower's 
corporate purpose; and
    (ii) The bylaws currently in effect, as adopted by the borrower's 
board of directors, setting forth the manner by which the borrower's 
organization will be governed and regulated.
    (15) State regulatory approvals. In states in which regulatory 
authorities have jurisdiction over the borrower's rates, the borrower 
must provide satisfactory evidence, pursuant to Secs. 1710.105 and 
1710.151(f), based on the information available, such as an opinion of 
counsel or of another qualified source, that the state regulatory 
authority will not exclude from the borrower's rate base any of the 
facilities included in the loan request, or otherwise prevent the 
borrower from charging rates sufficient to repay with interest the debt 
incurred for the facilities.
    (16) Seismic safety certifications. 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 Secs. 1710.103 and 1710.151(a).
    (c) Primary support documents. In addition to the loan application, 
consisting of the documents required by paragraphs (a) and (b) of this 
section, all borrowers must also provide RUS with the following primary 
support documents pursuant to Sec. 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

[[Page 136]]

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.)

Secs. 1710.402--1710.403  [Reserved]

Sec. 1710.404  Additional requirements.

    Additional requirements for insured electric loans are set forth in 
7 CFR part 1714.

Sec. 1710.405  Supplemental financing documents.

    (a) The borrower is responsible for ensuring that the loan documents 
required for supplemental financing pursuant to Sec. 1710.110 are 
executed in a timely fashion. These documents are subject to RUS 
approval.
    (b) Security. Any security offered by the borrower to a supplemental 
lender is subject to RUS approval.

Sec. 1710.406  Loan approval.

    (a) A loan is approved when the Administrator signs the 
administrative findings.
    (b) If the loan is not approved, RUS will notify the borrower of the 
reason.

Sec. 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.
```