[Title 7 CFR ]
[Code of Federal Regulations (annual edition) - January 1, 2012 Edition]
[From the U.S. Government Printing Office]



[[Page i]]

          

          Title 7

Agriculture


________________________

Parts 1600 to 1759

                         Revised as of January 1, 2012

          Containing a codification of documents of general 
          applicability and future effect

          As of January 1, 2012
                    Published by the Office of the Federal Register 
                    National Archives and Records Administration as a 
                    Special Edition of the Federal Register

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                            Table of Contents



                                                                    Page
  Explanation.................................................       v

  Title 7:
    SUBTITLE B--Regulations of the Department of Agriculture 
      (Continued)
          Chapter XVI--Rural Telephone Bank, Department of 
          Agriculture                                                5
          Chapter XVII--Rural Utilities Service, Department of 
          Agriculture                                               17
  Finding Aids:
      Table of CFR Titles and Chapters........................     795
      Alphabetical List of Agencies Appearing in the CFR......     815
      List of CFR Sections Affected...........................     825

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                     ----------------------------

                     Cite this Code: CFR
                     To cite the regulations in 
                       this volume use title, 
                       part and section number. 
                       Thus, 7 CFR 1600.1 refers 
                       to title 7, part 1600, 
                       section 1.

                     ----------------------------

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                               EXPLANATION

    The Code of Federal Regulations is a codification of the general and 
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parts covering specific regulatory areas.
    Each volume of the Code is revised at least once each calendar year 
and issued on a quarterly basis approximately as follows:

Title 1 through Title 16.................................as of January 1
Title 17 through Title 27..................................as of April 1
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    The appropriate revision date is printed on the cover of each 
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LEGAL STATUS

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HOW TO USE THE CODE OF FEDERAL REGULATIONS

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[[Page vi]]

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[[Page vii]]

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    Office of the Federal Register.
    January 1, 2012.







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                               THIS TITLE

    Title 7--Agriculture is composed of fifteen volumes. The parts in 
these volumes are arranged in the following order: Parts 1-26, 27-52, 
53-209, 210-299, 300-399, 400-699, 700-899, 900-999, 1000-1199, 1200-
1599, 1600-1759, 1760-1939, 1940-1949, 1950-1999, and part 2000 to end. 
The contents of these volumes represent all current regulations codified 
under this title of the CFR as of January 1, 2012.

    The Food and Nutrition Service current regulations in the volume 
containing parts 210-299, include the Child Nutrition Programs and the 
Food Stamp Program. The regulations of the Federal Crop Insurance 
Corporation are found in the volume containing parts 400-699.

    All marketing agreements and orders for fruits, vegetables and nuts 
appear in the one volume containing parts 900-999. All marketing 
agreements and orders for milk appear in the volume containing parts 
1000-1199.

    For this volume, Robert J. Sheehan, III was Chief Editor. The Code 
of Federal Regulations publication program is under the direction of 
Michael L. White, assisted by Ann Worley.


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                          TITLE 7--AGRICULTURE




                 (This book contains parts 1600 to 1759)

  --------------------------------------------------------------------

  SUBTITLE B--Regulations of the Department of Agriculture (Continued)

                                                                    Part

chapter xvi--Rural Telephone Bank, Department of Agriculture        1600

chapter xvii--Rural Utilities Service, Department of 
  Agriculture...............................................        1700

[[Page 3]]

  Subtitle B--Regulations of the Department of Agriculture (Continued)

[[Page 5]]



      CHAPTER XVI--RURAL TELEPHONE BANK, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
1600            General information.........................           7
1610            Loan policies...............................          10

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PART 1600_GENERAL INFORMATION--Table of Contents



     Meetings of the Board of Directors of the Rural Telephone Bank

Sec.
1600.1 General.
1600.2 Definitions.
1600.3 Open meetings.
1600.4 Scheduling of meetings.
1600.5 Public announcement of meetings.
1600.6 Bases for closing a meeting to the public.
1600.7 Procedures for closing a meeting to the public.
1600.8 Transcript, recording or minutes; availability to the public.

    Authority: 7 U.S.C. 941 et seq.; Pub. L. 103-354, 108 Stat. 3178 (7 
U.S.C. 6941 et seq.).

    Source: 56 FR 49134, Sept. 27, 1991, unless otherwise noted.

     Meetings of the Board of Directors of the Rural Telephone Bank



Sec. 1600.1  General.

    The purpose of this part is to effectuate the provisions of the 
Government in the Sunshine Act. This part applies to the deliberations 
of a quorum of the Directors of the Bank required to take action on 
behalf of the Bank where such deliberations determine or result in the 
joint conduct or disposition of official Bank business. Any deliberation 
to which this part applies is hereinafter in this part referred to as a 
meeting of the Board of Directors.



Sec. 1600.2  Definitions.

    As used in this part:
    Board means Board of Directors of the Rural Telephone Bank (Bank).
    Director means an individual who is a member of the Board.
    Legal Counsel means the legal counsel of the Bank.
    Meeting means the deliberations (including those conducted by 
conference telephone call or by any other method) among a quorum of the 
Directors, where such deliberations determine or result in joint conduct 
of official business of the Board. For purposes of this part, each item 
on the agenda of a meeting is considered a meeting or a portion of a 
meeting. To the extent that the discussions do not result in the 
beginning of deliberations or achieve a consensus on a matter of 
official agency business or effectively predetermine official actions, 
the term Meeting does not include:
    (1) Deliberations to determine whether a meeting or portions of a 
meeting will be open or closed or whether information pertaining to 
closed meetings will be disclosed;
    (2) Calling a meeting at a date earlier than announced as provided 
in Sec. 1600.5;
    (3) Changing the subject matter of a publicly announced meeting as 
provided in Sec. 1600.5;
    (4) Disposition of Board business by circulation of materials to 
individual Board members;
    (5) Staff briefings of Board members;
    (6) Informal background discussions among Board members and staff 
which clarify issues and expose varying views; or
    (7) Sessions with individuals from outside the Bank where Board 
members listen to a presentation and may elicit additional information.
    Open to public observation means the right of any member of the 
public to attend and observe, but not participate or interfere in any 
way in an open meeting of the Board.



Sec. 1600.3  Open meetings.

    (a) Except as provided for in Sec. 1600.6 every portion of every 
meeting of the Board shall be open to public observation. Observation 
does not include participation or disruptive conduct by observers, and 
persons engaging in such conduct will be removed from the meeting. 
Documents being considered at meetings of the Board may be obtained 
subject to the exemptions set forth in Sec. 1600.8.
    (b) Board members shall not jointly conduct or dispose of official 
Board business other than in accordance with this part.
    (c) The Secretary of the Board shall be responsible for assuring 
that ample space, sufficient visibility, and adequate acoustics are 
provided for public observation of meetings of the Board.



Sec. 1600.4  Scheduling of meetings.

    A decision to hold a meeting of the Board should be made as provided 
in the bylaws of the Bank and at least ten days prior to the scheduled 
meeting date in order for the Secretary of the

[[Page 8]]

Bank to give the public notice required by Sec. 1600.5. Special 
meetings of the Board may be held on less than ten days notice if a 
majority of the Board determines by a recorded vote that Bank business 
requires that the special meeting be held on less than ten days notice. 
After public announcement of a meeting of the Board under the provisions 
of Sec. 1600.5, the subject matter thereof, or the determination to 
open or close a meeting, or portion thereof, may only be changed if a 
majority of the Directors determines by a recorded vote that business so 
requires and that no earlier announcement of the change is possible.



Sec. 1600.5  Public announcement of meetings.

    (a) Except as otherwise provided in this section, public 
announcement of open meetings and meetings or portions thereof closed 
under Sec. 1600.7 will be made at least seven days in advance of each 
meeting. Except to the extent that such information is determined to be 
exempt from disclosure under Sec. 1600.6, each such public announcement 
will state the time, place, and subject matter of the meeting, whether 
it is to be open or closed to the public, and the name and telephone 
number of the official designated to respond to requests for information 
about the meeting. Each such announcement shall be submitted for 
publication in the Federal Register. Copies of the announcement shall 
also be mailed to holders of Class B and Class C Bank stock.
    (b) If a meeting is closed, the Board may omit from the announcement 
information usually included, if and to the extent that it finds that 
disclosure would be likely to have any of the consequences listed in 
Sec. 1600.6.
    (c) Where a majority of the Board members determine by recorded vote 
that Bank business requires that a meeting be called on less than ten 
days notice, public announcement shall be made at the earliest 
practicable time. Such announcement will state the time, place, and the 
subject matter of the meeting, whether it is to be open or closed to the 
public, and the name and telephone number of the official designated to 
respond to requests for information about the meeting.
    (d) The time or place of a meeting may be changed following the 
public announcement required by paragraph (a) of this section only if 
the Secretary publicly announces such change at the earliest practicable 
time. The subject matter of a meeting, or the determination of the Board 
to open or close a meeting, or portion of a meeting, to the public, may 
be changed following the public announcement required by this section 
only if:
    (1) A majority of the Directors determines by a recorded vote that 
business so requires and that no earlier announcement of the change was 
possible; and
    (2) The Secretary publicly announces such change and the vote of 
each Director upon such change at the earliest practicable time.
    (e) The earliest practicable time, as used in this subsection, means 
as soon as possible, which should in few, if any, instances be later 
than the commencement of the meeting or portion in question.
    (f) Each person interested in attending an open meeting of the Board 
should notify the Assistant Secretary of the Board at least one business 
day prior to the open meeting of their intention to attend the meeting. 
Any person who fails to do so may not be accommodated if there is 
insufficient space in the meeting room.



Sec. 1600.6  Bases for closing a meeting to the public.

    (a) A portion or portions of a Board meeting may be closed to the 
public and any information pertaining to such meeting otherwise required 
by Sec. 1600.3 to be disclosed to the public may be withheld, where the 
Board determines that public disclosure of information to be discussed 
at such meetings is likely to:
    (1) Disclose matters that are:
    (i) Specifically authorized under criteria established by an 
Executive Order to be kept secret in the interests of national defense 
or foreign policy; and
    (ii) In fact properly classified pursuant to such Executive Order.
    (2) Relate solely to the internal personnel rules and practices of 
the Bank;
    (3) Disclose matters specifically exempted from disclosure by 
statute

[[Page 9]]

(other than the Freedom of Information Act, 5 U.S.C. 552), provided that 
such statute:
    (i) Requires that the matters be withheld from the public in such a 
manner as to leave no discretion on the issue; or
    (ii) Establishes particular criteria for withholding or refers to 
particular types of matters to be withheld.
    (4) Disclose trade secrets and commercial or financial information 
obtained from a person and privileged or confidential;
    (5) Involve accusing any person of a crime, or formally censuring 
any person;
    (6) Disclose information of a personal nature where disclosure would 
constitute a clearly unwarranted invasion of personal privacy;
    (7) Disclose investigatory records compiled for law enforcement 
purposes, or information which if written would be contained in such 
records, but only to the extent that the production of such records or 
information would:
    (i) Interfere with enforcement proceedings;
    (ii) Deprive a person of a right to a fair trial or to an impartial 
adjudication;
    (iii) Constitute an unwarranted invasion of personal privacy;
    (iv) Disclose the identity of a confidential source, and, in the 
case of a record compiled by a criminal enforcement authority in the 
course of a criminal investigation, or by an agency conducting a lawful 
national security intelligence investigation, confidential information 
furnished only by the confidential source;
    (v) Disclose investigative techniques and procedures; or
    (vi) Endanger the life or physical safety of law enforcement 
personnel.
    (8) Disclose information contained in or related to examination, 
operating, or condition reports prepared by, on behalf of, or for the 
use of the Bank or any other agency responsible for the regulation or 
supervision of financial institutions;
    (9) Disclose information the premature disclosure of which would be 
likely to significantly frustrate implementation of a proposed action of 
the Board or of another agency, except that this shall not apply in any 
instance where the content or nature of the proposed action has already 
been disclosed to the public or where the Board is required by law to 
make such disclosure on its own initiative prior to taking final action 
on such proposal; or
    (10) Specifically concern the Board's participation in a civil 
action or proceeding, an action in a foreign court or international 
tribunal, or an arbitration, or the initiation, conduct, or disposition 
by the Board of a particular case of formal agency adjudication pursuant 
to the procedures in 5 U.S.C. 554 or otherwise involving a determination 
on the record after opportunity for a hearing.
    (b) Any Board meeting or portion thereof, which may be closed, or 
any information which may be withheld under paragraph (a) of this 
section, will not be closed or withheld, respectively, in any case where 
the Board finds the public interest requires otherwise.



Sec. 1600.7  Procedures for closing a meeting to the public.

    (a) A majority of all Directors may vote to close a meeting or 
withhold information pertaining to that meeting. A separate vote shall 
be taken with respect to any action under Sec. 1600.6(a). A majority of 
the Board may act by taking a single vote with respect to a series of 
meetings, a portion or portions of which are proposed to be closed to 
the public, or with respect to any information concerning such series of 
meetings, so long as each meeting in such series involves the same 
particular subject matter and is scheduled to be held no more than 
thirty days after the initial meeting in such series. The vote of each 
Director participating in such vote shall be recorded and no proxy shall 
be allowed.
    (b) Whenever any person whose interests may be directly affected by 
a portion of the Board's meeting requests that the Board close such 
portion to the public on the basis of exemptions in paragraph (a)(5), 
(a)(6), or (a)(7) of Sec. 1600.6, the Board, upon request of any one of 
its members, will vote whether or not to close such portion of the 
meeting. The vote of each Director participating in such vote shall be 
recorded and no proxy shall be allowed.

[[Page 10]]

    (c) Before every Board meeting closed on the basis of one or more of 
the exemptions in Sec. 1600.6(a), the Legal Counsel will publicly 
certify that, in Counsel's opinion, the meeting may be closed to the 
public and shall state each relevant exemption.
    (d) Within one business day after any vote taken pursuant to 
paragraph (a), (b), or (c) of this section, the Board will make publicly 
available a written copy of the vote, reflecting the vote of each Board 
member. Except to the extent that such information is exempt from 
disclosure, if a meeting or portion of a meeting is to be closed to the 
public, the Board will make publicly available within one business day 
after the required vote a full written explanation of its action, 
together with a list of all persons expected to attend the meeting and 
their affiliation.



Sec. 1600.8  Transcript, recording or minutes; availability to the public.

    (a) The Secretary of the Board will maintain the following records 
for each Board meeting, or portion thereof which is closed to the public 
pursuant to a vote under Sec. 1600.7:
    (1) A copy of the Legal Counsel's certification required by Sec. 
1600.7;
    (2) A copy of a statement from the presiding officer which sets 
forth the time and place of the closed meeting or portion thereof and a 
list of persons present; and
    (3) A complete verbatim transcript or electronic recording adequate 
to record fully the proceedings of each Board meeting or portion of a 
meeting, except that in the case of a meeting or portion of a meeting 
closed to the public on the basis of exemptions in paragraph (a)(8) or 
(a)(10) of Sec. 1600.6, the Secretary of the Board will maintain either 
a transcript, electronic recording, or a complete set of minutes. Such 
minutes shall fully and clearly describe all matters discussed and shall 
provide a full and accurate summary of actions taken and the reasons 
therefor, including a description of each of the views expressed on any 
item and the record of all roll-call vote reflecting the vote of each 
member of the question. All documents considered in connection with any 
action will be identified in such minutes.
    (b) The retention period for the records required by paragraph (a) 
of this section will be for a period of at least two years after the 
particular Board meeting or until one year after the conclusion of any 
Board proceeding with respect to which the meeting or portion thereof 
was held, whichever occurs later.
    (c) The Secretary of the Board will make promptly available to the 
public the transcript, electronic recording, transcription of the 
recording, or minutes of the discussion of any item on the agenda of a 
Board meeting, except for such item or items of such discussion as the 
Board determines to contain information which may be withheld on the 
basis of one or more of the exemptions in Sec. 1600.6.
    (d) Requests for public inspection of electronic recording, 
transcripts or minutes of Board meetings shall be made to the Assistant 
Secretary of the Board of Directors of the Rural Telephone Bank, room 
4051-South Building, U.S. Department of Agriculture, 14th Street and 
Independence Avenue SW., Washington, DC 20250. Requests for inspection 
or copies of transcripts shall specify the date of the meeting, the name 
of the agenda and the agenda item number; this information will appear 
in the notice of the meeting.
    (e) The transcripts, minutes, or transcriptions of electronic 
recordings of a Board meeting will disclose the identity of each 
speaker, and will be furnished to any person at the actual cost of 
transcription or duplication.



PART 1610_LOAN POLICIES--Table of Contents



Sec.
1610.1 General.
1610.2 Definitions.
1610.3 Loan authorizations.
1610.4 Loan applications.
1610.5 Minimum Bank loan.
1610.6 Concurrent Bank and RUS cost-of-money loans.
1610.7 Acquisition of certain exchange facilities.
1610.8 Adoption of applicable RUS policy.
1610.9 Class B stock.
1610.10 Determination of interest rate on Bank loans.
1610.11 Prepayments.

    Authority: 7 U.S.C. 941 et seq.; Pub. L. 103-354, 108 Stat. 3178 (7 
U.S.C. 6941 et seq.).

[[Page 11]]


    Source: 38 FR 17184, June 29, 1973, unless otherwise noted.



Sec. 1610.1  General.

    Loans made by the Governor of the Rural Telephone Bank (the 
``Bank'') will be made in conformance with title IV of the Rural 
Electrification Act of 1936 (the ``Act''), as amended (7 U.S.C. 941 et 
seq.), and this part 1610. Loans are made under section 408(a)(1) of the 
Act for purposes of section 201 of the Act. Loans are also made for 
purposes of section 408(a)(2) of the Act. The Bank will give preference 
to the use of loan funds for purposes set forth in section 408(a)(2) of 
the Act to the extent that it has completed applications for such loans.

[38 FR 17184, June 29, 1973, as amended at 58 FR 66252, Dec. 20, 1993]



Sec. 1610.2  Definitions.

    As used in this part:
    Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    Appropriated means funds appropriated based on subsidy.
    Bank means the Rural Telephone Bank, an agency and instrumentality 
of the United States within the United States Department of Agriculture.
    Borrower means any organization which has an outstanding telephone 
loan made by the Bank or RUS, or guaranteed by RUS, or which is seeking 
such financing.
    Governor means the Governor of the Bank.
    REA means the Rural Electrification Administration, formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub.L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    RUS cost-of-money-loan means a loan made under section 305(d)(2) of 
the Act bearing an interest rate as determined under 7 CFR 1735.31(c). 
RUS cost-of-money loans are made concurrently with Bank loans.
    TIER (Times Interest Earned Ratio) means the ratio of the borrower's 
net income (after taxes) plus interest expense, all divided by interest 
expense. For the purpose of this calculation, all amounts will be annual 
figures and interest expense will include only interest on debt with a 
maturity greater than one year.

[58 FR 66252, Dec. 20, 1993, as amended at 59 FR 66439, Dec. 27, 1994]



Sec. 1610.3  Loan authorizations.

    The aggregate amount of loans made will not exceed the amount 
authorized by the Board of Directors (the ``Board'') of the Bank.

[38 FR 17184, June 29, 1973. Redesignated at 58 FR 66252, Dec. 20, 1993]



Sec. 1610.4  Loan applications.

    No application for a loan will be considered for approval by the 
Bank until it has been reviewed by RUS and the Governor has determined, 
based on such review, the eligibility of the applicant for a Bank loan 
and the amount thereof. Loan application forms are available from RUS on 
request. No fees or charges are assessed for Bank loans.

[58 FR 66252, Dec. 20, 1993]



Sec. 1610.5  Minimum Bank loan.

    A Bank loan will not be made unless the applicant qualifies for a 
Bank loan of at least $50,000.

[38 FR 17184, June 29, 1973. Redesignated at 58 FR 66252, Dec. 20, 1993]



Sec. 1610.6  Concurrent Bank and RUS cost-of-money loans.

    (a) The Bank makes loans, under section 408 of the Act, concurrently 
with RUS cost-of-money loans made under section 305(d)(2) of the Act. To 
qualify for concurrent Bank and RUS cost-of-money loans on or after 
November 1, 1993, a borrower must meet each of the following 
requirements:
    (1) The average number of proposed subscribers per mile of line in 
the service area of the borrower is not more than 15, or the borrower 
has a projected TIER (including the proposed loans) of

[[Page 12]]

at least 1.0, but not greater than 5.0, as determined by the feasibility 
study prepared in connection with the loans, see 7 CFR part 1737, 
subpart H; and
    (2) The Administrator of RUS has approved and the borrower is 
participating in a telecommunications modernization plan for the state, 
see 7 CFR part 1751, subpart B.
    (b) The loan amounts from each program (Bank, including amounts for 
class B stock, and RUS cost-of-money) will be proportionate to the total 
amount of funds appropriated for the fiscal year for Bank loans and RUS 
cost-of-money loans. To determine the Bank portion, the total loan 
amount will be multiplied by the ratio of Bank funds appropriated for 
the fiscal year to the sum of RUS cost-of-money and Bank funds 
appropriated for the fiscal year in which the loan is approved. The same 
method would be used to calculate the RUS cost-of-money portion (see 7 
CFR 1735.31(b)). If during the fiscal year the amount of funds 
appropriated changes, the ratio will be adjusted accordingly and applied 
only to those loans approved afterwards.
    (c) The actual rate of interest on the Bank loan shall be determined 
as provided in Sec. 1610.10; the RUS cost-of-money loan shall bear 
interest at a rate equal to the current cost of money to the Federal 
Government, on the date of advance of funds to the borrower, for loans 
of similar maturity, but not more than 7 percent per year (see 7 CFR 
1735.31(c)).
    (d) Generally, no more than 10 percent of lending authority from 
appropriations in any fiscal year for Bank and RUS cost-of-money loans 
may be loaned to a single borrower. The Bank will publish by notice in 
the Federal Register the dollar limit that may be loaned to a single 
borrower in that particular fiscal year based on approved Bank and RUS 
lending authority.

[58 FR 66252, Dec. 20, 1993, as amended at 62 FR 46869, Sept. 5, 1997]



Sec. 1610.7  Acquisition of certain exchange facilities.

    In the interest of making optimum use of the Bank's loan funds, a 
Bank loan for the acquisition of exchange facilities under section 
408(a)(2) of the Act (7 U.S.C. 948(a)(2)) will not be recommended by the 
Governor for approval by the Secretary of Agriculture unless the 
Governor determines that the acquisition is reasonably necessary to 
improve the efficiency, effectiveness, or financial stability of the 
borrower's telephone system, that the location and character of the 
proposed acquisition are such that the acquisition is reasonably 
necessary to accomplish such improvement, and that the amount of the 
requested loan for such acquisition is reasonably justified by the 
nature and scope of the improvement which the acquisition would effect.



Sec. 1610.8  Adoption of applicable RUS policy.

    The policies embodied in 7 CFR part 1610, in all parts of 7 CFR 
chapter XVII except those identified below, will be utilized by the 
Governor in carrying out the Bank's loan program to the extent that such 
policies are consistent with title IV of the Act (7 U.S.C. 941 et seq.) 
and to the extent that policies in 7 CFR chapter XVII are consistent 
with 7 CFR part 1610. The parts of 7 CFR chapter XVII applicable solely 
to the Electric Program and thus exceptions to this section are parts 
1710 through 1734 inclusive.

[55 FR 39397, Sept. 27, 1990]



Sec. 1610.9  Class B stock.

    Borrowers receiving loans from the Bank shall be required to invest 
in class B stock at 5 percent of the total amount of loan funds 
advanced. Borrowers may purchase class B stock by:
    (1) Paying an amount (using their own general funds) equal to 5 
percent of the amount, exclusive of the amount for class B stock, of 
each loan advance, at the time of such advance; or
    (2) Requesting that funds for the purchase of class B stock be 
included in the loan. If funds for class B stock are included in a loan, 
the funds for class B stock shall be advanced in an amount equal to 5 
percent of the amount, exclusive of the amount for class B stock, of 
each loan fund advance, at the time of such advance.

[56 FR 26596, June 10, 1991]

[[Page 13]]



Sec. 1610.10  Determination of interest rate on Bank loans.

    (a) All loan fund advances made on or after December 22, 1987 under 
Bank loans approved on or after October 1, 1987, shall bear interest at 
the rate determined as established below, but not less than 5 percent 
per annum.
    (b) The interest rate for the period beginning on the date the 
advance is made and ending at the close of the fiscal year in which the 
advance is made shall be the average yield on the date of advance on 
outstanding marketable obligations of the United States having a final 
maturity comparable to the final maturity of the advance. The interest 
rate shall be determined to the nearest 0.01 percent.
    (1) For this determination, the Bank will use yields on actively 
traded Treasury issues adjusted to constant maturities obtained from the 
Federal Reserve statistical release (``Treasury rate''). In accordance 
with standard Treasury procedures, the rate in effect for any given day 
is the rate set at the close of business on the preceding day. The 30-
year Treasury rate will be applied to all advances with a final maturity 
of at least 30 years from date of advance. A straight-line interpolation 
between other Treasury rates will be used to determine the rate 
applicable for advances with final maturities of less than 30 years.
    (2) The Bank will notify the borrower in writing of the interest 
rate that applies to each advance.
    (c) After the fiscal year in which the advance is made, the interest 
rate applied to the advance will be the sum of the calculations made in 
paragraphs (c) (1) through (5) of this section. This interest rate 
determination shall be made by the Governor within 30 days of the end of 
each fiscal year and shall be determined to the nearest 0.01 percent.
    (1) The aggregate of all amounts received by the Bank during the 
fiscal year from the issuance of Class A stock, multiplied by the rate 
of return payable by the Bank during the fiscal year as specified in 
section 406(c) of the Act, which product is divided by the aggregate of 
the amounts advanced by the Bank during the fiscal year.
    (2) The aggregate of all amounts received by the Bank during the 
fiscal year from the issuance of Class B stock, multiplied by the rate 
at which dividends are payable by the Bank during the fiscal year as 
specified in section 406(d) of the Act, which product is divided by the 
aggregate of the amounts advanced by the Bank during the fiscal year. 
Section 406(d) provides that ``No dividends shall be payable on Class B 
stock.'' The ``amounts received by the Bank during the fiscal year from 
the issuance of Class B stock'' means the amount of cash received during 
the fiscal year for the purchase of Class B stock, plus the amount 
advanced to borrowers by the Bank during the fiscal year for such 
purchases, less any Class B stock that is rescinded during the fiscal 
year.
    (3) The aggregate of all amounts received by the Bank during the 
fiscal year from the issuance of Class C stock, multiplied by the rate 
at which dividends are payable by the Bank during the fiscal year as 
specified in section 406(e) of the Act, which product is divided by the 
aggregate of the amounts advanced by the Bank during the fiscal year.
    (4) The amounts received by the Bank during the fiscal year from 
each issue of telephone debentures and other obligations of the Bank, 
multiplied, respectively, by the rates at which interest is payable by 
the Bank during the fiscal year to holders of each issue, each of which 
product is divided, respectively, by the aggregate of the amounts 
advanced by the Bank during the fiscal year.
    (5) The amount by which the aggregate of the amounts advanced by the 
Bank during the fiscal year exceeds the aggregate of the amount received 
by the Bank from the issuance of Class A stock, Class B stock, Class C 
stock, and telephone debentures and other obligations of the Bank during 
the fiscal year, multiplied by the historic cost of money rate as of the 
close of the immediately preceding fiscal year, which product is divided 
by the aggregate of the amounts advanced by the Bank during the fiscal 
year.
    (6) As used in paragraph (c)(5) of this section, the term ``historic 
cost of money rate as of the close of the immediately preceding fiscal 
year,'' means the sums of the results of the following

[[Page 14]]

calculations: The amounts advanced by the Bank in each fiscal year 
during the period beginning with fiscal year 1974 and ending with the 
immediately preceding fiscal year, multiplied, respectively, by the cost 
of money rate for the fiscal year (as set forth in Table I for fiscal 
years 1974 through 1987, and as determined by the Governor in paragraphs 
(c) (1) through (5) of this section for fiscal years after fiscal year 
1987), with each product then divided by the aggregate of the amounts 
advanced by the Bank from the beginning of fiscal year 1974 through the 
end of the fiscal year just ended.

                                 Table I
------------------------------------------------------------------------
                                            The cost of money rate shall
     For advances made in fiscal year:                   be:
------------------------------------------------------------------------
1974......................................  5.01 percent.
1975......................................  5.85 percent.
1976......................................  5.33 percent.
1977......................................  5.00 percent.
1978......................................  5.87 percent.
1979......................................  5.93 percent.
1980......................................  8.10 percent.
1981......................................  9.46 percent.
1982......................................  8.39 percent.
1983......................................  6.99 percent.
1984......................................  6.55 percent.
1985......................................  5.00 percent.
1986......................................  5.00 percent.
1987......................................  5.00 percent.
------------------------------------------------------------------------
In this table, ``fiscal year'' means the 12-month period ending on
  September 30 of the designated year.

    (d) A borrower with a Bank loan approved on or after October 1, 
1987, and before December 22, 1987, and with funds not fully advanced as 
of December 22, 1987, may until the next advance under the loan or March 
21, 1988, whichever is later, elect to have the interest rate specified 
in the loan commitment apply to the unadvanced portion in lieu of the 
rate which would otherwise apply as set forth in Sec. 1610.10(a). A 
borrower making such an election shall contact, in writing, the 
applicable Area Office of RUS. The Governor shall then adjust the 
interest rate that applies to the unadvanced portion of the loan 
accordingly.
    (e) If the Bank, pursuant to section 407(b) of the Act, issues 
telephone debentures to refinance outstanding telephone debentures or 
other obligations, the Bank shall reduce the interest rate charged on 
each advance of Bank loan funds made during the fiscal year(s) in which 
the refinanced debentures or other obligations were originally issued. 
The reduction shall be for the period beginning on the issue date of the 
refinancing debentures and ending on the date the advance matures or is 
completely prepaid, whichever is earlier. This reduction shall be in 
addition to any other interest rate reduction required by section 
408(b)(3) of the Act. The interest rate shall be reduced by the amount 
which fully reflects that percentage of the funds saved by the Bank as a 
result of the refinancing which is equal to the percentage 
representation of the advance of all advances made during the fiscal 
year(s) involved. In no case, however, shall the interest rate be 
reduced to less than 5 percent per annum. The interest rate reduction 
for each advance shall be determined as follows:
    (1) The funds saved by the Bank as a result of the refinancing shall 
be computed.
    (2) The advance shall be divided by the total of all advances made 
during the fiscal year(s) involved, and stated to the nearest .01 
percent.
    (3) The percentage in paragraph (e)(2) of this section is multiplied 
by the amount in paragraph (e)(1) of this section to determine the 
savings for a particular advance. The interest rate on that advance is 
then reduced to fully reflect the savings over the remaining 
amortization period of the loan from which the advance was made.
    (f) Within 60 days after the issue date described in paragraph (e) 
of this section, the Governor shall amend the loan documentation for 
each advance described in paragraph (e) of this section, as necessary, 
to reflect any interest rate reduction applicable to the advance by 
reason of paragraph (e) of this section, and shall notify each affected 
borrower of the reduction.
    (g) Within 5 days of determining the cost of money rate for a fiscal 
year, the Governor shall:
    (1) Cause the determination to be published in the Federal Register 
in accordance with section 552 of title 5, United States Code, and
    (2) Furnish a copy of the determination to the Comptroller General 
of the United States.
    (h) A borrower should not wait until the end of the fiscal year to 
submit a

[[Page 15]]

requisition for an advance of loan funds if it wants the advance made in 
that fiscal year. Borrower requisitions submitted late in the fiscal 
year may not be processed in that fiscal year because of workload and 
other factors.

[53 FR 36783, Sept. 22, 1988; 53 FR 39014, Oct. 4, 1988]



Sec. 1610.11  Prepayments.

    (a) Bank loans approved before November 1, 1993, may be prepaid in 
accordance with the terms thereof, including payment of the premium as 
provided therein.
    (b) A borrower may prepay part or all of a Bank loan made on or 
after November 1, 1993, by paying the outstanding principal and any 
accrued interest without being required to pay a prepayment premium.
    (c) Borrowers that qualify to issue a refunding note or notes in 
accordance with 7 CFR 1735.43, Payments on loans, shall not be required 
to pay a prepayment premium on all payments made in accordance with the 
new payment schedule.

[58 FR 66252, Dec. 20, 1993, as amended at 62 FR 46869, Sept. 5, 1997]

[[Page 17]]



    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE




  --------------------------------------------------------------------
Part                                                                Page
1700            General information.........................          19
1703            Rural development...........................          26
1709            Assistance to high energy cost communities..          59
1710            General and pre-loan policies and procedures 
                    common to electric loans and guarantees.          77
1714            Pre-loan policies and procedures for insured 
                    electric loans..........................         116
1717            Post-loan policies and procedures common to 
                    insured and guaranteed electric loans...         122
1718            Loan security documents for electric 
                    borrowers...............................         172
1720            Guarantees for bonds and notes issued for 
                    electrification or telephone purposes...         213
1721            Post-loan policies and procedures for 
                    insured electric loans..................         220
1724            Electric engineering, architectural services 
                    and design policies and procedures......         225
1726            Electric system construction policies and 
                    procedures..............................         238
1728            Electric standards and specifications for 
                    materials and construction..............         262
1730            Electric system operations and maintenance..         286
1735            General policies, types of loans, loan 
                    requirements--telecommunications program         294
1737            Pre-loan policies and procedures common to 
                    insured and guaranteed 
                    telecommunications loans................         319
1738            Rural broadband access loans and loan 
                    guarantees..............................         334
1739            Broadband grant program.....................         354
1740            Public television station digital transition 
                    grant program...........................         361
1741            Pre-loan policies and procedures for insured 
                    telephone loans [Reserved]

1744            Post-loan policies and procedures common to 
                    guaranteed and insured telephone loans..         365
1748            Post-loan policies and procedures for insured 
                    telephone loans [Reserved]

[[Page 18]]

1751            Telecommunications system planning and 
                    design criteria, and procedures.........         392
1753            Telecommunications system construction 
                    policies and procedures.................         397
1755            Telecommunications policies on 
                    specifications, acceptable materials, 
                    and standard contract forms.............         434
1757            Telephone systems operations and maintenance 
                    [Reserved]

[[Page 19]]



PART 1700_GENERAL INFORMATION--Table of Contents



                            Subpart A_General

Sec.
1700.1 General.
1700.2 Availability of information.
1700.3 Requests under the Freedom of Information Act.
1700.4 Public comments on proposed rules.
1700.5-1700.24 [Reserved]

               Subpart B_Agency Organization and Functions

1700.25 Office of the Administrator.
1700.26 Deputy Administrator.
1700.27 Chief of Staff.
1700.28 Electric Program.
1700.29 Telecommunications Program.
1700.30 Water and Environmental Programs.
1700.31 Distance Learning and Telemedicine Loan and Grant Program.
1700.32 Program Accounting and Regulatory Analysis.
1700.33 Financial Services Staff.
1700.34 Assistance to High Energy Cost Rural Communities.
1700.35-1700.49 [Reserved]

              Subpart C_Loan and Grant Approval Authorities

1700.50-1700.52 [Reserved]
1700.53 Persons serving as Acting Administrator.
1700.54 Electric Program.
1700.55 Telecommunications Program.
1700.56 Water and Environmental Programs.
1700.57 Distance Learning and Telemedicine Loan and Grant Program.
1700.58 Assistance to high energy cost rural communities.

    Authority: 5 U.S.C. 301, 552; 7 U.S.C. 901 et seq., 1921 et seq., 
6941 et seq.; 7 CFR 2.7.

    Source: 63 FR 16085, Apr. 2, 1998, unless otherwise noted.



                            Subpart A_General



Sec. 1700.1  General.

    (a) The Rural Electrification Administration (REA) was established 
by Executive Order No. 7037 on May 11, 1935. Statutory authority was 
provided by the Rural Electrification Act of 1936 (RE Act) (7 U.S.C. 
901). The RE Act established REA as a lending agency with responsibility 
for developing a program for rural electrification.
    (b) On October 28, 1949, the RE Act was amended to authorize REA to 
make loans to improve and extend telephone service in rural areas. The 
Rural Telephone Bank (RTB), an agency of the United States, was 
established by amendment to the RE Act, approved May 7, 1971. The 
Administrator of RUS serves as the Bank's chief executive with the title 
of Governor.
    (c) The Secretary of Agriculture (Secretary) established the Rural 
Utilities Service (RUS) on October 20, 1994, pursuant to the Department 
of Agriculture Reorganization Act of 1994, (7 U.S.C. 6941 et seq.). RUS 
was assigned responsibility for administering electric and 
telecommunications loan and loan guarantee programs previously 
administered by REA, including programs of the Rural Telephone Bank 
(RTB), and water and waste loans and grants previously administered by 
the Rural Development Administration, along with other functions as the 
Secretary determined appropriate. The rights, interests, obligations, 
duties, and contracts previously vested in REA were transferred to, and 
vested in RUS.



Sec. 1700.2  Availability of information.

    (a) The offices of RUS are located in the South Building of the 
United States Department of Agriculture at 1400 Independence Avenue, SW, 
Washington, DC 20250-1500. Hours of operation are from 8:15 AM to 4:45 
PM, Eastern time on Federal Government business days.
    (b) Information about RUS is available for public inspection and 
copying as required by the Freedom of Information Act, 5 U.S.C. 552 et 
seq. Information about availability and costs of agency publications and 
other agency materials is available from the Director, Program 
Development and Regulatory Analysis, Rural Utilities Service, United 
States Department of Agriculture, Room 5159-S, 1400 Independence Avenue, 
SW., STOP 1530, Washington, DC 20250-1530. Phone 202-720-9450. FAX 202-
720-8435.
    (c) RUS issues indexes of publications in conformance with the 
Freedom of Information Act and Department of Agriculture regulations at 
7 CFR part 1. Many RUS documents, including regulations and delegations 
of authority for headquarters and field staff are

[[Page 20]]

available on the world wide web at http://www.usda.gov/rus.

[63 FR 16085, Apr. 2, 1998, as amended at 71 FR 8435, Feb. 17, 2006]



Sec. 1700.3  Requests under the Freedom of Information Act.

    Department of Agriculture procedures for requests for records under 
the Freedom of Information Act are found at 7 CFR part 1. Requests must 
be in writing and may be submitted in person or by mail to United States 
Department of Agriculture, Rural Utilities Service, Room 5159-S, 1400 
Independence Avenue, SW., STOP 1530, Washington, DC 20250-1530; or by 
FAX to 202-401-1977. As set forth in 7 CFR 1.16, fees may be charged for 
processing of requests for records. An appeal of the agency 
determination concerning the request for official records shall be made 
in writing to the Administrator, Rural Utilities Service, United States 
Department of Agriculture, Room 5135-S, 1400 Independence Avenue, SW., 
STOP 1510, Washington, DC 20250-1510.

[71 FR 8435, Feb. 17, 2006]



Sec. 1700.4  Public comments on proposed rules.

    RUS requires that all persons submitting comments to a proposed rule 
or other document published by the agency in the Federal Register, 
submit comments as specified in the published notice. Copies of comments 
submitted are available to the public in conformance with 7 CFR part 1.

[71 FR 8435, Feb. 17, 2006]



Sec. Sec. 1700.5-1700.24  [Reserved]



               Subpart B_Agency Organization and Functions



Sec. 1700.25  Office of the Administrator.

    The Administrator, who also serves as Governor of the RTB, is 
appointed by the President, with the advice and consent of the Senate. 
The Under Secretary, Rural Development delegated to the Administrator, 
in 7 CFR part 2, responsibility for administering the programs and 
activities of RUS and RTB. The Administrator is aided directly by Deputy 
Administrators and by Assistant Administrators for the electric program, 
telecommunications program, the water and environmental programs, and 
program accounting and regulatory analysis, and by other staff offices. 
The work of the agency is carried out as described in this part.



Sec. 1700.26  Deputy Administrator.

    The Deputy Administrator aids and assists the Administrator. The 
Deputy Administrator provides overall policy direction to all RUS 
programs. The Deputy Administrator reviews agency policies and, as 
necessary, implements changes and participates with the Administrator 
and other officials in planning and formulating the programs and 
activities of the agency, including the making and servicing of loans 
and grants. The Deputy Administrator is ``first assistant'' for purposes 
of the Federal Vacancies Reform Act of 1998 (5 U.S.C. 3345-3349d).

[71 FR 8435, Feb. 17, 2006]



Sec. 1700.27  Chief of Staff.

    The Chief of Staff aids and assists the Administrator and the Deputy 
Administrator. The Chief of Staff advises the Administrator regarding 
policy initiatives and operational issues and assists the Administrator 
and the Deputy Administrator in developing and planning agency program 
initiatives. The Chief of Staff is responsible for implementation of 
overall policy initiatives and provides direction to all RUS programs.

[71 FR 8436, Feb. 17, 2006]



Sec. 1700.28  Electric Program.

    RUS, through the Electric Program, makes loans and loan guarantees 
for rural electrification and the furnishing of electric service to 
persons in rural areas.
    (a) The Assistant Administrator, Electric Program, directs and 
coordinates the rural electrification programs, participating with the 
Administrator, and others, in planning and formulating the programs and 
activities of the agency, and performs other activities as the 
Administrator may prescribe from time to time.
    (b) Primary point of contact with borrowers.Two regional divisions, 
one for the Northern Region and one for the

[[Page 21]]

Southern Region, are the primary points of contact between RUS and its 
electric distribution borrowers. Each office administers the rural 
electric program for its assigned geographical area through headquarters 
staff and general field representatives. The Power Supply Division is 
the primary point of contact between RUS and its electric power supply 
borrowers.
    (c) Staff office.The Electric Staff Division is responsible for 
engineering aspects of RUS' standards, specifications and other 
requirements for design, construction, and technical operation and 
maintenance of RUS borrowers' electric systems. The Electric Staff 
Division oversees the activities of Technical Standards Committees ``A'' 
and ``B'', Electric, which determine whether engineering specifications, 
drawings, material and equipment are acceptable for use in RUS 
borrowers' electric systems. The Office of the Assistant Administrator 
prepares analyses of loan making activities and the business and 
regulatory environment of RUS borrowers and recommends policies and 
procedures.

[63 FR 16085, Apr. 2, 1998. Redesignated at 71 FR 8436, Feb. 17, 2006]



Sec. 1700.29  Telecommunications Program.

    RUS and RTB, through the Telecommunications Program, make loans and 
loan guarantees to furnish and improve telecommunications service in 
rural areas.
    (a) The Assistant Administrator, Telecommunications Program, directs 
and coordinates the rural telecommunications programs, including the 
distance learning and telemedicine program, and in conjunction with the 
Administrator and Deputy Administrator, and others, the planning and 
formulating of programs and activities of the agency, and performs other 
activities as the Administrator may prescribe from time to time.
    (b) Primary point of contact with borrowers.Area offices are the 
primary points of contact between RUS and all telecommunications program 
borrowers. Each office administers the rural telecommunications program 
for its assigned geographical area with assistance of field 
representatives located in areas assigned to them.
    (c) Staff offices.The Telecommunications Staff Division is 
responsible for engineering aspects of design, construction, and 
technical operation and maintenance of rural telecommunications systems 
and facilities, including the activities of Technical Standards 
Committees ``A'' and ``B'', Telecommunications, which determine whether 
engineering specifications, drawings, material, and equipment are 
acceptable for use in RUS financed telecommunications systems. The 
Advanced Telecommunications Services office prepares analyses of loan 
making activities and the business and regulatory environment of RUS 
borrowers and recommends policies and procedures.

[63 FR 16085, Apr. 2, 1998; 63 FR 18307, Apr. 15, 1998. Redesignated at 
71 FR 8436, Feb. 17, 2006]



Sec. 1700.30  Water and Environmental Programs.

    RUS, through the Water and Environmental Programs, provides loan and 
grant funds for water and waste disposal projects serving the most 
financially needy rural communities.
    (a) The Assistant Administrator, Water and Environmental Programs, 
develops and institutes plans, procedures, and policies for the 
effective, efficient, and orderly management of Water and Environmental 
Programs responsibilities; provides leadership to ensure execution of 
policies and procedures by the Water and Waste Disposal programs and 
support functions; and performs other activities as the Administrator or 
Deputy Administrator may prescribe from time to time.
    (b) Primary point of contact. The State Rural Development Offices 
are the primary points of contact between RUS and loan and grant 
recipients.
    (c) The Engineering and Environmental Staff is responsible for 
engineering staff activities at all stages of Water and Waste Disposal 
programs implementation, including review of preliminary engineering 
plans and specifications, procurement practices, contract awards, 
construction monitoring, and system operation and maintenance. This 
staff develops agency engineering

[[Page 22]]

practices, policies, guidelines, and technical data relating to the 
construction and operation of water and waste disposal systems, and for 
implementing the National Environmental Policy Act, and other 
environmental requirements as they apply to all agency programs and 
activities.

[63 FR 16085, Apr. 2, 1998. Redesignated at 71 FR 8436, Feb. 17, 2006]



Sec. 1700.31  Distance Learning and Telemedicine Loan and Grant Program.

    RUS, through the Telecommunications Program, makes grants and loans 
to furnish and improve telemedicine services and distance learning 
services in rural areas.
    (a) The Assistant Administrator, Telecommunications Program, directs 
and coordinates the distance learning and telemedicine program.
    (b) Primary point of contact with borrowers. The area offices, 
described in Sec. 1700.28(b) support the distance learning and 
telemedicine program. Each office administers the distance learning and 
telemedicine program for its assigned geographical area with assistance 
of field representatives located in areas assigned to them.

[63 FR 16085, Apr. 2, 1998; 63 FR 18307, Apr. 15, 1998. Redesignated at 
71 FR 8436, Feb. 17, 2006]



Sec. 1700.32  Program Accounting and Regulatory Analysis.

    RUS, through Program Accounting and Regulatory Analysis, monitors 
and administers applicable regulations, RUS policy, and accounting 
requirements. The staffs assist the Assistant Administrator with respect 
to management, information systems, budgets, and other such matters.
    (a) The Assistant Administrator, Program Accounting and Regulatory 
Analysis, directs and coordinates program accounting and financial 
services with respect to electric and telecommunications borrowers and 
directs and coordinates the regulatory actions of the agency.
    (b) This division monitors borrowers' accounting operations in order 
to ensure compliance with applicable statutory and regulatory 
requirements and with the requirements of the Office of Management and 
Budget.
    (c) The two regional branches (the Northern Region and the Southern 
Region) work directly with borrowers. Each regional office has a staff 
of headquarters and field accountants. The Technical Accounting and 
Auditing Staff monitors industry developments, including the standards 
of the Financial Accounting Standards Board, and recommends Agency 
policies and procedures.
    (d) Program Development and Regulatory Analysis directs and 
administers the preparation, clearance, processing, and distribution of 
RUS submissions to the Office of the Federal Register in the form of 
proposed and final rules and notices and RUS bulletins and staff 
instructions.

[63 FR 16085, Apr. 2, 1998. Redesignated at 71 FR 8436, Feb. 17, 2006]



Sec. 1700.33  Financial Services Staff.

    The Financial Services Staff evaluates the financial condition of 
financially troubled borrowers in order to protect the Government's 
interests.

[63 FR 16085, Apr. 2, 1998. Redesignated at 71 FR 8436, Feb. 17, 2006]



Sec. 1700.34  Assistance to High Energy Cost Rural Communities.

    RUS, through the Electric Program, makes grants and loans to assist 
high energy cost rural communities. The Assistant Administrator, 
Electric Program, directs and coordinates the assistance to high energy 
cost rural communities program and serves as the primary point of 
contact for applicants, grantees, and borrowers.

[70 FR 5351, Feb. 2, 2005. Redesignated at 71 FR 8436, Feb. 17, 2006]



Sec. Sec. 1700.35-1700.49  [Reserved]



              Subpart C_Loan and Grant Approval Authorities



Sec. Sec. 1700.50-1700.52  [Reserved]



Sec. 1700.53  Persons serving as Acting Administrator.

    In accordance with procedures established in the RUS Continuity of 
Operations (COOP) plan, the following officials, in the order indicated 
below, shall act in the office of Rural Utilities

[[Page 23]]

Service Administrator in case of the Administrator's absence, or 
inability to act, until the absence or inability ceases.
    (a) The Deputy Administrator is ``first assistant'' for purposes of 
the Federal Vacancies Reform Act of 1998 (5 U.S.C. Sec. 3345-3349d) and 
shall, in the absence or disability of the Administrator, or in the 
event of a vacancy in the office of Administrator, serve as Acting 
Administrator, subject to the limitations established by law.
    (b) In the event of the absence or disability of both the 
Administrator and the Deputy Administrator, or in the event of a vacancy 
in both the office of the Administrator and the Deputy Administrator, 
the official incumbents of the following positions shall, in the 
sequence shown, temporarily perform all of the functions and duties of 
the Administrator, except to the extent that such functions and duties 
may not be delegated by law.
    (1) Chief of Staff.
    (2) Assistant Administrator, Electric Program.
    (3) Assistant Administrator, Water and Environmental Programs.
    (4) Assistant Administrator, Telecommunications Programs.
    (5) Assistant Administrator, Program Accounting and Regulatory 
Analysis.
    (6) Community Programs Director of the Rural Development Kentucky 
State Office.
    (c) Eligibility for succession to the position of RUS Administrator 
shall be limited to officially assigned incumbents of positions listed 
in paragraph (b) of this section. Only officials specifically designated 
in the approved order of succession are eligible. Persons appointed on 
acting basis, or on some other temporary basis, are ineligible by virtue 
of so serving to serve as a successor. Therefore the order of succession 
would fall to the next designated official in the approved order of 
succession. The eligibility of the incumbent of paragraph (b)(6) of this 
section to serve as a successor is also limited to periods of national 
emergency declared by the President or during the activation of the RUS 
COOP plan.
    (d) In the event of the absence or disability of the Administrator, 
or in the event that the Administrator's position is vacant, the Deputy 
Rural Utilities Service Administrator is the only RUS official 
authorized to serve as Acting Administrator. When serving as Acting 
Administrator, the Deputy Administrator is authorized to perform all of 
the functions and duties of the office of the Administrator, including 
those functions and duties that are required by statute or regulation to 
be performed exclusively by the Administrator. In the event of the 
absence or disability of both Administrator and the Deputy 
Administrator, or in the event that both the office of Administrator and 
Deputy Administrator are vacant, the officials in the order of 
succession indicated in paragraph (b) of this section shall perform all 
the functions and duties of the Administrator but may not serve as 
Acting Administrator.
    (e) The Administrator retains the discretion to depart from the 
order in paragraph (b) for occasions where deviation from automatic 
succession is desired by the Administrator. Such temporary designations 
shall be in writing. Notwithstanding the provisions of this Sec. 
1710.53 not contained in this paragraph (e), the Administrator may 
delegate full or limited authority to perform the functions and duties 
of the office of Administrator except to the extent that such functions 
and duties may not be delegated by law.
    (f) The Administrator may terminate the delegations under this 
section 1700.53, in whole or in part, at any time. Unless terminated by 
the Administrator, written delegations under paragraph (e) of this 
section expire in accordance with their terms. Individuals acting as 
successors under paragraph (b) of this section will be relieved of such 
authority as soon as an incumbent in a position listed higher on the 
order of succession is available, able, and assumes the functions and 
duties of the Administrator, or when an official with requisite 
authority designates a permanent or acting Administrator.
    (g) Individuals exercising authority under this Sec. 1700.53 shall 
keep a record of important actions taken and the period during which the 
authority is exercised.

[[Page 24]]

    (h) The authority to perform functions and duties pursuant to this 
Sec. 1700.53 can not be redelegated by an incumbent of a position 
listed in paragraph (b) of this section.

[71 FR 8436, Feb. 17, 2006]



Sec. 1700.54  Electric Program.

    (a) Administrator: The authority to approve the following loans, 
loan guarantees, and lien accommodations and subordinations of liens is 
reserved to the Administrator:
    (1) All discretionary hardship loans.
    (2) All loans, loan guarantees, and lien accommodations and 
subordinations of liens to finance operating costs.
    (3) All loans, loan guarantees, and lien accommodations and 
subordinations of liens of more than $20,000,000 for distribution 
borrowers or more than $50,000,000 for power supply borrowers.
    (4) All loans, loan guarantees, and lien accommodations and 
subordinations of liens for distribution borrowers that are members of a 
power supply borrower that is in default of its obligations to the 
Government or that is currently assigned to the Financial Services 
Staff, unless otherwise determined by the Administrator.
    (5) All loans, loan guarantees, and lien accommodations and 
subordinations of liens that require an Environmental Impact Statement.
    (6) Certifications and findings required by the RE Act or other 
applicable laws and regulations, the placing and releasing of conditions 
precedent to the advance of funds, and all security instruments, loan 
contracts, and all other necessary documents relating to the authorities 
reserved in this section.
    (7) Execution of all loan contracts, security instruments, and all 
other documents in connection with loans, loan guarantees, and lien 
accommodations approved by the Administrator.
    (b) The Assistant Administrator, Electric Program, has the authority 
to approve the following loans, loan guarantees, and lien accommodations 
and subordinations of liens, except for those approvals reserved to the 
Administrator:
    (1) Loans, loan guarantees, and lien accommodations and 
subordinations of liens for distribution borrowers in amounts not 
exceeding $20,000,000.
    (2) Loans, loan guarantees, and lien accommodations and 
subordinations of liens for power supply borrowers in amounts not 
exceeding $50,000,000.
    (3) Execution of all loan contracts, security instruments, and all 
other documents in connection with loans, loan guarantees, and lien 
accommodations approved by the Assistant Administrator, Electric 
Program.
    (c) Directors, Regional Divisions, have the authority to approve, 
for distribution borrowers:
    (1) Loans, loan guarantees, and lien accommodations and 
subordinations of liens in amounts not exceeding $15,000,000 except for 
those approvals reserved to the Administrator.
    (2) All certifications and findings required by the RE Act or other 
applicable laws and regulations, the imposing and releasing of 
conditions precedent to the advance of loan funds, and all security 
instruments, loan contracts, and all other documents relating to the 
delegations set forth in paragraph (c)(1) of this section.
    (d) Director, Power Supply Division, has the authority to approve 
for power supply borrowers:
    (1) Loans, loan guarantees, and lien accommodations and 
subordinations of liens in amounts not exceeding $30,000,000, except for 
those approvals reserved to the Administrator.
    (2) All certifications and findings required by the RE Act or other 
applicable laws and regulations, the placing and releasing of conditions 
precedent to the advance of funds, and all security instruments, loan 
contracts or all other documents relating to the delegations set forth 
in paragraph (d)(1) of this section.



Sec. 1700.55  Telecommunications Program.

    (a) Administrator: The authority to approve the following loans, 
loan guarantees, and lien accommodations is reserved to the 
Administrator:
    (1) All loans, loan guarantees, and lien accommodations and 
subordinations of liens to finance operating costs.

[[Page 25]]

    (2) All loans, loan guarantees, or lien accommodations and 
subordinations of liens of $25,000,000 or more.
    (3) Loans and loan guarantees with acquisition costs of $5,000,000 
or more.
    (4) Loans and loan guarantees containing funds to refinance 
outstanding debt of more than $5,000,000.
    (5) All loan contracts, security instruments, and all other 
documents to be executed in connection with loans and loan guarantees 
approved by the Administrator.
    (b) Assistant Administrator, Telecommunications Program, has the 
authority to approve the following loans, loan guarantees, and lien 
accommodations, except for those approvals reserved to the 
Administrator:
    (1) Loans, loan guarantees, and lien accommodations and 
subordinations of liens not to exceed $25,000,000 except for those 
reserved to the Administrator.
    (2) Loans and loan guarantees with acquisition costs where the 
acquisition portion of the loan is less than $5,000,000.
    (3) Loans and loan guarantees including refinancing amounts that do 
not exceed $5,000,000.
    (4) Distance learning and telemedicine loans and loan guarantees 
that do not exceed $5,000,000.
    (5) Loan contracts, security instruments, and other documents to be 
executed in connection with loans and loan guarantees approved by the 
Assistant Administrator, Telecommunications Program.
    (c) Area Directors have the authority to approve the following 
loans, loan guarantees, and lien accommodations, except for those 
approvals reserved to the Administrator:
    (1) Loans, loan guarantees, and lien accommodations and 
subordinations of liens of less than $10,000,000.
    (2) Loans and loan guarantees with acquisition costs of less than 
$2,000,000.
    (3) Loans and loan guarantees including refinancing amounts of less 
than $2,000,000.
    (4) Any modifications in the method of carrying out loan purposes.



Sec. 1700.56  Water and Environmental Programs.

    The State Rural Development Offices have the responsibility for 
making and servicing water and waste loans and grants.



Sec. 1700.57  Distance Learning and Telemedicine Loan and Grant Program.

    (a) Administrator: The authority to approve the following loans and 
lien accommodations is reserved to the Administrator:
    (1) Grants or loan and grant combinations.
    (2) The number selected from each state for financial assistance for 
grant approval and loans or grants approved.
    (3) Extension of principal and interest repayments for rural 
development purposes.
    (4) Loan contracts, security instruments, and all other documents to 
be executed in connection with loans and loan guarantees approved by the 
Administrator.
    (b) Assistant Administrator, Telecommunications Program, has the 
authority to approve the following loans and lien accommodations and 
subordinations of liens:
    (1) Loans, that do not also include requests for grant funds, except 
for those reserved to the Administrator.
    (2) Loan contracts, security instruments, and all other documents to 
be executed in connection with loans and loan guarantees approved by the 
Assistant Administrator, Telecommunications Program.



Sec. 1700.58  Assistance to high energy cost rural communities.

    (a) Administrator: The authority to approve the following is 
reserved to the Administrator:
    (1) Allocation of appropriated funds among high energy cost 
community assistance programs;
    (2) Awards of grants and loans to extremely high energy cost 
communities;
    (3) Awards of grants and loans to the Denali Commission;
    (4) Awards of grants to State entities for State bulk fuel revolving 
funds; and
    (5) Grant agreements, loan contracts, security instruments and all 
other documents executed in connection with grants and loans agreements 
approved by the Administrator.
    (b) The Assistant Administrator, Electric Program has the authority 
to make

[[Page 26]]

any required certifications and to approve all grant and loan servicing 
actions not specifically reserved to the Administrator.

[70 FR 5351, Feb. 3, 2005]



PART 1703_RURAL DEVELOPMENT--Table of Contents



Subpart A-B [Reserved]

Subpart C--Rural Business Incubator Program [Reserved]

1703.80-1703.99 [Reserved]

  Subpart D_Distance Learning and Telemedicine Loan and Grant Program_
                                 General

Sec.
1703.100 Purpose.
1703.101 Policy.
1703.102 Definitions.
1703.103 Applicant eligibility and allocation of funds.
1703.104 [Reserved]
1703.105 Processing of selected applications.
1703.106 Disbursement of loans and grants.
1703.107 Reporting and oversight requirements.
1073.108 Audit requirements.
1703.109 Grant and loan administration.
1703.110 Changes in project objectives or scope.
1703.111 Grant and loan termination.
1703.112 Expedited telecommunications loans.
1703.113-1703.119 [Reserved]

       Subpart E_Distance Learning and Telemedicine Grant Program

1703.120 [Reserved]
1703.121 Approved purposes for grants.
1703.122 Matching contributions.
1703.123 Nonapproved purposes for grants.
1703.124 Maximum and minimum grant amounts.
1703.125 Completed application.
1703.126 Criteria for scoring grant applications.
1703.127 Application selection provisions.
1703.128 Submission of applications.
1703.129 Appeals.

Subpart F_Distance Learning and Telemedicine Combination Loan and Grant 
                                 Program

1703.130 Use of combination loan and grant.
1703.131 Approved purposes for a combination loan and grant.
1703.132 Nonapproved purposes for a combination loan and grant.
1703.133 Maximum and minimum amounts.
1703.134 Completed application.
1703.135 Application selection provisions.
1703.136 Submission of applications.
1703.137 Appeals.
1703.138-1703.139 [Reserved]

        Subpart G_Distance Learning and Telemedicine Loan Program

1703.140 Use of loan funds.
1703.141 Approved purposes for loans.
1703.142 Nonapproved purposes for loans.
1703.143 Maximum and minimum amounts.
1703.144 Completed application.
1703.145 Application selection provisions.
1703.146 Submission of applications.
1703.147 Appeals.

Subpart H_Deferments of RUS Loan Payments for Rural Development Projects

1703.300 Purpose.
1703.301 Policy.
1703.302 Definitions and rules of construction.
1703.303 Eligibility criteria for deferment of loan payments.
1703.304 Restrictions on the deferment of loan payments.
1703.305 Requirements for deferment of loan payments.
1703.306 Limitation on funds derived from the deferment of loan 
          payments.
1703.307 Uses of the deferments of loan payments.
1703.308 Amount of deferment funds available.
1703.309 Terms of repayment of deferred loan payments.
1703.310 Environmental considerations.
1703.311 Application procedures for deferment of loan payments.
1703.312 RUS review requirements.
1703.313 Compliance with other regulations.

    Authority: 7 U.S.C. 901 et seq. and 950aaa et seq.

    Source: 54 FR 6870, Feb. 15, 1989, unless otherwise noted. 
Redesignated at 55 FR 39394, Sept. 27, 1990.

Subpart A--B [Reserved]

Subpart C--Rural Business Incubator Program [Reserved]



Sec. Sec. 1703.80-1703.99  [Reserved]



  Subpart D_Distance Learning and Telemedicine Loan and Grant Program_

                                 General

    Source: 64 FR 14357, Mar. 25, 1999, unless otherwise noted.

[[Page 27]]



Sec. 1703.100  Purpose.

    The purpose of the Distance Learning and Telemedicine (DLT) Loan and 
Grant Program is to encourage and improve telemedicine services and 
distance learning services in rural areas through the use of 
telecommunications, computer networks, and related advanced technologies 
by students, teachers, medical professionals, and rural residents. This 
subpart describes the general policies for administering the DLT 
program. Subpart E contains the policies and procedures related to 
grants; subpart F contains the policies and procedures related to a 
combination loan and grant; and subpart G contains the policies and 
procedures related to loans.



Sec. 1703.101  Policy.

    (a) The transmission of information is vital to the economic 
development, education, and health of rural Americans. To further this 
objective, RUS will provide financial assistance to distance learning 
and telemedicine projects that will improve the access of people 
residing in rural areas to educational, learning, training, and health 
care services.
    (b) In providing financial assistance, RUS will give priority to 
rural areas that it believes have the greatest need for distance 
learning and telemedicine services. RUS believes that generally the need 
is greatest in areas that are economically challenged, costly to serve, 
and experiencing outward migration. This program is consistent with the 
provisions of the Telecommunications Act of 1996 that designate 
telecommunications service discounts for schools, libraries, and rural 
health care centers. RUS will take into consideration the community's 
involvement in the proposed project and the applicant's ability to 
leverage grant funds.
    (c) In administering this subpart, RUS will not favor or mandate the 
use of one particular technology over another.
    (d) Rural institutions are encouraged to cooperate with each other, 
with applicants, and with end-users to promote the program being 
implemented under this subpart.
    (e) RUS staff will make diligent efforts to inform potential 
applicants in rural areas of the programs being implemented under this 
subpart.
    (f) The Administrator will provide only loans under this subpart to 
any entity that has received a telecommunications or electric loan under 
the Rural Electrification Act of 1936. Telecommunications and Electric 
borrowers are encouraged to seek a loan under this subpart to bolster 
educational and health care opportunities in the rural communities they 
serve. A borrower receiving a loan shall:
    (1) Make the loan available to entities that qualify as distance 
learning or telemedicine projects satisfying the requirements of this 
subpart, under any terms it so chooses as long as the terms are no more 
stringent than the terms under which it received the financial 
assistance.
    (2) Use the loan to acquire, install, improve, or extend a distance 
learning or telemedicine system referred to in this subpart.
    (g) The Administrator will allocate funds that are appropriated each 
fiscal year for the subparts E, F, and G, of this part respectively. Not 
more than 30 days before the end of the fiscal year, the Administrator 
may transfer any funds not committed to grants in the combination loan 
and grant program to the grant program.
    (h) Financial assistance may be provided for end user sites. 
Financial assistance may also be provided for hubs located in rural or 
non-rural areas if they are necessary to provide distance learning or 
telemedicine services to rural residents at end user sites.
    (i) The Administrator will publish, at the end of each fiscal year, 
a notice in the Federal Register of all applications receiving financial 
assistance under this subpart. Subject to the provisions of the Freedom 
of Information Act, (5 U.S.C. 552), applications will be available for 
public inspection at the U.S. Department of Agriculture, 1400 
Independence Avenue, SW., Washington, DC, 20250.



Sec. 1703.102  Definitions.

    1996 Act means the Federal Agriculture Improvement Act of 1996.
    Act means the Rural Electrification Act of 1936 (7 U.S.C. 901 et 
seq.).

[[Page 28]]

    Administrator means the Administrator of the Rural Utilities 
Service, or designee or successor.
    Applicant means an eligible organization that applies for financial 
assistance under this subpart.
    Approved purposes means project purposes for which grant, loan, or 
combination loan and grant financial assistance may be expended.
    Champion community means any community that submitted a valid 
application to become a USDA Empowerment Zone/Enterprise Community (EZ/
EC) area, that met the requirements to be designated an EZ/EC area, but 
not chosen because their score was not high enough to be selected.
    Combination loan and grant means a grant in combination with a loan 
made under the DLT program.
    Completed application means an application that includes all those 
items specified in Sec. Sec. 1703.125, 1703.134, and 1703.144 in form 
and substance satisfactory to the Administrator.
    Computer networks mean computer hardware and software, terminals, 
signal conversion equipment including both modulators and demodulators, 
or related devices, used to communicate with other computers to process 
and exchange data through a telecommunication network in which signals 
are generated, modified, or prepared for transmission, or received, via 
telecommunications terminal equipment and telecommunications 
transmission facilities.
    Consortium means a combination or group of entities formed to 
undertake the purposes for which the distance learning and telemedicine 
financial assistance is provided. At least one of the entities in a 
consortium must meet the requirements of Sec. 1703.103.
    Construct means to acquire, construct, extend, improve, or install a 
facility or system.
    Data terminal equipment means equipment that converts user 
information into data signals for transmission, or reconverts the 
received data signals into user information, and is normally found on 
the terminal of a circuit and on the premises of the end user.
    Distance learning means a telecommunications link to an end user 
through the use of eligible equipment to:
    (1) Provide educational programs, instruction, or information 
originating in one area, whether rural or not, to students and teachers 
who are located in rural areas; or
    (2) Connect teachers and students, located in one rural area with 
teachers and students that are located in a different rural area.
    DLT borrower means an entity that has an outstanding loan under the 
provisions of the DLT program.
    DLT program means the Distance Learning and Telemedicine Loan and 
Grant Program administered by RUS.
    Economic useful life as applied to equipment and facilities financed 
under the DLT program means the number of years resulting from dividing 
100 percent by the depreciation rate (expressed as a percent) based on 
Internal Revenue Service depreciation rules or recognized 
telecommunications industry guidelines.
    Eligible equipment means computer hardware and software, audio or 
video equipment, computer network components, telecommunications 
terminal equipment, data terminal equipment, inside wiring, interactive 
video equipment, or other facilities that would further telemedicine 
services or distance learning services.
    Eligible facilities means land, buildings, or building construction 
needed to carry out an eligible distance learning or telemedicine 
project for loan financial assistance only.
    Empowerment Zone and Enterprise Community (EZ/EC) means any 
community whose designation as such by USDA pursuant to 26 U.S.C. 1391 
et seq., is in effect at the time RUS agrees to provide financial 
assistance.
    End user is one or more of the following:
    (1) Rural elementary, secondary schools, and other educational 
institutions, such as institutions of higher education, vocational and 
adult training and education centers, libraries, and teacher training 
centers, and students, teachers and instructors using such rural 
educational facilities, that participate in a rural distance learning 
telecommunications program through a project funded under this subpart;

[[Page 29]]

    (2) Rural hospitals, primary care centers or facilities, such as 
medical centers, nursing homes, and clinics, and physicians and staff 
using such rural medical facilities, that participate in a rural 
telemedicine program through a project funded under this subpart; and
    (3) Other rural community facilities, institutions, or entities that 
receive distance learning or telemedicine services.
    End user site means a facility that is part of a network or 
telecommunications system that is utilized by end users.
    Financial assistance means a grant, combination loan and grant, or 
loan.
    GFR means RUS telecommunications program General Field 
Representative.
    Grant documents means the grant agreement, including any amendments 
and supplements thereto, between RUS and the grantee.
    Grantee means a recipient of a grant from RUS to carry out the 
purposes of the DLT program.
    Guarantee means a guarantee for a loan provided by a RUS borrower or 
other qualified third party.
    Hub means a facility that is part of a network or telecommunications 
system that provides educational or medical services to end user sites.
    Instructional programming means educational material, including 
computer software, which would be used for educational purposes in 
connection with eligible equipment but does not include salaries, 
benefits, and overhead of medical or educational personnel.
    Interactive equipment means equipment used to produce and prepare 
for transmission audio and visual signals from at least two distant 
locations so that individuals at such locations can orally and visually 
communicate with each other. Such equipment includes monitors, other 
display devices, cameras or other recording devices, audio pickup 
devices, and other related equipment.
    Loan means a loan made under the DLT program bearing interest at a 
rate equal to the then current cost-of-money to the government.
    Loan documents mean the loan agreement, note, and security 
instrument, including any amendments and supplements thereto, between 
RUS and the DLT borrower.
    Local exchange carrier means a commercial, cooperative or mutual-
type association, or public body that is engaged in the provision of 
telephone exchange service or exchange access.
    Matching contribution means the applicant's contribution for 
approved purposes.
    National school lunch program (NSLP) means the federally assisted 
meal program established under the National School Lunch Act of 1946 (42 
U.S.C. 1751).
    Project means approved purposes for which financial assistance has 
been provided.
    Project service area means the area in which at least 90 percent of 
the persons to be served by the project are likely to reside.
    Recipient means a grantee, borrower, or both of a DLT program grant, 
loan or combination loan and grant.
    Rural community facility means a facility such as a school, library, 
learning center, training facility, hospital, or medical facility that 
provides educational or health care benefits primarily to residents of 
rural areas.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture, successor to the Rural Electrification 
Administration.
    Secretary means the Secretary of Agriculture.
    Technical assistance means:
    (1) Assistance in learning to manage, operate, or use equipment or 
systems; and
    (2) Studies, analyses, designs, reports, manuals, guides, 
literature, or other forms of creating, acquiring, or disseminating 
information.
    Telecommunications carrier means any provider of telecommunications 
services.
    Telecommunications or electric borrower means an entity that has 
outstanding RUS or Rural Telephone Bank electric or telecommunications 
loans or loan guarantees under the provisions of the Act.
    Telecommunications systems plan means the plan submitted by an 
applicant in accordance with Sec. 1703.125 for

[[Page 30]]

grants, Sec. 1703.134 for a combination loan and grant, or Sec. 
1703.144 for loans.
    Telecommunications terminal equipment means the assembly of 
telecommunications equipment at the end of a circuit or path of a 
signal, including but not limited to facilities that receive or transmit 
over the air broadcast, satellite, and microwave, normally located on 
the premises of the end user, that interfaces with telecommunications 
transmission facilities, and that is used to modify, convert, encode, or 
otherwise prepare signals to be transmitted via such telecommunications 
facilities, or that is used to modify, reconvert, or carry signals 
received from such facilities, the purpose of which is to accomplish the 
goal for which the circuit or signal was established.
    Telecommunications transmission facilities means facilities that 
transmit, receive, or carry voice, video, or data between the 
telecommunications terminal equipment at each end of the 
telecommunications circuit or path. Such facilities include microwave 
antennae, relay stations and towers, other telecommunications antennae, 
fiber-optic cables and repeaters, coaxial cables, communication 
satellite ground station complexes, copper cable electronic equipment 
associated with telecommunications transmissions, and similar items.
    Telemedicine means a telecommunications link to an end user through 
the use of eligible equipment which electronically links medical 
professionals at separate sites in order to exchange health care 
information in audio, video, graphic, or other format for the purpose of 
providing improved health care services primarily to residents of rural 
areas.

[64 FR 14357, Mar. 25, 1999, as amended at 67 FR 3040, Mar. 11, 2002]



Sec. 1703.103  Applicant eligibility and allocation of funds.

    (a) To be eligible to receive a grant, loan and grant combination, 
or loan under this subpart:
    (1) The applicant must be legally organized as an incorporated 
organization or partnership, an Indian tribe or tribal organization, as 
defined in 25 U.S.C. 450b (b) and (c), a state or local unit of 
government, a consortium, as defined in Sec. 1703.102, or other legal 
entity, including a private corporation organized on a for profit or 
not-for profit basis. Each applicant must provide written evidence of 
its legal capacity to contract with RUS to obtain the grant, loan and 
grant combination, or the loan, and comply with all applicable 
requirements. If a consortium lacks the legal capacity to contract, each 
individual entity must contract with RUS in its own behalf.
    (2) The applicant proposes to utilize the financing to:
    (i) Operate a rural community facility; or
    (ii) Deliver distance learning or telemedicine services to entities 
that operate a rural community facility or to residents of rural areas 
at rates calculated to ensure that the benefit of the financial 
assistance is passed through to such entities or to residents of rural 
areas.
    (b) Electric or telecommunications borrowers are not eligible for 
grants.

[64 FR 14357, Mar. 25, 1999, as amended at 67 FR 3040, Mar. 11, 2002]



Sec. 1703.104  [Reserved]



Sec. 1703.105  Processing of selected applications.

    (a) During the period between the submission of an application and 
the execution of documents, the applicant must inform RUS if the project 
is no longer viable or the applicant no longer is requesting financial 
assistance for the project. When the applicant so informs RUS, the 
selection will be rescinded or the application withdrawn and written 
notice to that effect sent to the applicant.
    (b) If an application has been selected and the scope of the project 
changes substantially, the applicant may be required to submit a new 
application to RUS for review and consideration depending on the degree 
of change. A new application will be subject to review in accordance 
with this subpart. The financial assistance may not be transferred by 
the applicant for use for another project.
    (c) If State or local governments raise objections to a proposed 
project under the intergovernmental review

[[Page 31]]

process that are not resolved within 90 days of the Administrator's 
selection of the application, the Administrator will rescind the 
selection and written notice to that effect will be sent to the 
applicant. The Administrator, in his sole discretion may extend the 90 
day period if it appears resolution is imminent.
    (d) RUS may request additional information to complete the 
appropriate documents covering financial assistance.
    (e) Financial assistance documents. (1) The documents will include a 
grant agreement for grants; loan documents, including third party 
guarantees, notes and security instruments for loans; or any other legal 
documents the Administrator deems appropriate, including suggested forms 
of certifications and legal opinions.
    (2) The grant agreement and the loan documents will include, among 
other things, conditions on the release or advance of funds and include 
at a minimum, a project description, approved purposes, the maximum 
amount of the financial assistance, supplemental funds required for the 
project, and certain agreements or commitments the applicant may have 
proposed in its application. In addition, the loan documents may contain 
covenants and conditions the Administrator deems necessary or desirable 
to provide additional assurance that loans will be repaid and the 
purposes of the loan will be accomplished.
    (3) The recipient of a loan will be required to execute a security 
instrument in form and substance satisfactory to RUS and must, before 
receiving any advance of loan funds, provide security that is adequate, 
in the opinion of RUS, to assure repayment, within the time agreed, of 
all loans to the borrower under the DLT program. This assurance will 
generally be provided by a first lien upon all facilities and equipment 
financed by the loan. RUS may require additional security as it deems 
necessary.
    (4) Adequate security may also be provided by third-party 
guarantees, letters of credit, pledges of revenue, or other forms of 
security satisfactory to RUS.
    (5) The security instrument and other loan documents required by RUS 
in connection with a loan under the DLT program shall contain such 
pledges, covenants, and other provisions as may, in the opinion of RUS, 
be required to secure repayment of the loan.
    (6) If the project does not constitute a complete operating system, 
the DLT recipient shall provide evidence, in form and substance 
satisfactory to RUS, demonstrating that the recipient has sufficient 
contractual, financing, or other arrangements to assure that the project 
will provide adequate and efficient service.
    (f) Prior to the execution of a grant and loan document, RUS 
reserves the right to require any changes in the project or legal 
documents covering the project to protect the integrity of the DLT 
program and the interests of the government.
    (g) If the applicant fails to submit, within 120 calendar days from 
the date of RUS' selection of an application, all of the information 
that RUS determines to be necessary to prepare legal documents and 
satisfy other requirements of this subpart, RUS may rescind the 
selection of the application.

[64 FR 14357, Mar. 25, 1999; 64 FR 25422, May 12, 1999]



Sec. 1703.106  Disbursement of loans and grants.

    (a) For financial assistance of $100,000 or greater, prior to the 
disbursement of a grant and a loan, the recipient, if it is not a unit 
of government, will provide evidence of fidelity bond coverage as 
required by 7 CFR part 3019.
    (b) Grants and loans will be disbursed to recipients on a 
reimbursement basis, or with unpaid invoices for the eligible purposes 
contained in this subpart, by the following process:
    (1) An SF 270, ``Request for Advance or Reimbursement,'' will be 
completed by the recipient and submitted to RUS not more frequently than 
once a month;
    (2) RUS will review the SF 270 for accuracy when received and will 
schedule payment if the form is satisfactory. Payment will ordinarily be 
made within 30 days; and

[[Page 32]]

    (3) For financial assistance approved during and subsequent to FY 
1999, funds will be advanced in accordance with 7 CFR 1744.69.
    (c) The recipient's share in the cost of the project must be 
disbursed in advance of the loan and grant, or if the recipient agrees, 
on a pro rata distribution basis with financial assistance during the 
disbursement period. Recipients will not be permitted to provide their 
contributions at the end of the project.
    (d) A combination loan and grant will be disbursed on a pro rata 
basis based on the respective amounts of financial assistance provided.



Sec. 1703.107  Reporting and oversight requirements.

    (a) A project performance activity report will be required of all 
recipients on an annual basis until the project is complete and the 
funds are expended by the applicant.
    (b) A final project performance report must be provided by the 
recipient. It must provide an evaluation of the success of the project 
in meeting the objectives of the program. The final report may serve as 
the last annual report.
    (c) RUS will monitor recipients, as it determines necessary, to 
assure that projects are completed in accordance with the approved scope 
of work and that the financial assistance is expended for approved 
purposes.
    (d) Recipients shall diligently monitor performance to ensure that 
time schedules are being met, projected work by time periods is being 
accomplished, and other performance objectives are being achieved. 
Recipients are to submit an original and one copy of all project 
performance reports, including, but not limited to, the following:
    (1) A comparison of actual accomplishments to the objectives 
established for that period;
    (2) A description of any problems, delays, or adverse conditions 
which have occurred, or are anticipated, and which may affect the 
attainment of overall project objectives, prevent the meeting of time 
schedules or objectives, or preclude the attainment of particular 
project work elements during established time periods. This disclosure 
shall be accompanied by a statement of the action taken or planned to 
resolve the situation; and
    (3) Objectives and timetable established for the next reporting 
period.



Sec. 1703.108  Audit requirements.

    A recipient of financial assistance shall provide RUS with an audit 
for each year, beginning with the year in which a portion of the 
financial assistance is expended, in accordance with the following:
    (a) If the recipient is a for-profit entity, a Telecommunications or 
Electric borrower, or any other entity not covered by the following 
paragraph, the recipient shall provide an independent audit report in 
accordance with 7 CFR part 1773, ``Policy on Audits of RUS Borrowers.''
    (b) If the recipient is a State or local government, or non-profit 
organization, the recipient shall provide an audit in accordance with 7 
CFR part 3052, ``Audits of States, Local Governments, and Non-Profit 
Organizations.''

[64 FR 14357, Mar. 25, 1999; 64 FR 25422, May 12, 1999]



Sec. 1703.109  Grant and loan administration.

    RUS will conduct reviews as necessary to determine whether the 
financial assistance was expended for approved purposes. The recipient 
is responsible for ensuring that the project complies with all 
applicable regulations, and that the grants and loans are expended only 
for approved purposes. The recipient is responsible for ensuring that 
disbursements and expenditures of funds are properly supported by 
invoices, contracts, bills of sale, canceled checks, or other 
appropriate forms of evidence, and that such supporting material is 
provided to RUS, upon request, and is otherwise made available, at the 
recipient's premises, for review by the RUS representatives, the 
recipient's certified public accountant, the Office of Inspector 
General, U. S. Department of Agriculture, the General Accounting Office, 
and any other official conducting an audit of the recipient's financial 
statements or records, and program performance for the grants and loans 
made under this subpart. The recipient shall permit

[[Page 33]]

RUS to inspect and copy any records and documents that pertain to the 
project.



Sec. 1703.110  Changes in project objectives or scope.

    The recipient shall obtain prior written approval by RUS for any 
material change to the scope or objectives of the project, including any 
changes to the scope of work or the budget submitted to RUS. Any 
material change shall be contained in a revised scope of work plan to be 
prepared by the recipient, submitted to, and approved by RUS in writing.



Sec. 1703.111  Grant and loan termination.

    (a) The financial assistance may be terminated when RUS and the 
recipient agree upon the conditions of the termination, the effective 
date of the termination, and, in the case of a partial termination of 
the financial assistance, any unadvanced portion of the financial 
assistance to be terminated and any advanced portion of the financial 
assistance to be returned.
    (b) The recipient may terminate the financial assistance by written 
notification to RUS, providing the reasons for such termination, the 
effective date, and, in the case of a partial termination, the portion 
of the financial assistance to be terminated. In the case of a partial 
termination, if RUS believes that the remaining portion of the financial 
assistance will not accomplish the approved purposes, then, RUS may 
terminate the financial assistance in its entirety, pursuant to the 
provisions of paragraph (a) of this section.



Sec. 1703.112  Expedited telecommunications loans

    RUS will expedite consideration and determination of an application 
submitted by an RUS telecommunications borrower for a loan under the Act 
or an advance of such loan funds to be used in conjunction with 
financial assistance under subparts E, F, or G of this part. See 7 CFR 
part 1737 for loans and 7 CFR part 1744 for advances under this section.



Sec. Sec. 1703.113-1703.119  [Reserved]



       Subpart E_Distance Learning and Telemedicine Grant Program

    Source: 64 FR 14360, Mar. 25, 1999, unless otherwise noted.



Sec. 1703.120  [Reserved]



Sec. 1703.121  Approved purposes for grants.

    For distance learning and telemedicine projects, grants shall 
finance only the costs for approved purposes. Grants shall be expended 
only for the costs associated with the initial capital assets associated 
with the project. The following are approved grant purposes:
    (a) Acquiring, by lease or purchase, eligible equipment as defined 
in Sec. 1703.102;
    (b) Acquiring instructional programming; and
    (c) Providing technical assistance and instruction for using 
eligible equipment, including any related software; developing 
instructional programming; providing engineering or environmental 
studies relating to the establishment or expansion of the phase of the 
project that is being financed with the grant (this purpose shall not 
exceed 10 percent of the grant).

[64 FR 14357, Mar. 25, 1999, as amended at 67 FR 3040, Mar. 11, 2002]



Sec. 1703.122  Matching contributions.

    (a) The grant applicant's minimum matching contribution must equal 
15 percent of the grant amount requested and shall be used for approved 
purposes for grants listed in Sec. 1703.121. Matching contributions 
generally must be in the form of cash. However, in-kind contributions 
solely for the purposes listed in Sec. 1703.121 may be substituted for 
cash.
    (b) In-kind items listed in Sec. 1703.121 must be non-depreciated 
or new assets with established monetary values. Manufacturers' or 
service providers' discounts are not considered in-kind matching.
    (c) Costs incurred by the applicant, or others on behalf of the 
applicant, for facilities or equipment installed, or

[[Page 34]]

other services rendered prior to submission of a completed application, 
shall not be considered as an eligible in-kind matching contribution.
    (d) Costs incurred for non-approved purposes for grant outlined in 
Sec. 1703.123 shall not be used as an in-kind matching contribution.
    (e) Any financial assistance from Federal sources will not be 
considered as matching contributions under this subpart unless there is 
a Federal statutory exception specifically authorizing the Federal 
financial assistance to be considered as a matching contribution.

[64 FR 14357, Mar. 25, 1999, as amended at 67 FR 3040, Mar. 11, 2002]



Sec. 1703.123  Nonapproved purposes for grants.

    (a) A grant made under this subpart will not be provided or used:
    (1) To cover the costs of acquiring, installing or constructing 
telecommunications transmission facilities;
    (2) To pay for medical equipment not having telemedicine as its 
essential function;
    (3) To pay salaries, wages, or employee benefits to medical or 
educational personnel;
    (4) To pay for the salaries or administrative expenses of the 
applicant or the project;
    (5) To purchase equipment that will be owned by the local exchange 
carrier or another telecommunications service provider unless that 
service provider is the applicant.
    (6) To duplicate facilities providing distance learning or 
telemedicine services in place or to reimburse the applicant or others 
for costs incurred prior to RUS' receipt of the completed application;
    (7) To pay costs of preparing the application package for financial 
assistance under this program;
    (8) For projects whose sole objective is to provide links between 
teachers and students or between medical professionals who are located 
at the same facility;
    (9) For site development and the destruction or alteration of 
buildings;
    (10) For the purchase of land, buildings, or building construction;
    (11) For projects located in areas covered by the Coastal Barrier 
Resources Act (16 U.S.C. 3501 et seq.);
    (12) For any purpose that the Administrator has not specifically 
approved;
    (13) Except for leases provided for in Sec. 1703.121, to pay the 
cost of recurring or operating expenses for the project; or
    (14) For any other purposes not specifically contained in Sec. 
1703.121.
    (b) Except as otherwise provided in Sec. 1703.112, grants shall not 
be used to finance a project, in part, when the success of the project 
is dependent upon the receipt of additional financial assistance under 
this subpart or is dependent upon the receipt of other financial 
assistance that is not assured.

[64 FR 14360, Mar. 25, 1999; 64 FR 25422, May 12, 1999, as amended at 64 
FR 25423, May 12, 1999; 67 FR 3040, Mar. 11, 2002]



Sec. 1703.124  Maximum and minimum grant amounts.

    Applications for grants under this subpart will be subject to 
limitations on the proposed amount of grant funds. The Administrator 
will establish the maximum amount of a grant to be made available to an 
individual recipient for each fiscal year under this subpart by 
publishing notice of the maximum amount in the Federal Register not 
sooner than 45 days before the period for accepting applications begins. 
The minimum amount of a grant is $50,000.



Sec. 1703.125  Completed application.

    The following items are required to be submitted to RUS in support 
of an application for grant funds:
    (a) An application for Federal Assistance. A completed Standard Form 
424.
    (b) An executive summary of the project. The applicant must provide 
RUS with a general project overview that addresses the following 8 
categories:
    (1) A description of why the project is needed;
    (2) An explanation of how the applicant will address the need cited 
in paragraph (b)(1) of this section, why the applicant requires 
financial assistance, the types of educational or medical services to be 
offered by the

[[Page 35]]

project, and the benefits to rural residents;
    (3) A description of the applicant, documenting eligibility in 
accordance with Sec. 1703.103;
    (4) An explanation of the total project cost including a breakdown 
of the grant required and the source of matching contribution and other 
financial assistance for the remainder of the project;
    (5) A statement specifying whether the project is either a distance 
learning or telemedicine facility as defined in Sec. 1703.102. If the 
project provides both distance learning and telemedicine services, the 
applicant must identify the predominant use of the system;
    (6) A general overview of the telecommunications system to be 
developed, including the types of equipment, technologies, and 
facilities used;
    (7) A description of the participating hubs and end user sites and 
the number of rural residents that will be served by the project at each 
end user site; and
    (8) A certification by the applicant that facilities constructed 
with grants do not duplicate adequate established telemedicine or 
distance learning services.
    (9) A listing of the location of each end user site (city, town, 
village, borough, or rural areas) plus the State.
    (c) Scoring criteria documentation. Each grant applicant must 
address and provide documentation on how it meets each of the scoring 
criteria contained in Sec. 1703.126.
    (d) A scope of work. The scope of work must include, at a minimum:
    (1) The specific activities to be performed under the project;
    (2) Who will carry out the activities;
    (3) The time-frames for accomplishing the project objectives and 
activities; and
    (4) A budget for all capital expenditures reflecting the line item 
costs for approved purposes for both the grant funds and other sources 
of funds for the project. Separately, the budget must specify any line 
item costs that are nonapproved purposes for grants as contained in 
Sec. 1703.123.
    (e) Financial information and sustainability. The applicant must 
provide a narrative description demonstrating: feasibility of the 
project, including having sufficient resources and expertise necessary 
to undertake and complete the project; and, how the project will be 
sustained following completion of the project.
    (f) A statement of experience. The applicant must provide a written 
narrative (not exceeding three single spaced pages) describing its 
demonstrated capability and experience, if any, in operating an 
educational or health care endeavor and any project similar to the 
project. Experience in a similar project is desirable but not required.
    (g) Funding commitment from other sources. The applicant must 
provide evidence, in form and substance satisfactory to RUS, that 
funding agreements have been obtained to ensure completion of the 
project. These agreements shall be sufficient to ensure:
    (1) Payment of all proposed expenditures for the project;
    (2) All required matching contribution in 1703.120;
    (3) any additional matching funding provided in accordance with 
Sec. 1703.126(b)(4); and
    (4) Any other funds necessary to complete the project.
    (h) A telecommunications system plan. A telecommunications system 
plan consisting of the following:
    (1) The capabilities of the telecommunications terminal equipment, 
including a description of the specific equipment which will be used to 
deliver the proposed service. The applicant must document discussions 
with various technical sources which could include consultants, 
engineers, product vendors, or internal technical experts, provide 
detailed cost estimates for operating and maintaining the end user 
equipment and provide evidence that alternative equipment and 
technologies were evaluated.
    (2) A listing of the proposed telecommunications terminal equipment, 
telecommunications transmission facilities, data terminal equipment, 
interactive video equipment, computer hardware and software systems, and 
components that process data for transmission via telecommunications, 
computer network components, communication satellite ground station 
equipment, or any other elements of

[[Page 36]]

the telecommunications system designed to further the purposes of this 
subpart, that the applicant intends to build or fund using RUS financial 
assistance.
    (3) A description of the consultations with the appropriate 
telecommunications carriers (including other interexchange carriers, 
cable television operators, enhanced service providers, providers of 
satellite services and telecommunications equipment manufacturers and 
distributors) and the anticipated role of such providers in the proposed 
telecommunications system.
    (i) Compliance with other Federal statutes. The applicant must 
provide evidence of compliance with other Federal statutes and 
regulations including, but not limited to the following:
    (1) E.O. 11246, Equal Employment Opportunity, as amended by E.O. 
11375 and as supplemented by regulations contained in 41 CFR part 60;
    (2) Architectural barriers;
    (3) Flood hazard area precautions;
    (4) Assistance and Real Property Acquisition Policies Act of 1970;
    (5) Drug-Free Workplace Act of 1998 (41 U.S.C. 701);
    (6) E.O.s 12549 and 12689, Debarment and Suspension;
    (7) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352).
    (j) Environmental impact and historic preservation. (1) The 
applicant must provide details of the project's impact on the 
environment and historic preservation. Grants made under this part are 
subject to part 1794 of this chapter which contains RUS' policies and 
procedures for implementing a variety of Federal statutes, regulations, 
and executive orders generally pertaining to the protection of the 
quality of the human environment that are listed in 7 CFR 1794.1. The 
application shall contain a separate section entitled ``Environmental 
Impact of the Project.''
    (2) The applicant may use the ``Environmental Questionnaire,'' 
available from RUS, to assist in complying with the requirements of this 
section.
    (k) Evidence of legal authority and existence. The applicant must 
provide evidence of its legal existence and authority to enter into a 
grant agreement with RUS and perform the activities proposed under the 
grant application.
    (l) Federal debt certification. The applicant must provide a 
certification that it is not delinquent on any obligation owed to the 
government (7 CFR parts 3016 and 3019).
    (m) Consultation with USDA State Director, Rural Development. The 
applicant must provide evidence that it has consulted with the USDA 
State Director, Rural Development, concerning the availability of other 
sources of funding available at the State or local level.
    (n) State strategic plan conformity. The applicant must provide 
evidence from the USDA State Director, Rural Development, that the 
application conforms with the State strategic plan as prepared under 
section 381D of the Consolidated Farm and Rural Development Act (7 
U.S.C. 1921 et seq.). The applicant should indicate if such a plan does 
not exist.
    (o) Supplemental information. The applicant should provide any 
additional information it considers relevant to the project and likely 
to be helpful in determining the extent to which the project would 
further the purposes of the 1996 Act.
    (p) Additional information required by RUS. The applicant must 
provide any additional information RUS may consider relevant to the 
application and necessary to adequately evaluate the application. RUS 
may request modifications or changes, including changes in the amount of 
financial assistance requested, in any proposal described in an 
application submitted under this subpart.

[64 FR 14360, Mar. 25, 1999, as amended at 64 FR 25423, May 12, 1999; 67 
FR 3040, Mar. 11, 2002]



Sec. 1703.126  Criteria for scoring grant applications.

    (a) Criteria. The criteria in this section will be used by RUS to 
score applications that have been determined to be in compliance with 
the requirements of this subpart. Applications for grants must meet the 
rurality requirements in paragraph (b)(2)(iv) of this section and 
address each of the following scoring criteria:
    (1) The need for services and benefits derived from services (up to 
55 points);
    (2) The comparative rurality of the project service area (up to 45 
points);

[[Page 37]]

    (3) The economic need of the applicant's service area as estimated 
by the NSLP or other supplemental objective criteria (up to 35 points);
    (4) The ability of the applicant to leverage resources (up to 35 
points);
    (5) Innovativeness of the project (up to 15 points);
    (6) The cost effectiveness of the system (up to 35 points);
    (7) Project participation in EZ/ECs (Empowerment Zone and Enterprise 
Communities) and Champion Communities (up to 15 points).
    (b) Scoring criteria:
    (1) The need for services and benefits derived from services--Up to 
55 Points. (i) This criterion will be used by RUS to score applications 
based on the documentation in support of the need for services, benefits 
derived from the services proposed by the project, and local community 
involvement in planning, implementing, and financial assistance of the 
project. Applicants may receive up to 45 points for documenting the need 
for services and benefits derived from service as explained in this 
section. Applicants with an average NSLP percentage less than 50 percent 
as determined in paragraph (b)(3) of this section may receive up to an 
additional 10 points based on information submitted that evidences the 
economic need of the project's service area. This determination will be 
made by RUS based on information submitted by the applicant under 
paragraph (b)(1) of this section.
    (ii) RUS will consider the extent of the applicant's documentation 
explaining the economic, education, or health care challenges facing the 
community; the applicant's proposed plan to address these challenges; 
how the grant can help; and why the applicant cannot complete the 
project without a grant. RUS will also consider the extent to which the 
applicant provides evidence that economic, education, or health care 
challenges could not be addressed without employing advanced technology. 
The Administrator will also consider any support by recognized experts 
in the related educational or health care field, any documentation 
substantiating the educational or health care underserved nature of the 
applicant's proposed service area, and any justification for specific 
educational or medical services which are needed and will provide direct 
benefits to rural residents.
    (A) Some examples of benefits to be provided by the project include, 
but are not limited to:
    (1) Improved educational opportunities for a specified number of 
students;
    (2) Travel time and money saved by telemedicine diagnoses;
    (3) Number of doctors retained in rural areas;
    (4) Number of additional students electing to attend higher 
education institutions;
    (5) Lives saved due to prompt medical diagnoses and treatment;
    (6) New education courses offered, including college level courses;
    (7) Expanded use of educational facilities such as night training;
    (8) Number of patients receiving telemedicine diagnoses;
    (9) Provision of training, information resources, library assets, 
adult education, lifetime learning, community use of technology, jobs, 
connection to region, nation, and world.
    (B) Other matters that will be considered by RUS under this 
criterion include:
    (1) That rural residents, and other beneficiaries, desire the 
educational or medical services to be provided by the project. A strong 
indication of need is the willingness of local end users or 
institutions, to the extent possible, to contribute to the capital costs 
of establishing the project. This could include letters of financial 
commitment toward the project from local institutions.
    (2) The extent of the project's planning, development, and support 
by local residents and institutions. This may include evidence of 
community involvement, as exemplified in community meetings, public 
forums, and surveys. In addition, applicants should provide evidence of 
local residents' participation in the project planning and development.
    (3) The extent to which the application addresses the problems of 
population out-migration and how the project seeks to slow, halt, or 
prevent population loss.

[[Page 38]]

    (4) The extent to which the application is consistent with the State 
strategic plan prepared by the Rural Development State Director of the 
United States Department of Agriculture.
    (2) The comparative rurality of the project service area--Up to 45 
Points. This criterion will be used to evaluate the relative rurality of 
service areas for various projects. Under this system, the end user 
sites and hubs (as defined in Sec. 1703.102) contained within the 
project service area are identified and given a score according to the 
population of the area where the end user sites are located.
    (i) The following definitions are used in the evaluation of 
rurality:
    (A) Exceptionally Rural Area means any area of the United States not 
included within the boundaries of any incorporated or unincorporated 
city, village, or borough having a population in excess of 5,000 
inhabitants.
    (B) Rural Area means any area of the United States included within 
the boundaries of any incorporated or unincorporated city, village, or 
borough having a population over 5,000 and not in excess of 10,000 
inhabitants.
    (C) Mid-Rural Area means any area of the United States included 
within the boundaries of any incorporated or unincorporated city, 
village, or borough having a population over 10,000 and not in excess of 
20,000 inhabitants.
    (D) Urban Area means any area of the United States included within 
the boundaries of any incorporated or unincorporated city, village, or 
borough having a population in excess of 20,000 inhabitants.
    (ii) There are a total of 45 possible points for this criterion. 
Each end user site will receive points based on its location in 
accordance with paragraph (b)(2)(i) of this section. If a hub is 
utilized as an end user site, the hub will be considered as an end user 
site. The applicant will receive points as follows:
    (A) If the end user site is located in an Exceptionally Rural Area, 
it will receive 45 points.
    (B) If the end user site is located in a Rural Area, it will receive 
30 points.
    (C) If the end user site is located in a Mid-Rural Area, it will 
receive 15 points.
    (D) If the end user site is located in an Urban Area, it will 
receive 0 points.
    (iii) The total score for this criterion will be based on the 
average score for all the end user sites included in the project.
    (iv) An application must receive a minimum of 20 points as an 
average score for all the end user sites under this criterion to be 
eligible for a grant.
    (3) The economic need of the applicant's service area as estimated 
by NSLP--Up to 35 points. This criterion will be used to evaluate the 
relative financial need of the applicant, community, and project. All 
applicants are required to provide the applicable percentage of students 
eligible to participate in the NSLP for each area to be served by the 
end user site. The appropriate State or local organization administering 
the program must certify the percentages as being correct. The applicant 
must provide RUS with a listing of the location of each end user site 
(city, town, village, borough or rural area plus the State) discussing 
how the appropriate NSLP percentage was determined in accordance with 
this section. These percentages may be obtained from the State or local 
organization that administers the program and must be certified by that 
organization as being correct. For purposes of this subpart, the NSLP 
percentage will reflect the percentage of eligibility rather than the 
percentage of actual participation.
    (i) The following guidelines will be used to determine the 
applicable NSLP percent for a particular application:
    (A) Public schools or non-profit private schools of high school 
grade or under will use the actual eligibility percentage for that 
particular school.
    (B) Schools and institutions of higher learning ineligible to 
participate in the NSLP and non-school end user sites (medical 
facilities, libraries, etc.) will use the eligibility percentage of all 
students in the school district where the end user will be located.
    (C) Percentage ratios will be rounded up to the next highest or 
rounded down to the next lowest whole number for fraction of percentages 
at or greater than .5 or less than .5, respectively.
    (D) The project NSLP percentage will be determined by the average of 
the NSLP percentages of the end user sites.

[[Page 39]]

If end user sites fall within different percentile categories, the 
eligibility percentages associated with each end user site will be 
averaged to determine the percentile category. For purposes of 
averaging, if a hub is also utilized as an end user site, the hub will 
be considered as an end user site.
    (ii) The applicant will receive points as follows:
    (A) NSLP percentage greater than or equal to 75 percent--35 points
    (B) NSLP percentage greater than or equal to 50 percent but less 
than 75 percent--25 points
    (C) NSLP percentage greater than or equal to 25 percent but less 
than 50 percent--15 points
    (D) NSLP percentage less than 25% percent--0 points
    (4) The ability of the applicant to leverage financial resources--Up 
to 35 points. This criterion will be used to evaluate the ability of the 
applicant to provide a matching contribution for the project using other 
non-Federal financial assistance. Documentation submitted in support of 
the application should reflect any additional financial support for the 
project from non-Federal sources above the applicant's minimum matching 
contribution of 15 percent as required by Sec. 1703.122. The applicant 
must include evidence, from authorized representatives of the sources, 
of a commitment that the funds are available and will be used for the 
project. The applicant will receive points as follows:
    (i) Matching contribution for approved purposes greater than 15 
percent, but less than or equal to 30 percent of the grant requested--0 
points.
    (ii) Matching contribution for approved purposes greater than 30 
percent, but less than or equal to 50 percent of the grant requested--15 
points.
    (iii) Matching contribution for approved purposes greater than 50 
percent, but less than or equal to 75 percent of the grant requested--25 
points.
    (iv) Matching contribution for approved purposes greater than 75 
percent, but less than or equal to 100 percent of the grant requested--
30 points.
    (v) Matching contribution for a grant for approved purposes greater 
than 100 percent of the grant requested--35 points.
    (5) Innovativeness of the project--Up to 15 points. This criterion 
will be used to evaluate the innovativeness of application based on 
documentation that shows how the project utilizes advanced 
telecommunications in a unique way to address the needs of the 
community. Innovativeness should be addressed in the context of how the 
project will deliver distance learning or telemedicine services more 
effectively or at a lower cost. The following issues may be addressed to 
show how the project differs from a typical distance learning and 
telemedicine network as follows:
    (i) The extent to which the project differs from a technical 
standpoint;
    (ii) The extent to which the project differs from an educational or 
medical programmatic standpoint;
    (iii) The extent to which the project reflects a unique adaptation 
of technology based on the special needs or circumstances of the 
proposed area to be served by the project; and
    (iv) The potential of the project to influence or lead changes in 
how telecommunications services can be delivered in other areas.
    (6) The cost-effectiveness of the project--Up to 35 points. This 
criterion will be used to evaluate the cost effectiveness of the 
application based on the extent that cost-efficiency is considered in 
delivering the services in the project. The following issues should be 
addressed under this criterion:
    (i) The extent to which the applicant has considered various 
technological options for delivering the services. The applicant must 
provide sufficient documentation reflecting accepted analytical and 
financial methodologies to substantiate its choice of technology as the 
most cost-effective option. RUS will consider the applicant's 
documentation and analysis comparing various systems and technologies.
    (ii) Whether buying or leasing specific equipment is more cost 
effective.
    (iii) The extent to which the project will utilize other existing 
networks at the regional, statewide, national or international levels. 
To the extent possible, educational and health care networks should be 
designed to utilize the widest practicable number of other networks that 
expand the capabilities of

[[Page 40]]

the project, thereby affording rural residents opportunities that may 
not be available at the local level. The ability to connect to the 
Internet alone cannot be used as the sole basis to fulfill this 
criteria.
    (iv) The extent to which the facilities being constructed with 
financial assistance, particularly financial assistance under this 
chapter provided to entities other than the applicant, will be utilized 
to extend or enhance the benefits of the project.
    (v) The extent to which the project utilizes existing 
telecommunications transmission facilities that could provide the 
transmission path for the needed services. For projects that do not 
utilize existing transmission facilities, RUS will consider 
documentation explaining the necessity of this option. RUS will also 
consider any agreements between the applicant and other entities for 
sharing transmission facilities to lower the fixed costs of such 
facilities.
    (7) Project participation in EZ/ECs and champion communities--(Up to 
15 Points). This criterion will be used by RUS to score applications 
based on the number of end user sites within an EZ/EC and Champion 
Community. Ten (10) points will be assigned if at least one end user 
site is located in an EZ/EC. Five (5) points will be assigned if at 
least one end user site is located in a Champion Community.

[64 FR 14360, Mar. 25, 1999; 64 FR 25422, May 12, 1999, as amended at 67 
FR 3040, Mar. 11, 2002; 67 FR 16011, Apr. 4, 2002]



Sec. 1703.127  Application selection provisions.

    (a) Applications will be selected for approval based on scores 
assigned, availability of funds, and the provisions of this section. RUS 
will make determinations regarding the reasonableness of all numbers; 
dollar levels; rates; the nature and design of the project; costs; 
location; and other characteristics of the application and the project 
to determine the number of points assigned to a grant application for 
all selection criteria.
    (b) Regardless of the number of points an application receives in 
accordance with Sec. 1703.126, the Administrator may, based on a review 
of the applications in accordance with the requirements of this subpart:
    (1) Limit the number of applications selected for projects located 
in any one State during a fiscal year;
    (2) Limit the number of selected applications for a particular 
project;
    (3) Select an application receiving fewer points than another higher 
scoring application if there are insufficient funds during a particular 
funding period to select the higher scoring application. In this case, 
however, the Administrator will provide the applicant of the higher 
scoring application the opportunity to reduce the amount of its grant 
request to the amount of funds available. If the applicant agrees to 
lower its grant request, it must certify that the purposes of the 
project can be met, and the Administrator must determine the project is 
financially feasible at the lower amount in accordance with Sec. 
1703.125(e)(1). An applicant or multiple applicants affected under this 
paragraph will have the opportunity to be considered for loan financing 
in accordance with subparts F and G of this part.
    (c) RUS will not approve a grant if RUS determines that:
    (1) The applicant's proposal does not indicate financial feasibility 
or is not sustainable in accordance with the requirements of Sec. 
1703.125(e)(1);
    (2) The applicant's proposal indicates technical flaws, which, in 
the opinion of RUS, would prevent successful implementation, operation, 
or sustainability of the project;
    (3) Other applications would provide more benefit to rural America 
based on a review of the financial and technical information submitted 
in accordance with Sec. 1703.125(e).
    (4) Any other aspect of the applicant's proposal fails to adequately 
address any requirement of this subpart or contains inadequacies which 
would, in the opinion of RUS, undermine the ability of the project to 
meet the general purpose of this subpart or comply with policies of the 
DLT Program contained in Sec. 1703.101.
    (d) Grant applications will be ranked by the type of application 
(health care or educational) and total points scored. Grants available 
for medical and educational applicants may be allocated

[[Page 41]]

based on the total number of medical and educational applications 
scoring in the top 50 percent of all applications received for that 
fiscal year. Based on the number and type of applications received, 
applications may be ranked only in one category based on the predominant 
use of the project.
    (e) RUS may reduce the amount of the applicant's grant based on 
insufficient program funding for the fiscal year in which the project is 
reviewed. RUS will discuss its findings informally with the applicant 
and make every effort to reach a mutually acceptable agreement with the 
applicant. Any discussions with the applicant and agreements made with 
regard to a reduced grant amount will be confirmed in writing, and these 
actions shall be deemed to have met the notification requirements set 
forth in paragraph (f) of this section.
    (f) RUS will provide the applicant with an explanation of any 
determinations made with regard to paragraphs (c)(1) through (c)(4) of 
this section prior to making final project selections for the year. The 
applicant will be provided 15 days from the date of RUS' letter to 
respond, provide clarification, or make any adjustments or corrections 
to the project. If, in the opinion of the Administrator, the applicant 
fails to adequately respond to any determinations or other findings made 
by the Administrator, the project will not be funded, and the applicant 
will be notified of this determination. If the applicant does not agree 
with this finding an appeal may be filed in accordance with Sec. 
1703.129.
    (g) Grantees shall comply with all applicable provisions of 7 CFR 
parts 3015, 3016, and 3019.

[64 FR 14360, Mar. 25, 1999; 64 FR 25422, May 12, 1999]



Sec. 1703.128  Submission of applications.

    (a) Applications for grants shall be submitted to the RUS, U.S. 
Department of Agriculture, 1400 Independence Avenue, SW., STOP 1590, 
Washington, DC 20250-1590. Applications should be marked ``Attention: 
Assistant Administrator, Telecommunications Program''.
    (b) Applications must be submitted to RUS postmarked not later than 
the application filing deadline established by the Administrator if the 
applications are to be considered during the period for which the 
application was submitted. The deadline for submission of applications 
each fiscal year will be published, and provided through other notices, 
by RUS in the Federal Register, at least 30 days before the deadline 
occurs. It is suggested that applications be submitted prior to the 
respective deadline to ensure they can be reviewed and considered 
complete by the deadline. RUS will review each application for 
completeness in accordance with Sec. 1703.125, and notify the 
applicant, within 15 working days of the receipt of the application, of 
the results of this review, citing any information that is incomplete. 
To be considered for a grant, the applicant must submit the information 
to complete the application within 15 working days of the date of RUS' 
written response. If the applicant has submitted an application prior to 
the application filing deadline, the applicant will have 15 working days 
from RUS' response or until the application filing deadline to submit 
information, whichever provides the applicant more time. If the 
applicant fails to submit such information by the appropriate deadline, 
the application will be considered during the next established 
application period.
    (c) All applicants must submit an original and two copies of a 
completed application. Applicants must also submit a copy of the 
application to the State government point of contact, if one has been 
designated for the State, at the same time it submits an application to 
RUS. All applications must include the information required by Sec. 
1703.125.



Sec. 1703.129  Appeals.

    All qualifying applications under this subpart will be scored based 
on the criteria contained in Sec. 1703.126. Awards will be made by RUS 
based on the highest ranking applications and the amount of financial 
assistance available for grants. All applicants will be notified in 
writing of the score each application receives, and included in this 
notification will be a tentative minimum required score to receive 
financial assistance. If the score received by

[[Page 42]]

the applicant could result in the denial of its application, or if its 
score, while apparently sufficient to qualify for financial assistance, 
may be surpassed by the score awarded to a competing application after 
appeal, that applicant may appeal its numerical scoring. Any appeal must 
be based on inaccurate scoring of the application by RUS and no new 
information or data that was not included in the original application 
will be considered. The appeal must be made, in writing, within 10 days 
after the applicant is notified of the scoring results. Appeals shall be 
submitted to the Administrator, RUS, U.S. Department of Agriculture, 
1400 Independence Ave., SW., STOP 1590, Washington, DC 20250-1590. 
Thereafter, the Administrator will review the original scoring to 
determine whether to sustain, reverse, or modify the original scoring 
determination. Final determinations will be made after consideration of 
all appeals. The Administrator's determination will be final. A copy of 
the Administrator's decision will be furnished promptly to the 
applicant.



Subpart F_Distance Learning and Telemedicine Combination Loan and Grant 

                                 Program

    Source: 64 FR 14366, Mar. 25, 1999, unless otherwise noted.



Sec. 1703.130  Use of combination loan and grant.

    (a) A combination loan and grant may be used by eligible 
organizations as defined in Sec. 1703.103 for distance learning and 
telemedicine projects to finance 100 percent of the cost of approved 
purposes contained in Sec. 1703.131 provided that no financial 
assistance may exceed the maximum amount for the year in which the 
combination loan and grant is made.
    (b) Applicants must meet the minimum eligibility requirement for 
determining the extent to which the project serves rural areas as 
determined in Sec. 1703.126(b)(2) (the applicant must receive at least 
20 points to be eligible to receive financial assistance under this 
subpart).



Sec. 1703.131  Approved purposes for a combination loan and grant.

    The approved purposes for a combination loan and grant are:
    (a) Acquiring, by lease or purchase, eligible equipment or 
facilities as defined in Sec. 1703.102;
    (b) Acquiring instructional programming;
    (c) Providing technical assistance and instruction for using 
eligible equipment, including any related software; developing 
instructional programming; providing engineering or environmental 
studies relating to the establishment or expansion of the phase of the 
project that is being financed with a combination loan and grant (this 
purpose shall not exceed 10 percent of the total requested financial 
assistance);
    (d) Paying for medical or educational equipment and facilities that 
are shown to be necessary to implement the project, including vehicles 
utilizing distance learning and telemedicine technology to deliver 
educational and health care services. The applicant must demonstrate 
that such items are necessary to meet the purposes under this subpart 
and financial assistance for such equipment and facilities is not 
available from other sources at a cost which would not adversely affect 
the economic viability of the project;
    (e) Providing links between teachers and students or medical 
professionals who are located at the same facility, provided that such 
facility receives or provides distance learning or telemedicine services 
as part of a distance learning or telemedicine network which meets the 
purposes of this subpart;
    (f) Providing for site development and alteration of buildings in 
order to meet the purposes of this subpart. Financial assistance for 
this purpose must be necessary and incidental to the total amount of 
financial assistance requested;
    (g) Purchasing of land, buildings, or building construction 
determined by RUS to be necessary and incidental to the project. The 
applicant must demonstrate that financial assistance funding from other 
sources is not available at a cost that does not adversely impact the 
economic viability of the

[[Page 43]]

project as determined by the Administrator. Financial assistance for 
this purpose must be necessary and incidental to the total amount of 
financial assistance requested; and
    (h) Acquiring telecommunications transmission facilities provided 
that no telecommunications carrier will install such facilities under 
the Act or through other financial procedures within a reasonable time 
period and at a cost to the applicant that does not impact the economic 
viability of the project, as determined by the Administrator.



Sec. 1703.132  Nonapproved purposes for a combination loan and grant.

    (a) Without limitation, a combination loan and grant made under this 
subpart shall not be expended:
    (1) To pay salaries, wages, or employee benefits to medical or 
educational personnel;
    (2) To pay for the salaries or administrative expenses of the 
applicant or the project;
    (3) To purchase equipment that will be owned by the local exchange 
carrier or another telecommunications service provider, unless the 
applicant is the local exchange carrier or other telecommunications 
service provider;
    (4) To duplicate facilities providing distance learning or 
telemedicine services in place or to reimburse the applicant or others 
for costs incurred prior to RUS' receipt of the completed application;
    (5) For projects located in areas covered by the Coastal Barrier 
Resources Act (16 U.S.C. 3501 et seq.);
    (6) For any purpose that the Administrator has not specifically 
approved;
    (7) Except for leases (see Sec. 1703.131), to pay the cost of 
recurring or operating expenses for the project; or,
    (8) For any other purposes not specifically outlined in Sec. 
1703.131.
    (b) Except as otherwise provided in Sec. 1703.112, funds shall not 
be used to finance a project, in part, when the success of the project 
is dependent upon the receipt of additional financial assistance under 
this subpart or is dependent upon the receipt of other funding that is 
not assured.



Sec. 1703.133  Maximum and minimum amounts.

    Applications for a combination loan and grant under this subpart 
will be subject to limitations on the proposed amount of loans and 
grants. The Administrator will establish the maximum amount of loans and 
grants and the portion of grant funds as a percentage of total 
assistance for each project to be made available to an individual 
recipient for each fiscal year under this subpart, by publishing notice 
of the maximum amount in the Federal Register before the beginning of 
the fiscal year to carry out this subpart. The minimum amount of a 
combination loan and grant is $50,000.



Sec. 1703.134  Completed application.

    The following items are required to be submitted to RUS in support 
of an application for a combination loan and grant:
    (a) An application for federal assistance: A completed Standard Form 
424.
    (b) An executive summary of the project: The applicant must provide 
RUS with a general project overview that addresses each of the following 
9 categories:
    (1) A description of why the project is needed;
    (2) An explanation of how the applicant will address the need cited 
in paragraph (b)(1) of this section, why the applicant requires 
financial assistance, the types of educational or medical services to be 
offered by the project, and the benefits to the rural residents;
    (3) A description of the applicant, documenting eligibility in 
accordance with Sec. 1703.103;
    (4) An explanation of the total project cost including a breakdown 
of the combination loan and grant required and the source of funding, if 
applicable, for the remainder of the project;
    (5) A statement specifying whether the project provides 
predominantly distance learning or telemedicine services as defined in 
Sec. 1703.102. If the project provides both distance learning and 
telemedicine services, the applicant must identify the predominant use 
of the system;

[[Page 44]]

    (6) A general overview of the telecommunications system to be 
developed, including the types of equipment, technologies, and 
facilities used;
    (7) A description of the participating hubs and end user sites and 
the number of rural residents that will be served by the project at each 
end user site;
    (8) A certification by the applicant that facilities constructed 
with a combination loan and grant do not duplicate adequately 
established telemedicine or distance learning services.
    (9) A listing of the location of each end user site (city, town, 
village, borough, or rural area plus the State).
    (c) A scope of work. The scope of work must include, at a minimum:
    (1) The specific activities to be performed under the project;
    (2) Who will carry out the activities;
    (3) The time-frames for accomplishing the project objectives and 
activities; and
    (4) A budget for capital expenditures reflecting the line item costs 
for both the combination loan and grant and any other sources of funds 
for the project.
    (d) Financial information. The applicant must show its financial 
ability to complete the project; show project feasibility; and provide 
evidence that it can execute a note for a loan with a maturity period 
greater than one year. For educational institutions participating in a 
project application (including all members of a consortium), the 
financial data must reflect revenue and expense reports and balance 
sheet reports, reflecting net worth, for the most recent annual 
reporting period preceding the date of the application. For medical 
institutions participating in a project application (including all 
members of a consortium), the financial data must include income 
statement and balance sheet reports, reflecting net worth, for the most 
recent completed fiscal year preceding the date of the application. When 
the applicant is a partnership, company, corporation, or other entity, 
current balance sheets, reflecting net worth, are needed from each of 
the entities that has at least a 20 percent interest in such 
partnership, company, corporation or other entity. When the applicant is 
a consortium, a current balance sheet, reflecting net worth, is needed 
from each member of the consortium and from each of the entities that 
has at least a 20 percent interest in such member of the consortium.
    (1) Applicants must include sufficient pro-forma financial data that 
adequately reflects the financial capability of project participants and 
the project as a whole to continue a sustainable project for a minimum 
of 10 years and repay the loan portion of the combination loan and 
grant. This documentation should include sources of sufficient income or 
revenues to pay operating expenses including telecommunications access 
and toll charges, system maintenance, salaries, training, and any other 
general operating expenses, provide for replacement of depreciable 
items, and show repayment of interest and principal for the loan portion 
of the combination loan and grant.
    (2) A list of property which will be used as collateral to secure 
repayment of the loan. The applicant shall purchase and own collateral 
that secures the loan free from liens or security interests and take all 
actions necessary to perfect a security interest in the collateral that 
secures the loan. RUS considers as adequate security for a loan, a 
guarantee by a RUS telecommunications or electric borrower or by another 
qualified party. Additional forms of security, including letters of 
credit, real estate, or any other items will be considered. RUS will 
determine the adequacy of the security offered.
    (3) As applicable, a depreciation schedule covering all assets of 
the project. Those assets for which a combination loan and grant are 
being requested should be clearly indicated.
    (4) For each hub and end user site, the applicant must identify and 
provide reasonable evidence of each source of revenue. If the projection 
relies on cost sharing arrangements among hub and end user sites, the 
applicant must provide evidence of agreements made among project 
participants.
    (5) For applicants eligible under Sec. 1703.103(a)(3), an 
explanation of the economic analysis justifying the rate structure to 
ensure that the benefit, including cost saving, of the financial

[[Page 45]]

assistance is passed through to the other persons receiving telemedicine 
or distance learning services.
    (e) A statement of experience. The applicant must provide a written 
narrative (not exceeding three single spaced pages) describing its 
demonstrated capability and experience, if any, in operating an 
educational or health care endeavor similar to the project. Experience 
in a similar project is desirable but not required.
    (f) A telecommunications system plan. A telecommunications system 
plan, consisting of the following (the items in paragraphs (f)(4) and 
(f)(5) of this section are required only when the applicant is 
requesting a combination loan and grant for telecommunications 
transmission facilities):
    (1) The capabilities of the telecommunications terminal equipment, 
including a description of the specific equipment which will be used to 
deliver the proposed service. The applicant must document discussions 
with various technical sources which could include consultants, 
engineers, product vendors, or internal technical experts, provide 
detailed cost estimates for operating and maintaining the end user 
equipment and provide evidence that alternative equipment and 
technologies were evaluated.
    (2) A listing of the proposed purchases or leases of 
telecommunications terminal equipment, telecommunications transmission 
facilities, data terminal equipment, interactive video equipment, 
computer hardware and software systems, and components that process data 
for transmission via telecommunications, computer network components, 
communication satellite ground station equipment, or any other elements 
of the telecommunications system designed to further the purposes of 
this subpart, that the applicant intends to build or fund using a 
combination loan and grant.
    (3) A description of the consultations with the appropriate 
telecommunications carriers (including other interexchange carriers, 
cable television operators, enhanced service providers, providers of 
satellite services, and telecommunications equipment manufacturers and 
distributors) and the anticipated role of such providers in the proposed 
telecommunications system.
    (4) Results of discussions with local exchange carriers serving the 
project area addressing the concerns contained in Sec. 1703.131(h).
    (5) The capabilities of the telecommunications transmission 
facilities, including bandwidth, networking topology, switching, 
multiplexing, standards, and protocols for intra-networking and open 
systems architecture (the ability to effectively communicate with other 
networks). In addition, the applicant must explain the manner in which 
the transmission facilities will deliver the proposed services. For 
example, for medical diagnostics, the applicant might indicate whether 
or not a guest or other diagnosticians can join the network from 
locations off the network. For educational services, indicate whether or 
not all hub and end-user sites are able to simultaneously hear in real-
time and see each other or the instructional material in real-time. The 
applicant must include detailed cost estimates for operating and 
maintaining the network, and include evidence that alternative delivery 
methods and systems were evaluated.
    (g) Compliance with other Federal statutes. The applicant must 
provide evidence of compliance with other federal statutes and 
regulations including, but not limited to the following:
    (1) E.O. 11246, Equal Employment Opportunity, as amended by E.O. 
11375 and as supplemented by regulations contained in 41 CFR part 60;
    (2) Architectural barriers;
    (3) Flood hazard area precautions;
    (4) Assistance and Real Property Acquisition Policies Act of 1970;
    (5) Drug-Free Workplace Act of 1998 (41 U.S.C. 701);
    (6) E.O.s 12549 and 12689, Debarment and Suspension;
    (7) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352).
    (h) Environmental impact and historic preservation. (1) The 
applicant must provide details of the project's impact on the 
environment and historic preservation. Loans and grants made under this 
part are subject to 7 CFR part 1794 which contains RUS' policies and 
procedures for implementing a variety of

[[Page 46]]

Federal statutes, regulations, and Executive orders generally pertaining 
to the protection of the quality of the human environment that are 
listed in 7 CFR 1794.1. The application shall contain a separate section 
entitled ``Environmental Impact of the Project.''
    (2) The applicant may use the ``Environmental Questionnaire,'' 
available from RUS, to assist in complying with the requirements of this 
section.
    (i) Evidence of legal authority and existence. The applicant must 
provide evidence of its legal existence and authority to enter into a 
grant and incur debt with RUS.
    (j) Federal debt certification. The applicant must provide evidence 
that it is not delinquent on any obligation owed to the government.
    (k) Supplemental information. The applicant should provide any 
additional information it considers relevant to the project and likely 
to be helpful in determining the extent to which the project would 
further the purposes of this subpart.
    (l) Additional information required by RUS. The applicant must 
provide any additional information RUS may consider relevant to the 
application and necessary to adequately evaluate the application. RUS 
may also request modifications or changes, including changes in the 
amount of funds requested, in any proposal described in an application 
submitted under this subpart.

[64 FR 14366, Mar. 25, 1999; 64 FR 25422, May 12, 1999, as amended at 64 
FR 25423, May 12, 1999]



Sec. 1703.135  Application selection provisions.

    (a) A combination loan and grant will be approved based on 
availability of funds, the financial feasibility of the project in 
accordance with Sec. 1703.134(d), the services to be provided which 
demonstrate that the project meets the general requirements of this 
subpart, the design of the project; costs; location; and other 
characteristics of the application.
    (b) RUS will determine, from the information submitted with each 
application for a combination loan and grant, whether the application 
achieves sufficient priority, based on the criteria set forth in the 
1996 Act, to receive a combination loan and grant from funds available 
for the fiscal year. If such priority is achieved, RUS will process the 
combination loan and grant application on a first-in, first-out basis, 
provided that the total amount of applications on-hand for combination 
loans and grants does not exceed 90 percent of the total loan and grant 
funding available for the fiscal year. At such time as the total amount 
of applications eligible for combination loans and grants, if such 
applications were approved, exceeds 90 percent of amount of combination 
loan and grant funding available, RUS will process the remaining 
applications using the evaluation criteria set forth in Sec. 1703.126.
    (c) RUS will not approve a combination loan and grant if RUS 
determines that:
    (1) The applicant's proposal does not indicate financial 
feasibility, or will not be adequately secured in accordance with the 
requirements contained in Sec. 1703.134(d);
    (2) The applicant's proposal indicates technical flaws, which, in 
the opinion of RUS, would prevent successful implementation, or 
operation of the project; or
    (3) Any other aspect of the applicant's proposal fails to adequately 
address any requirements of this subpart or contains inadequacies which 
would, in the opinion of RUS, undermine the ability of the project to 
meet the general purpose of this subpart or comply with policies of the 
DLT program contained in Sec. 1703.101.
    (d) RUS will provide the applicant with a statement of any 
determinations made with regard to paragraphs (c)(1) through (c)(3) of 
this section. The applicant will be provided 15 days from the date of 
RUS' letter to respond, provide clarification, or make any adjustments 
or corrections to the project. If, in the opinion of the Administrator, 
the applicant fails to adequately respond to any determinations or other 
findings made by the Administrator, the project will not be funded, and 
the applicant will be notified of this determination. If the applicant 
does not agree with this finding, an appeal may be filed in accordance 
with Sec. 1703.137.

[[Page 47]]



Sec. 1703.136  Submission of applications.

    (a) RUS will accept applications for a combination loan and grant 
submitted by RUS telecommunications General Field representatives 
(GFRs), by Rural Development State Directors, or by applicants 
themselves. Applications for a combination loan and grant under this 
subpart may be filed at any time and will be evaluated as received.
    (b) Applications submitted to the State Director, Rural Development, 
in the State serving the headquarters of the project will be evaluated 
as they are submitted. All applicants must submit an original and two 
copies of a completed application. The applicant must also submit a copy 
of the application to the State government point of contact, if one has 
been designated for the State, at the same time it submits an 
application to the State Director. The State Director will:
    (1) Review each application for completeness in accordance with 
Sec. 1703.134, and notify the applicant, within 15 working days of 
receiving the application, of the results of this review, acknowledging 
a complete application, or citing any information that is incomplete. To 
be considered for a combination loan and grant, the applicant must 
submit any additional information requested to complete the application 
within 15 working days of the date of the State Director's written 
response. If the applicant fails to submit such information, the 
application will be returned to the applicant.
    (2) Within 30 days of the determination of a completed application 
in accordance with paragraph (b)(1) of this section, review the 
application to determine suitability for financial assistance in 
accordance with Sec. 1703.135, and other requirements of this subpart. 
Based on its review, the State Director will work with the applicant to 
resolve any questions or obtain any additional information. The 
applicant will be notified, in writing, of any additional information 
required to allow a financial assistance recommendation and will be 
provided a reasonable period of time to furnish the additional 
information.
    (3) Based on the review in accordance with Sec. 1703.135 and other 
requirements of this subpart, make a preliminary determination of 
suitability for financial assistance. A combination loan and grant 
recommendation will be prepared by the State Director with concurrence 
of the RUS telecommunications GFR that addresses the provisions of 
sections Sec. 1703.134 and Sec. 1703.135 and other applicable 
requirements of this subpart.
    (4) If the application is determined suitable for further 
consideration by RUS, forward an original and one copy of the 
application with a financial assistance recommendation, signed jointly, 
to the Assistant Administrator, Telecommunications Program, Rural 
Utilities Service, Washington, DC. The applicant will be notified by 
letter of this action. Upon receipt of the application from the State 
Director, RUS will conduct a review of the application and the financial 
assistance recommendation. A final determination will be made within 15 
days. If the Administrator determines that a combination loan and grant 
can be approved, the State Director will be notified and the State 
Director will notify the applicant. A combination loan and grant will be 
processed, approved, and serviced in accordance with Sec. Sec. 1703.105 
through 1703.112 of subpart D.
    (5) If the State Director determines that the application is not 
suitable for further consideration by RUS, notify the applicant with the 
reasons for this determination. The applicant may appeal this 
determination pursuant to section Sec. 1703.137 of this subpart.
    (c) Applications submitted by RUS telecommunications GFRs or 
directly by applicants will be evaluated as they are submitted. All 
applicants must submit an original and two copies of a completed 
application. The applicant must also submit a copy of the application to 
the State government point of contact, if one has been designated for 
the State, at the same time it submits an application to RUS. RUS will:
    (1) Review each application for completeness in accordance with 
Sec. 1703.134, and notify the applicant, within 15 working days of 
receiving the application, of the results of this review, acknowledging 
a complete application, or

[[Page 48]]

citing any information that is incomplete. To be considered for a 
combination loan and grant assistance, the applicant must submit any 
additional information requested to complete the application within 15 
working days of the date of the RUS written response. If the applicant 
fails to submit such information, the application will be returned to 
the applicant.
    (2) Within 30 days of the determination of a completed application 
in accordance with paragraph (c)(1) of this section, review the 
application to determine suitability for financial assistance in 
accordance with Sec. 1703.135, and other requirements of this subpart. 
Based on its review, RUS will work with the applicant to resolve any 
questions or obtain any additional information. The applicant will be 
notified, in writing, of any additional information required to allow a 
financial assistance recommendation and will be provided a reasonable 
period of time to furnish the additional information.
    (3) If the application is determined suitable for further 
consideration by RUS, conduct a review of the application and financial 
assistance recommendation. A final determination will be made within 15 
days. If the Administrator determines that a combination loan and grant 
can be approved, the applicant will be notified. A combination loan and 
grant will be processed, approved, and serviced in accordance with 
Sec. Sec. 1703.105 through 1703.112 of subpart D.
    (4) If RUS determines that the application is not suitable for 
further consideration, notify the applicant with the reasons for this 
determination. The applicant will be able to appeal in accordance with 
Sec. 1703.137 of this subpart.



Sec. 1703.137  Appeals.

    Any appeal must be made, in writing, within 10 days after the 
applicant is notified of the determination to deny the application. 
Appeals shall be submitted to the Administrator, RUS, U.S. Department of 
Agriculture, 1400 Independence Ave., SW., STOP 1590, Washington, DC 
20250-1590. Thereafter, the Administrator will review the appeal to 
determine whether to sustain, reverse, or modify the original 
determination. Final determinations will be made after consideration of 
all appeals. The Administrator's determination will be final. A copy of 
the Administrator's decision will be furnished promptly to the 
applicant.



Sec. Sec. 1703.138-1703.139  [Reserved]



        Subpart G_Distance Learning and Telemedicine Loan Program

    Source: 64 FR 14369, Mar. 25, 1999, unless otherwise noted.



Sec. 1703.140  Use of loan funds.

    A loan may be used by eligible organizations as defined in Sec. 
1703.103 for distance learning and telemedicine projects to finance 100 
percent of the cost of approved purposes contained in Sec. 1703.141 
provided that no financial assistance may exceed the maximum amount for 
the year in which the loan is made. Entities seeking a loan must be able 
to provide security and execute a note with a maturity period greater 
than one year. The following entities are eligible for loans under this 
subpart:
    (a) Organizations as defined in Sec. 1703.103. If a RUS 
telecommunications borrower is seeking a loan, the borrower does not 
need to submit all of the financial security information required by 
Sec. 1703.144(d). The borrower's latest financial report (Form 479) 
filed with RUS and any additional information relevant to the project, 
as determined by RUS, will suffice;
    (b) Any non-profit or for-profit entity, public or private entity, 
urban or rural institution, or rural educational broadcaster, which 
proposes to provide and receive distance learning and telemedicine 
services to carry out the purposes of this subpart; or
    (c) Any entity that contracts with an eligible organization in 
paragraphs (a) or (b) of this section for constructing distance learning 
or telemedicine facilities for the purposes contained in Sec. 1703.141, 
except for those purposes in Sec. 1703.141(h).
    (d) Applicants must meet the minimum eligibility requirement for 
determining the extent to which the project serves rural areas as 
contained in Sec. 1703.126(b)(2) (the applicant must receive at least 
20 points to be eligible to

[[Page 49]]

receive financial assistance under this subpart).

[64 FR 14369, Mar. 25, 1999, as amended at 64 FR 25423, May 12, 1999]



Sec. 1703.141  Approved purposes for loans.

    The following are approved purposes for loans:
    (a) Acquiring, by lease or purchase, eligible equipment or 
facilities as defined in Sec. 1703.102;
    (b) Acquiring instructional programming;
    (c) Providing technical assistance and instruction for using 
eligible equipment, including any related software; developing 
instructional programming; providing engineering or environmental 
studies relating to the establishment or expansion of the phase of the 
project that is being financed with the loan (financial assistance for 
this purpose shall not exceed 10 percent of the requested financial 
assistance);
    (d) Paying for medical or educational equipment and facilities which 
are shown to be necessary to implement the project, including vehicles 
utilizing distance learning and telemedicine technology to deliver 
educational and health care services. The applicant must demonstrate 
that such items are necessary to meet the purposes under this subpart 
and financial assistance for such equipment and facilities is not 
available from other sources at a cost which would not adversely affect 
the economic viability of the project;
    (e) Providing links between teachers and students or medical 
professionals who are located at the same facility, provided that such 
facility receives or provides distance learning or telemedicine services 
as part of a distance learning or telemedicine network which meets the 
purposes of this subpart;
    (f) Providing for site development and alteration of buildings in 
order to meet the purposes of this subpart. Loans for this purpose must 
be necessary and incidental to the total amount of financial assistance 
requested;
    (g) Purchasing of land, buildings, or building construction, where 
such costs are demonstrated necessary to construct distance learning and 
telemedicine facilities. The applicant must demonstrate that funding 
from other sources is not available at a cost which does not adversely 
impact the economic viability of the project as determined by the 
Administrator. Financial assistance for this purpose must be necessary 
and incidental to the total amount of financial assistance requested;
    (h) Acquiring of telecommunications transmission facilities provided 
that no telecommunications carrier will install such facilities under 
the Act or through other financial procedures within a reasonable time 
period and at a cost to the applicant that does not impact the economic 
viability of the project, as determined by the Administrator;
    (i) Any project costs, except for salaries and administrative 
expenses, not included in paragraphs (a) through (h) of this section, 
incurred during the first two years of operation after the financial 
assistance has been approved. The applicant must show that financing 
such costs are necessary for the establishment or continued operation of 
the project and that financing is not available for such costs 
elsewhere, including from the applicant's financial resources. The 
Administrator will determine whether such costs will be financed based 
on information submitted by the applicant. Loans shall not be made 
exclusively to finance such costs, and financing for such costs will not 
exceed 20 percent of the loan provided to a project under this section; 
and
    (j) All of the costs needed to provide distance learning 
broadcasting to rural areas. Loans may be used to cover the costs of 
facilities and end-user equipment dedicated to providing educational 
broadcasting to rural areas for distance learning purposes. If the 
facilities are not 100 percent dedicated to broadcasting, a portion of 
the financing may be used to fund such facilities based on a percentage 
of use factor that approximates the distance learning broadcasting 
portion of use.

[64 FR 14369, Mar. 25, 1999, as amended at 64 FR 25423, May 12, 1999]

[[Page 50]]



Sec. 1703.142  Nonapproved purposes for loans.

    (a) Loans made under this subpart will not be provided to pay the 
costs of recurring or operating expenses incurred after two years from 
approval of the project except for leases (see Sec. 1703.141).
    (b) Loans made under this subpart will not be provided for any of 
the following costs:
    (1) To purchase equipment that will be owned by the local exchange 
carrier or another telecommunications service provider, unless the 
applicant is the local exchange carrier or other telecommunications 
service provider;
    (2) To duplicate facilities providing distance learning or 
telemedicine services in place or to reimburse the applicant or others 
for costs incurred prior to RUS' receipt of the completed application;
    (3) For projects located in areas covered by the Coastal Barrier 
Resources Act (16 U.S.C. 3501 et seq.); or
    (4) To pay for salaries, wages, or administrative expenses; or
    (5) For any purpose that the Administrator has not specifically 
approved.
    (c) Except as otherwise provided in Sec. 1703.112, funds shall not 
be used to finance a project, in part, when the success of the project 
is dependent upon the receipt of additional financial assistance under 
this subpart G or is dependent upon the receipt of other funding that is 
not assured.

[64 FR 14369, Mar. 25, 1999, as amended at 64 FR 25423, May 12, 1999]



Sec. 1703.143  Maximum and minimum amounts.

    Applications for loans under this subpart will be subject to 
limitations on the proposed amount of loans. The Administrator will 
establish the maximum amount of a loan available to an applicant under 
this subpart, by publishing notice of the maximum amount in the Federal 
Register before the opening of the application window. The minimum 
amount of a loan is $50,000.



Sec. 1703.144  Completed application.

    The following items are required to be submitted in support of an 
application for a loan:
    (a) An application for federal assistance: A completed standard form 
424.
    (b) An executive summary of the project. The applicant must provide 
RUS with a general project overview that addresses each of the following 
9 categories:
    (1) A description of why the project is needed;
    (2) An explanation of how the applicant will address the need (see 
paragraph (b)(1) of this section), why the applicant requires financial 
assistance, the types of educational or medical services to be offered 
by the project, and the benefits to the rural residents;
    (3) A description of the applicant, documenting eligibility in 
accordance with Sec. 1703.103;
    (4) An explanation of the total project cost including a breakdown 
of the loan required and the source of funding, if applicable, for the 
remainder of the project;
    (5) A statement specifying whether the project provides 
predominantly distance learning or telemedicine services as defined in 
Sec. 1703.102. If the project provides both distance learning and 
telemedicine services, the applicant must identify the predominant use 
of the system;
    (6) A general overview of the telecommunications system to be 
developed, including the types of equipment, technologies, and 
facilities used;
    (7) A description of the participating hubs and end user sites and 
the number of rural residents which will be served by the project at 
each end user site;
    (8) A certification by the applicant that facilities funded by a 
loan do not duplicate adequate established telemedicine or distance 
learning services.
    (9) A listing of the location of each end user site (city, town, 
village, borough, or rural area plus the State).
    (c) A scope of work. The scope of work must include, at a minimum:
    (1) The specific activities to be performed under the project;
    (2) Who will carry out the activities;
    (3) The time-frames for accomplishing the project objectives and 
activities; and
    (4) A budget for capital expenditures reflecting the line item costs 
for the loan and any other sources of funds for the project.

[[Page 51]]

    (d) Financial information. The applicant must show its financial 
ability to complete the project; show project feasibility; and provide 
evidence that it can execute a note for a loan for a maturity period 
greater than one year. For educational institutions participating in a 
project application (including all members of a consortium), the 
financial data must reflect revenue and expense reports and balance 
sheet reports, reflecting net worth, for the most recent annual 
reporting period preceding the date of the application. For medical 
institutions participating in a project application (including all 
members of a consortium), the financial data must include income 
statement and balance sheet reports, reflecting net worth, for the most 
recent completed fiscal year preceding the date of the application. When 
the applicant is a partnership, company, corporation, or other entity, 
current balance sheets, reflecting net worth, are needed from each of 
the entities that has at least a 20 percent interest in such 
partnership, company, corporation or other entity. When the applicant is 
a consortium, a current balance sheet, reflecting net worth, is needed 
from each member of the consortium and from each of the entities that 
has at least a 20 percent interest in such member of the consortium.
    (1) Applicants must include sufficient pro-forma financial data 
which adequately reflects the financial capability of project 
participants and the project as a whole to continue a sustainable 
project for a minimum of 10 years and repay the requested loan. This 
documentation should include sources of sufficient income or revenues to 
pay operating expenses including telecommunications access and toll 
charges, system maintenance, salaries, training, and any other general 
operating expenses, provide for replacement of depreciable items, and 
show repayment of interest and principal for the loan.
    (2) A list of property which will be used as collateral to secure 
repayment of the proposed loan. The applicant shall purchase and own 
collateral that secures the loan free from liens or security interests 
and take all actions necessary to perfect a first lien in the collateral 
that secures the loan. RUS will consider as adequate security a loan 
guarantee by a telecommunications or electric borrower or by another 
qualified party. Additional forms of security, including letters of 
credit, real estate, or any other items will be considered. RUS will 
determine the adequacy of the security offered.
    (3) As applicable, a depreciation schedule covering all assets of 
the project. Those assets for which a loan is being requested should be 
clearly indicated.
    (4) For each hub and end user site, the applicant must identify and 
provide reasonable evidence of each source of revenue. If the projection 
relies on cost sharing arrangements among hub and end user sites, the 
applicant must provide evidence of agreements made among project 
participants.
    (5) For applicants eligible under Sec. 1703.103(a)(3), an 
explanation of the economic analysis justifying the rate structure to 
ensure that the benefit, including cost saving, of the financial 
assistance is passed through to the other persons receiving telemedicine 
or distance learning services.
    (e) A statement of experience. The applicant must provide a written 
narrative (not exceeding three single spaced pages) describing its 
demonstrated capability and experience, if any, in operating an 
educational or health care endeavor and any project similar to the 
project. Experience in a similar project is desirable but not required.
    (f) A telecommunications system plan. A telecommunications system 
plan, consisting of the following (the items in paragraphs (f)(4) and 
(f)(5) of this section are required only when the applicant is 
requesting a loan for telecommunications transmission facilities):
    (1) The capabilities of the telecommunications terminal equipment, 
including a description of the specific equipment which will be used to 
deliver the proposed service. The applicant must document discussions 
with various technical sources which could include consultants, 
engineers, product vendors, or internal technical experts, provide 
detailed cost estimates for operating and maintaining the end user

[[Page 52]]

equipment and provide evidence that alternative equipment and 
technologies were evaluated.
    (2) A listing of the proposed purchases or leases of 
telecommunications terminal equipment, telecommunications transmission 
facilities, data terminal equipment, interactive video equipment, 
computer hardware and software systems, and components that process data 
for transmission via telecommunications, computer network components, 
communication satellite ground station equipment, or any other elements 
of the telecommunications system designed to further the purposes of 
this subpart, that the applicant intends to build or fund using a loan.
    (3) A description of the consultations with the appropriate 
telecommunications carriers (including other interexchange carriers, 
cable television operators, enhanced service providers, providers of 
satellite services, and telecommunications equipment manufacturers and 
distributors) and the anticipated role of such providers in the proposed 
telecommunications system.
    (4) Results of discussions with local exchange carriers serving the 
project area addressing the concerns contained in Sec. 1703.141(h).
    (5) The capabilities of the telecommunications transmission 
facilities, including bandwidth, networking topology, switching, 
multiplexing, standards, and protocols for intra-networking and open 
systems architecture (the ability to effectively communicate with other 
networks). In addition, the applicant must explain the manner in which 
the transmission facilities will deliver the proposed services. For 
example, for medical diagnostics, the applicant might indicate whether 
or not a guest or other diagnosticians can join the network from 
locations off the network. For educational services, indicate whether or 
not all hub and end-user sites are able to simultaneously hear in real-
time and see each other or the instructional material in real-time. The 
applicant must include detailed cost estimates for operating and 
maintaining the network, and include evidence that alternative delivery 
methods and systems were evaluated.
    (g) Compliance with other Federal statutes. The applicant must 
provide evidence of compliance with other Federal statutes and 
regulations including, but not limited to the following:
    (1) E.O. 11246, Equal Employment Opportunity, as amended by E.O. 
11375 and as supplemented by regulations contained in 41 CFR part 60;
    (2) Architectural barriers;
    (3) Flood hazard area precautions;
    (4) Assistance and Real Property Acquisition Policies Act of 1970;
    (5) Drug-Free Workplace Act of 1998 (41 U.S.C. 701);
    (6) E.O.s 12549 and 12689, Debarment and Suspension;
    (7) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352).
    (h) Environmental impact and historic preservation. (1) The 
applicant must provide details of the project's impact on the 
environment and historic preservation. Loans made under this part are 
subject to 7 CFR part 1794 which contains RUS' policies and procedures 
for implementing a variety of Federal statutes, regulations, and 
executive orders generally pertaining to the protection of the quality 
of the human environment that are listed in 7 CFR 1794.1. The 
application shall contain a separate section entitled ``Environmental 
Impact of the Project.''
    (2) The applicant may use the ``Environmental Questionnaire,'' 
available from RUS, to assist in complying with the requirements of this 
section.
    (i) Evidence of legal authority and existence. The applicant must 
provide evidence of its legal existence and authority to enter into debt 
with RUS and perform the activities proposed under the loan application.
    (j) Federal debt certification. The applicants must provide a 
certification that it is not delinquent on any obligation owed to the 
government (7 CFR parts 3016 and 3019).
    (k) Supplemental information. The applicant should provide any 
additional information it considers relevant to the project and likely 
to be helpful in determining the extent to which the project would 
further the purposes of this subpart.
    (l) Additional information required by RUS. The applicant must 
provide any

[[Page 53]]

additional information RUS determines is necessary to adequately 
evaluate the application. Modifications or changes, including changes in 
the loan amount requested, may be requested in any project described in 
an application submitted under this subpart.

[64 FR 14369, Mar. 25, 1999; 64 FR 25422, May 12, 1999, as amended at 64 
FR 25423, May 12, 1999]



Sec. 1703.145  Application selection provisions.

    (a) Loans will be approved based on availability of funds, the 
financial feasibility of the project in accordance with Sec. 
1703.144(d), the services to be provided which demonstrate that the 
project meets the general requirements of this subpart, the design of 
the project; costs; location; and other characteristics of the 
application.
    (b) RUS will determine, from the information submitted with each 
application for a loan, whether the application achieves sufficient 
priority, based on the criteria set forth in the 1996 Act, to receive a 
loan from funds available for the fiscal year. If such priority is 
achieved, RUS will process the loan application on a first-in, first-out 
basis, provided that the total amount of applications on-hand for loans 
does not exceed 90 percent of the total loan funding available for the 
fiscal year. At such time as the total amount of applications eligible 
for loans, if such applications were approved, exceeds 90 percent of 
amount of loan funding available, RUS will process the remaining 
applications using the evaluation criteria set forth in Sec. 1703.126.
    (c) A loan will not be approved if it is determined that:
    (1) The applicant's proposal does not indicate financial 
feasibility, or is not adequately secured in accordance with the 
requirements of Sec. 1703.144(d);
    (2) The applicant's proposal indicates technical flaws, which, in 
the opinion of RUS, would prevent successful implementation, or 
operation of the project; or
    (3) Any other aspect of the applicant's proposal fails to adequately 
address any requirements of this subpart or contains inadequacies which 
would, in the opinion of RUS, undermine the ability of the project to 
meet the general purpose of this subpart or comply with policies of the 
DLT program contained in Sec. 1703.101.
    (d) RUS will provide the applicant with a statement of any 
determinations made with regard to paragraphs (c)(1) through (c)(3) of 
this section. The applicant will be provided 15 days from the date of 
the RUS letter to respond, provide clarification, or make any 
adjustments or corrections to the project. If, in the opinion of the 
Administrator, the applicant fails to adequately respond to any 
determinations or other findings made by the Administrator, the loan 
will not be approved, and the applicant will be notified of this 
determination. If the applicant does not agree with this finding an 
appeal may be filed in accordance with Sec. 1703.147.

[64 FR 14369, Mar. 25, 1999; 64 FR 25422, May 12, 1999]



Sec. 1703.146  Submission of applications.

    (a) RUS will accept applications for loans submitted by RUS 
telecommunications General Field Representatives (GFRs), by Rural 
Development State Directors, or by applicants themselves. Applications 
for loans under this subpart may be filed at any time and will be 
evaluated as received on a non-competitive basis.
    (b) Applications submitted to the State Director, Rural Development, 
in the State serving the headquarters of the project will be evaluated 
as they are submitted. All applicants must submit an original and two 
copies of a completed application. The applicant must also submit a copy 
of the application to the State government point of contact, if one has 
been designated for the State, at the same time it submits an 
application to the State Director. The State Director will:
    (1) Review each application for completeness in accordance with 
Sec. 1703.144, and notify the applicant, within 15 working days of 
receiving the application, of the results of this review, acknowledging 
a complete application, or citing any information that is incomplete. To 
be considered for a loan, the applicant must submit any additional 
information requested to complete the application within 15 working days 
of the date of the State Director's written

[[Page 54]]

response. If the applicant fails to submit such information, the 
application will be returned to the applicant.
    (2) Within 30 days of the determination of a completed application 
in accordance with paragraph (b)(1) of this section, review the 
application to determine suitability for financial assistance in 
accordance with Sec. 1703.145, and other requirements of this subpart. 
Based on its review, the State Director will work with the applicant to 
resolve any questions or obtain any additional information. The 
applicant will be notified, in writing, of any additional information 
required to allow a financial assistance recommendation and will be 
provided a reasonable period of time to furnish the additional 
information.
    (3) Based on the review in accordance with Sec. 1703.145 and other 
requirements of this subpart, make a preliminary determination of 
suitability for financial assistance. A loan recommendation will be 
prepared by the State Director with concurrence of the RUS 
telecommunications GFR that addresses the provisions of Sec. Sec. 
1703.144 and 1703.145 and other applicable requirements of this subpart.
    (4) If the application is determined suitable for further 
consideration by RUS, forward an original and one copy of the 
application with a loan recommendation, signed jointly, to the Assistant 
Administrator, Telecommunications Program, Rural Utilities Service, 
Washington DC. The applicant will be notified by letter of this action. 
Upon receipt of the application from the State Director, RUS will 
conduct a cursory review of the application and the recommendation. A 
final determination will be made within 15 days. If the Administrator 
determines that a loan can be approved, the State Director will be 
notified and the State Director will notify the applicant. Applications 
for loans will be processed, and approved loans serviced, in accordance 
with Sec. Sec. 1703.105 through 1703.112.
    (5) If the State Director determines that the application is not 
suitable for further consideration by RUS, notify the applicant with the 
reasons for this determination. The applicant will be offered appeal 
rights in accordance with Sec. 1703.147.
    (c) Applications submitted by RUS telecommunications GFRs or 
directly by applicants will be evaluated as they are submitted. All 
applicants must submit an original and two copies of a completed 
application. The applicant must also submit a copy of the application to 
the State government point of contact, if one has been designated for 
the State, at the same time it submits an application to the RUS. RUS 
will:
    (1) Review each application for completeness in accordance with 
Sec. 1703.144, and notify the applicant, within 15 working days of 
receiving the application, of the results of this review, acknowledging 
a complete application, or citing any information that is incomplete. To 
be considered for a loan, the applicant must submit any additional 
information requested to complete the application within 15 working days 
of the date of the RUS written response. If the applicant fails to 
submit such information, the application will be returned to the 
applicant.
    (2) Within 30 days of the determination of a completed application 
in accordance with paragraph (c)(1) of this section, review the 
application to determine suitability for financial assistance in 
accordance with this subpart. Based on its review, RUS will work with 
the applicant to resolve any questions or obtain any additional 
information. The applicant will be notified, in writing, of any 
additional information required to allow a financial assistance 
recommendation and will be provided a reasonable period of time to 
furnish the additional information.
    (3) If the application is determined suitable for further 
consideration by RUS, conduct a review of the application and financial 
assistance recommendation. A final determination will be made within 15 
days. If the Administrator determines that a loan can be approved, the 
applicant will be notified. Applications will be processed, and approved 
loans serviced, in accordance with Sec. Sec. 1703.105 through 1703.112 
of subpart D.
    (4) If RUS determines that the application is not suitable for 
further consideration, notify the applicant with the reasons for this 
determination. The applicant will be offered appeal rights

[[Page 55]]

in accordance with Sec. 1703.147 of this subpart.



Sec. 1703.147  Appeals.

    Any appeal must be made, in writing, within 10 days after the 
applicant is notified of the determination to deny the application. 
Appeals shall be submitted to the Administrator, RUS, U.S. Department of 
Agriculture, 1400 Independence Ave., SW., STOP 1590, Washington, DC 
20250-1590. Thereafter, the Administrator will review the appeal to 
determine whether to sustain, reverse, or modify the original 
determination. Final determinations will be made after consideration of 
all appeals. The Administrator's determination will be final. A copy of 
the Administrator's decision will be furnished promptly to the 
applicant.



Subpart H_Deferments of RUS Loan Payments for Rural Development Projects

    Source: 58 FR 21639, Apr. 23, 1993, unless otherwise noted. 
Redesignated at 64 FR 14356, Mar. 25, 1999.



Sec. 1703.300  Purpose.

    This subpart E sets forth RUS's policies and procedures for making 
loan deferments of principal and interest payments on direct loans or 
insured loans made for electric or telephone purposes, but not for loans 
made for rural economic development purposes, in accordance with 
subsection (b) of section 12 of the RE Act. Loan deferments are provided 
for the purpose of promoting rural development opportunities.



Sec. 1703.301  Policy.

    It is RUS's policy to encourage borrowers to invest in and promote 
rural development and rural job creation projects that are based on 
sound economic and financial analyses. Borrowers are encouraged to use 
this program to promote economic, business and community development 
projects that will benefit rural areas.



Sec. 1703.302  Definitions and rules of construction.

    (a) Definitions. For the purpose of this subpart, the following 
terms will have the following meanings:1
    Administrator means the Administrator of RUS.
    Borrower means any organization which has an outstanding direct loan 
or insured loan made by RUS for the provision of electric or telephone 
service.
    Cushion of credit payment means a voluntary unscheduled payment on 
an RUS note made after October 1, 1987, credited to the cushion of 
credit account of a borrower.
    Deferment means a re-amortization of a payment of principal and/or 
interest on an RUS direct loan or insured loan for over either a 5- or 
10 year period, with the first payment beginning on the date of the 
deferment.
    Direct loan means a loan that is made by the Administrator pursuant 
to section 4 or section 201 of the RE Act (7 U.S.C. 901 et seq.) for the 
provision of electric or telephone service in rural areas and does not 
include a loan made to promote economic development in rural areas.
    Financially distressed borrower means an RUS-financed borrower 
determined by the Administrator to be either:
    (i) In default or near default on interest or principal payments due 
on loans made or guaranteed under the RE Act;
    (ii) A borrower that was in default or near default, but is 
currently participating in a workout or debt restructuring plan with 
RUS; or
    (iii) Experiencing a financial hardship.
    Insured loan means a loan that is made, held, and serviced by the 
Administrator, and sold and insured by the Administrator, pursuant to 
Section 305 of the RE Act (7 U.S.C. 901 et seq.) for the provision of 
electric or telephone service in rural areas and does not include a loan 
made to promote economic development in rural areas.
    Job creation means the creation of jobs in rural areas, or in close 
enough proximity to rural areas so that it is likely that the majority 
of the jobs created will be held by residents of rural areas.

[[Page 56]]

    Project means a rural development project that a borrower proposes 
and the Administrator approves as qualifying under this subpart.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901 et seq.).
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    RTB means the Rural Telephone Bank (telephone bank), a body 
corporate and an instrumentality of the United States, that obtains 
supplemental funds from non-Federal sources and utilizes them in making 
loans, operating on a self-sustaining basis to the extent practicable 
(section 401, RE Act).
    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.
    Technical assistance means market research, product or service 
improvement, feasibility studies, environmental studies, and similar 
activities that benefit rural development or rural job creation 
projects.
    (b) Rules of construction. Unless the context otherwise indicates; 
``includes'' and ``including'' are not limiting, and ``or'' is not 
exclusive. The terms defined in Sec. 1703.302(a) include both the 
plural and the singular.

[58 FR 21639, Apr. 23, 1993, as amended at 59 FR 66440, Dec. 27, 1994]



Sec. 1703.303  Eligibility criteria for deferment of loan payments.

    The deferment of loan payments may be granted to any borrower that 
is not financially distressed, delinquent on any Federal debt, or in 
bankruptcy proceedings. However, the deferment of loan payments will not 
be granted to a borrower during any period in which the Administrator 
has determined that no additional financial assistance of any nature 
should be provided to the borrower pursuant to any provision of the RE 
Act. The determination to suspend eligibility for the deferment of loan 
payments under this subpart will be based on:
    (a) The borrower's demonstrated unwillingness to exercise diligence 
in repaying loans made by RUS or RTB or guaranteed by RUS that results 
in the Administrator being unable to find that such loans, would be 
repaid within the time agreed; or
    (b) The borrower's demonstrated unwillingness to meet the 
requirements in RUS's or RTB's legal documents or regulations.



Sec. 1703.304  Restrictions on the deferment of loan payments.

    (a) The deferment must not impair the security of any loans made RUS 
or RTB, or guaranteed by RUS, pursuant to the RE Act.
    (b) At no point in time may the amount of the debt service payments 
deferred exceed 50 percent of the total cost of a community, business, 
or economic development project for which a deferment is provided.
    (c) A borrower may defer debt service payments only in an amount 
equal to the investment made by such borrower in a rural development 
project. The investment must not be made from:
    (1) Proceeds of loans made or guaranteed pursuant to the RE Act, or 
grants made pursuant to the RE Act or section 2331 through section 2335A 
of the Rural Economic Development Act of 1990 (7 U.S.C. 950aaa et seq.);
    (2) Funds necessary to make timely payments of principal and 
interest on loans made, guaranteed or lien accommodated pursuant to the 
RE Act;
    (3) Insurance proceeds from mortgaged property;
    (4) Damage awards and sale proceeds resulting from eminent domain 
and similar proceedings involving mortgaged property;
    (5) Sale proceeds from mortgaged property sales requiring specific 
Administrator approval; and
    (6) Funds which are restricted by RUS or RTB loan instruments to be 
held in trust for the Government or to be held for any other specific 
purpose.
    (d) Any investment made in a rural development project prior to the 
date

[[Page 57]]

of the application for a deferment based on such project cannot be used 
to satisfy the requirements of this section.



Sec. 1703.305  Requirements for deferment of loan payments.

    (a) Except as otherwise provided in paragraph (b) of this section, 
the borrower must make a cushion of credit payment equal to the amount 
of the payment deferred and subject to the following rules:
    (1) Cushion of credit payments made prior to the date that an 
application for deferral has been approved by RUS cannot be used to 
satisfy the requirements of this section;
    (2) Once a cushion of credit payment has been made to satisfy the 
requirements of paragraph (a) of this section, it must remain on deposit 
in the cushion of credit account on the date of the deferral or the 
deferral will not take place; and
    (3) The cushion of credit payment must be received by RUS on the 
date the payment being deferred is due, or within 30 days prior to this 
date.
    (b) A borrower may elect to consolidate in one application filed 
pursuant to Sec. 1703.311, all of the related deferrals it wishes to 
receive in a twelve month period following application approval. In such 
a case, the requirement contained in paragraph (a)(1) of this section 
may alternatively be satisfied by depositing an amount equal to the 
aggregate deferrals covered by such application into the cushion of 
credit account at the time the first cushion of credit payment is due 
under paragraph (a)(1) of this section.



Sec. 1703.306  Limitation on funds derived from the deferment of loan 

payments.

    Funds derived from the deferment of loan payments will not be used:
    (a) To fund or assist projects which would, in the judgement of the 
Administrator, create a conflict of interest or the appearance of a 
conflict of interest. The borrower must disclose to the Administrator 
information regarding any potential conflict of interest or appearance 
of a conflict of interest;
    (b) For any purpose not reasonably related to the project as 
determined by the Administrator;
    (c) To transfer existing employment or business activities from one 
area to another; or
    (d) For the borrower's electric or telephone operations, nor for any 
operations affiliated with the borrower unless the Administrator has 
specifically informed the borrower in writing that the affiliated 
operations are part of the approved purposes.



Sec. 1703.307  Uses of the deferments of loan payments.

    The deferment of loan payments will be made to enable the borrower 
to provide funding and assistance for rural development and job creation 
projects. This includes, but is not limited to, the borrower providing 
financing to local businesses, community development assistance, 
technical assistance to businesses, and other community, business, or 
economic development projects that will benefit rural areas.



Sec. 1703.308  Amount of deferment funds available.

    (a) The total amount of deferments made available for each fiscal 
year under this program will not exceed 3 percent of the total payments 
due during fiscal year 1993 from all borrowers on direct loans and 
insured loans made under the RE Act. For each subsequent fiscal year 
after 1993, the total amount of deferments will not exceed 5 percent of 
the total payments due for the year from all borrowers on direct loans 
and insured loans.
    (b) The total amount of annual deferments are subject to limitations 
established by appropriations Acts.



Sec. 1703.309  Terms of repayment of deferred loan payments.

    (a) Deferments made to enable the borrower to provide financing to 
local businesses will be repaid over a period of 60 months, in equal 
installments, with payments beginning on the date of the deferment, and 
continuing in such a manner until the total amount of the deferment is 
repaid. The deferment payments will be made on either a monthly or 
quarterly basis depending on the existing repayment

[[Page 58]]

terms of the direct loan or insured loan being deferred. The deferment 
will not accrue interest.
    (b) In the case of deferments made to enable the borrower to provide 
community development assistance, technical assistance to businesses, 
and for other community, business, or economic development projects not 
included in paragraph (a) of this section, the deferment will be repaid 
over a period of 120 months, in equal installments, with payments 
beginning on the date of the deferment and continuing in such a manner 
until the total amount of the deferment is repaid. The deferment 
payments will be made on either a monthly or quarterly basis depending 
on the existing repayment terms of the direct loan or insured loan being 
deferred. The deferment will not accrue interest.
    (c) The maturity date of a loan may not be extended as a result of a 
deferment.
    (d) If the required payment is not made by the borrower or received 
by the Administrator when due, the Administrator will reduce the 
borrower's cushion of credit account established under this subpart in 
an amount equal to the deferment payment required.
    (e) The balance in a borrower's cushion of credit account shall not 
be reduced by the borrower below the level of the unpaid balance of the 
payment deferred.



Sec. 1703.310  Environmental considerations.

    Prospective recipients of funds received from the deferment of loan 
payments are encouraged to consider the potential environmental impact 
of their proposed projects at the earliest planning stage and plan 
development in a manner that reduces, to the extent practicable, the 
potential to affect the quality of the human environment adversely.



Sec. 1703.311  Application procedures for deferment of loan payments.

    (a) A borrower applying for a deferment must:
    (1) Submit a certified board resolution to the Administrator 
requesting a deferment of principal and interest. The resolution must:
    (i) Be signed by the president or vice president of the borrower;
    (ii) Contain information on the total amount of deferment requested 
for each specific project;
    (iii) Contain information on the type of project and the length of 
deferment requested as defined in Sec. 1703.309; and
    (iv) Specify which officer of the borrower has been given the 
authority to certify to those matters required in this section;
    (2) Submit certification by the appropriate officer to the 
Administrator that the proposed project will not violate the limitations 
set forth in Sec. 1703.306 and disclose all information regarding any 
potential conflict of interest or appearance of a conflict of interest 
that would allow the Administrator to make an informed decision;
    (3) Submit certification by the appropriate officer to the 
Administrator that an investment in the rural development project will 
be made by the borrower in an amount equal to the deferred debt service 
payment;
    (4) Submit certification by the appropriate officer to the 
Administrator that the amount of the deferment will not exceed 50 
percent of the total cost of the project for which the deferment is 
provided;
    (5) Submit certification by the appropriate officer to the 
Administrator that it will make a cushion of credit payment necessary to 
satisfy the requirement of Sec. 1703.305(a);
    (6) Submit certification by the appropriate officer to the 
Administrator that it will comply with Sec. 1703.313 and provide 
documentation showing that its total investments, including the proposed 
investment, will not exceed the investment limitations specified in 7 
CFR part 1717, Subpart N, Investments, Loans and Guarantees by Electric 
Borrowers, or 7 CFR Part 1744, Post Loan Policies and Procedures Common 
to Guaranteed and Insured Loans. The documentation must provide a list 
of each rural development project the borrower has invested in to date, 
including the investment amounts;
    (7) Submit to the Administrator written identification of the direct 
loan(s) and/or insured loan(s) for which payments are to be deferred;

[[Page 59]]

    (8) Submit to the Administrator a written narrative which contains 
information regarding the proposed rural development or job creation 
project such as the manner in which the project will promote community, 
business, or economic development in rural areas, the nature of the 
project, its location, the primary beneficiaries, and, if applicable, 
the number and type of jobs to be created; and
    (9) Submit to the Administrator a letter of approval from the state 
regulatory authority, if applicable, granting its approval for the 
borrower to defer direct loan payment(s) and/or insured loan payment(s) 
and invest the amount in a rural development project.
    (b) The Administrator reserves the right to determine that special 
circumstances require additional data from borrowers before acting on a 
deferment. The Administrator also reserves the right to require, as a 
condition of approving a loan payment deferment pursuant to this 
subpart, that the borrower execute and deliver any amendments or 
supplements to its loan documents that may be necessary or appropriate 
to achieve the purposes outlined in Sec. 1703.300.
    (c) The Administrator will decide whether the borrower is eligible 
for the deferment and will notify the borrower of the decision.



Sec. 1703.312  RUS review requirements.

    Borrowers shall ensure that funds are invested in the rural 
development project as approved by RUS. The Administrator reserves the 
right to review the books and copy records of borrowers receiving loan 
payment deferments as necessary to ensure that the investments in the 
rural development project are in accordance with this subpart and the 
representations and purposes stated in the borrower's completed 
application. If an audit discloses that the amount deferred was not used 
for the purposes stated in the completed application, the borrower shall 
be required to promptly repay the amount deferred and the benefits of 
the deferment to the borrower will be recaptured by RUS. The borrower is 
responsible for ensuring that disbursements and expenditures of funds 
covering the investment in the rural development project are properly 
supported with certifications, invoices, contracts, bills of sale, 
cancelled checks, or any other forms of evidence determined appropriate 
by the Administrator and that such supporting material is available at 
the borrower's premises for review by the RUS field accountant, 
borrower's certified public accountant, the Office of Inspector General, 
the General Accounting Office and any other accountant conducting an 
audit of the borrower's financial statements for this rural development 
program.



Sec. 1703.313  Compliance with other regulations.

    (a) Investments in a rural economic development project made by an 
electric borrower under this subpart are subject to the provisions of 7 
CFR part 1717, Subpart N, Investments, Loans and Guarantees by Electric 
Borrowers.
    (b) Investments in a rural economic development project made by a 
telephone borrower under this subpart are subject to the provisions of 7 
CFR Part 1744, Post Loan Policies and Procedures Common to Guaranteed 
and Insured Loans.



PART 1709_ASSISTANCE TO HIGH ENERGY COST COMMUNITIES--Table of Contents



                     Subpart A_General Requirements

Sec.
1709.1 Purpose.
1709.2 Policy. [Reserved]
1709.3 Definitions.
1709.4 Allocation of available funds among programs.
1709.5 Determination of energy cost benchmarks.
1709.6 Appeals.
1709.7 Applicant eligibility.
1709.8 Electronic submission.
1709.9 Grant awards and advance of funds.
1709.10 Ineligible grant purposes.
1709.11 Award conditions.
1709.12 Reporting requirements.
1709.13 Grant administration.
1709.14 Inspections.
1709.15 Grant close out.
1709.16 Performance reviews.
1709.17 Environmental review.
1709.18 Civil rights.
1709.19 Other USDA regulations.
1709.20 Member delegate clause.
1709.21 Audit requirements.
1709.22 Project changes.

[[Page 60]]

1709.23-1709.99 [Reserved]
1709.100 OMB control number.

              Subpart B_RUS High Cost Energy Grant Program

1709.101 Purpose.
1709.102 Policy.
1709.103-1709.105 [Reserved]
1709.106 Eligible applicants.
1709.107 Eligible communities.
1709.108 Supporting data for determining community eligibility.
1709.109 Eligible projects.
1709.110 Use of grant funds.
1709.111 Limitations on use of grant funds.
1709.112 Ineligible grant purposes.
1709.113 Limitations on grant awards.
1709.114 Application process.
1709.115 Availability of application materials.
1709.116 Application package.
1709.117 Application requirements.
1709.118 Submission of applications.
1709.119 Review of applications.
1709.120 Evaluation of applications.
1709.121 Administrator's review and selection of grant awards.
1709.122 Consideration of eligible grant applications under later grant 
          announcements.
1709.123 Evaluation criteria and weights.
1709.124 Grant award procedures.
1709.125-1709.200 [Reserved]

            Subpart C_Bulk Fuel Revolving Fund Grant Program

1709.201 Purpose.
1709.202 Policy. [Reserved]
1709.203 Definitions.
1709.204-1709.206 [Reserved]
1709.207 Eligible applicants.
1709.208 Use of grant funds.
1709.209 Limitations on use of grant funds.
1709.210 Application process.
1709.211 Submission of applications.
1709.212 Application review.
1709.213 Evaluation of applications.
1709.214 Administrator's review and selection of grant awards.
1709.215 Consideration of unfunded applications under later grant 
          announcements.
1709.216 Evaluation criteria and weights.
1709.217 Grant award.
1709.218-1709.300 [Reserved]

Subparts D-F [Reserved]

    Subpart G_Recovery of Financial Assistance Used for Unauthorized 
                                Purposes

1709.601 Policy.
1709.602-1709.999 [Reserved]

    Authority: 5 U.S.C. 301, 7 U.S.C. 901 et seq.

    Source: 70 FR 5351, Feb. 2, 2005, unless otherwise noted.



                     Subpart A_General Requirements



Sec. 1709.1  Purpose.

    The purpose of the Rural Utilities Service (RUS) Assistance to High 
Energy Cost Rural Communities Program is to help local communities meet 
their energy needs through direct loans and grants for energy facilities 
in qualifying extremely high energy cost communities, grants and loans 
to the Denali Commission for extremely high energy cost communities in 
Alaska, and grants to States to support revolving funds to finance more 
cost effective means of acquiring fuel in qualifying communities. This 
subpart sets forth definitions and requirements which are common to all 
grant and loan programs in this part administered by the RUS Electric 
Program under section 19 of the Rural Electrification Act of 1936, as 
amended (RE Act) (7 U.S.C. 918a).



Sec. 1709.2 Policy.  [Reserved]



Sec. 1709.3  Definitions.

    Administrator means the Administrator of the Rural Utilities Service 
(RUS), United States Department of Agriculture (USDA).
    Agency means the Rural Utilities Service (RUS), an agency of the 
United States Department of Agriculture (USDA), or a successor agency.
    Census block means the smallest geographic entity for which the U.S. 
Census Bureau collects and tabulates decennial census information and 
which are defined by boundaries shown on census maps.
    Census designated place (CDP) means a statistical entity recognized 
by the U.S. Census Bureau comprising a dense concentration of population 
that is not within an incorporated place but is locally identified by a 
name and which has boundaries defined on census maps.
    Electric program means the office within RUS, and its successor 
organization, that administers rural electrification programs authorized 
by the Rural Electrification Act of 1936 (RE Act) (7 U.S.C. 901 et seq.) 
and such other programs so identified in USDA regulations.
    Extremely high energy costs means community average residential 
energy costs that are at least 275 percent of

[[Page 61]]

one or more home energy cost benchmarks identified by RUS and based on 
the latest available information on national average residential energy 
expenditures as reported by the Energy Information Administration (EIA) 
of the United States Department of Energy.
    Financial assistance means a grant, loan, or grant-loan combination 
issued under this part.
    Home energy means any energy source or fuel used by a household for 
purposes other than transportation, including electricity, natural gas, 
fuel oil, kerosene, liquified petroleum gas (propane), other petroleum 
products, wood and other biomass fuels, coal, wind and solar energy. 
Fuels used for subsistence activities in remote rural areas are also 
included.
    High energy cost benchmarks means the criteria established by RUS 
for eligibility as an extremely high energy cost community. Extremely 
high energy cost benchmarks are calculated as 275 percent of the 
relevant national average household energy benchmarks.
    Indian Tribe means a Federally recognized tribe as defined under 
section 4 of the Indian Self-Determination and Education Assistance Act 
(25 U.S.C. 450b) to include ``* * * any Indian tribe, band, nation, or 
other organized group or community, including any Alaska Native village 
or regional or village corporation as defined in or established pursuant 
to the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq.), 
that is recognized as eligible for the special programs and services 
provided by the United States to Indians because of their status as 
Indians.''
    Person means any natural person, firm, corporation, association, or 
other legal entity, and includes Indian tribes and tribal entities.
    State means any of the several States of the United States, and, 
where provided by law, any Territory of the United States or other area 
authorized to receive the services and programs of the Rural Utilities 
Service or the Rural Electrification Act of 1936, as amended.
    Target area means the geographic area to be served by the grant.
    Target community means the unit or units of local government in 
which the target area is located.



Sec. 1709.4  Allocation of available funds among programs.

    The Administrator, in his sole discretion, shall allocate available 
funds among the programs administered under this part and determine the 
grant application periods under each program. In making fund allocations 
for each fiscal year, the Administrator may consider the amount of 
available funds, the nature and amount of unfunded grant applications 
and prior awards, Agency resources, Agency priorities, and any other 
pertinent information.



Sec. 1709.5  Determination of energy cost benchmarks.

    (a) The Administrator shall establish, using the most recent data 
available, and periodically revise, the home energy cost benchmarks and 
the high energy cost benchmarks used to determine community eligibility 
for high energy cost grant and loan programs and the Denali Commission 
high energy cost grants and loans. In setting these energy cost 
benchmarks, the Administrator shall review the latest available 
information on home energy costs published by the EIA. High energy cost 
benchmarks will be set at 275 percent of the applicable national average 
home energy cost benchmark as determined by the Administrator from the 
published EIA data. Eligibility benchmarks shall be published in each 
grant announcement.
    (b) For use in determining eligibility for High Energy Cost Grants, 
the Administrator may establish benchmarks for national average annual 
household expenditures and for national average household per unit 
energy expenditures for major home energy sources or fuels, including, 
but not limited to, electricity, natural gas, fuel oil, kerosene, 
liquified petroleum gas (propane), other petroleum products, wood and 
other biomass fuels, coal, wind and solar energy.



Sec. 1709.6  Appeals.

    An applicant may appeal a decision by the Assistant Administrator, 
Electric Program rejecting an application for failure to meet 
eligibility requirements. Applicants may not appeal rating panel scores 
or rankings. An appeal

[[Page 62]]

must be made, in writing to the Administrator, within 10 days after the 
applicant is notified of the determination to reject the application. 
Appeals must state the basis for the appeal and shall be submitted to 
the Administrator, Rural Utilities Service, U.S. Department of 
Agriculture, 1400 Independence Ave., SW., STOP 1500, Washington, DC 
20250-1500. Thereafter, the Administrator will review the appeal to 
determine whether to sustain, reverse, or modify the original 
determination. The Administrator's determination shall be final. A 
written copy of the Administrator's decision will be furnished promptly 
to the applicant.



Sec. 1709.7  Applicant eligibility.

    An outstanding judgment obtained against an applicant by the United 
States in a Federal Court (other than in the United States Tax Court), 
which has been recorded, shall cause the applicant to be ineligible to 
receive a grant or loan under this part until the judgment is paid in 
full or otherwise satisfied. RUS financial assistance under this part 
may not be used to satisfy the judgment.



Sec. 1709.8  Electronic submission.

    Applicants may submit applications and reports electronically if so 
provided in the applicable grant announcement and grant agreements or if 
other regulations provide for electronic submission. Any electronic 
submissions must be in the form prescribed in the applicable grant 
announcement, grant agreement, or regulation.



Sec. 1709.9  Grant awards and advance of funds.

    The grantee must execute a grant agreement that is acceptable to the 
Agency. The grantee must sign and return the grant agreement to the 
Agency, within the time specified, before any grant funds will be 
advanced.



Sec. 1709.10  Ineligible grant purposes.

    Grant funds under this part may not be used to:
    (a) Pay costs of preparing the application package for funding under 
programs in this part, or for any finders fees or incentives for persons 
or entities assisting in the preparation or submission of an 
application.
    (b) Fund political activities;
    (c) Pay any judgment or debt owed to the United States; or
    (d) Pay construction costs of the project incurred prior to the date 
of grant award except as provided herein. Construction work should not 
be started and obligations for such work or materials should not be 
incurred before the grant is approved.
    (1) Applicants may request Agency approval for reimbursement of pre-
award construction obligations if there are compelling reasons for 
proceeding with construction before grant approval. Such requests may be 
approved if the Agency determines that:
    (i) Compelling reasons, as determined by the Agency, exist for 
incurring obligations before grant approval;
    (ii) The obligations will be incurred for authorized grant purposes;
    (iii) All environmental requirements applicable to the Agency and 
the applicant have been met;
    (iv) The applicant has the legal authority to incur the obligations 
at the time proposed, and payment of the debts will remove any basis for 
any mechanic's, material, or other liens that may attach to the grant 
financed property: and
    (v) The expenditure is incurred no more than 18 months before the 
date of the Administrator's approval of the grant award.
    (2) The Agency may authorize payment of approved pre-award project 
construction obligations at the time of award approval. The applicant's 
request and the Agency's authorization for paying such obligations shall 
be in writing.



Sec. 1709.11  Award conditions.

    In addition to all other grant requirements, all approved applicants 
will be required to do the following:
    (a) Enter into a grant agreement with the Agency in form and 
substance acceptable to the Agency;
    (b) Request advances or reimbursements, as applicable, as provided 
in the grant agreement; and
    (c) Maintain a financial management system that is acceptable to the 
Agency.

[[Page 63]]



Sec. 1709.12  Reporting requirements.

    To support Agency monitoring of project performance and use of grant 
funds, Grantees shall file periodic reports, required under 7 CFR part 
3015, as provided in this part, and the grant agreement as follows:
    (a) A financial status report listing project expenditures by budget 
category in such form and at such times as provided in the grant 
agreement.
    (b) Project performance reports in such form and at such intervals 
as provided in the grant agreement. The project performance report shall 
compare accomplishments to the objectives stated in the proposal and 
grant agreement. The project performance report should identify all 
completed tasks with supporting documentation. If the project schedule 
as approved in the grant agreement is not being met, the report should 
discuss the problems or delays that may affect completion of the 
project. Objectives for the next reporting period should be listed. 
Compliance with any special condition on the use of award funds should 
be discussed. Reports are due as provided in the grant agreement.
    (c) A final project performance report with supporting documentation 
in such form and at the time specified in the grant agreement.
    (d) Such other reports as the Agency determines are necessary to 
assure effective grant monitoring as part of the grant agreement or the 
grant announcement as a condition of the grant award or advances of 
funds.



Sec. 1709.13  Grant administration.

    The authority to approve administrative actions is vested in the 
Administrator except as otherwise provided in the RUS delegations of 
authority. Administration of RUS grants is governed by the provisions of 
this subpart and subpart B of this part, the terms of the grant 
agreement and, as applicable, the provisions of 7 CFR parts 3015, 3016 
and 3017, or their successors.



Sec. 1709.14  Inspections.

    The grantee will permit periodic inspection of the grant project 
operations by a representative of the Agency.



Sec. 1709.15  Grant closeout.

    Grant closeout is when all required work is completed, 
administrative actions relating to the completion of work and 
expenditure of funds have been accomplished, the final project report 
has been submitted and found acceptable by RUS and RUS accepts final 
expenditure information. No monitoring action by RUS of the grantee is 
required after grant closeout. However, grantees remain responsible in 
accordance with the terms of the grant agreement for compliance with 
conditions on property acquired or derived through grant funds.



Sec. 1709.16  Performance reviews.

    Each grant agreement shall include performance criteria and RUS will 
regularly evaluate the progress and performance of grantee according to 
such criteria. If the grantee does not comply with or does not meet the 
performance criteria set out in the grant agreement, the Administrator 
may require amendment of the grant agreement, or may suspend or 
terminate the grant pursuant to 7 CFR 2015, subpart N.



Sec. 1709.17  Environmental review.

    (a) All grants made under this subpart are subject to the 
requirements of 7 CFR part 1794 or its successor.
    (b) Applicants must address environmental aspects of their projects 
in the grant application in sufficient detail to allow the Agency to 
categorize the project for purposes of compliance with environmental 
review requirements. The grant announcement will establish the form and 
content of the environmental information required for the application.
    (c) Projects that are selected for grant awards by the Administrator 
will be reviewed by the Agency under 7 CFR part 1794 prior to final 
award approval. The Agency may require the selected applicant to submit 
additional information, including an environmental report, environmental 
assessment, or environmental impact statement, as may be required, 
concerning the proposed project in order to complete the required 
reviews and to develop any project-specific conditions for the final 
grant agreement.

[[Page 64]]



Sec. 1709.18  Civil rights.

    This program will be administered in accordance with applicable 
Federal Civil Rights Law. All grants made under this subpart are subject 
to the requirements of title VI of the Civil Rights Act of 1964, which 
prohibits discrimination on the basis of race, color or national origin. 
In addition, all grants made under this subpart are subject to the 
requirements of section 504 of the Rehabilitation Act of 1973, as 
amended, which prohibits discrimination on the basis of disability; the 
requirements of the Age Discrimination Act of 1975, which prohibits 
discrimination on the basis of age; and title III of the Americans with 
Disabilities Act, which prohibits discrimination on the basis of 
disability by private entities in places of public accommodations. 
Grantees are required to comply with certain regulations on 
nondiscrimination in program services and benefits and on equal 
employment opportunity including 7 CFR parts 15 and 15b; and 45 CFR part 
90, as applicable.



Sec. 1709.19  Other USDA regulations.

    The grant programs under this part are subject to the provisions of 
other departmental regulations, including but not limited to the 
following departmental regulations, or their successors, as applicable:
    (a) 7 CFR part 3015, Uniform Federal Assistance Regulations;
    (b) 7 CFR part 3016, Uniform Administrative Requirements for Grants 
and Cooperative Agreements to State and Local Governments;
    (c) 7 CFR part 3017, Governmentwide Debarment and Suspension 
(Nonprocurement) and Governmentwide Requirements for Drug-Free Workplace 
(Grants);
    (d) 7 CFR part 3018, New Restrictions on Lobbying;
    (e) 7 CFR part 3019, Uniform Administrative Requirements for Grants 
and Agreements with Institutions of Higher Education, Hospitals and 
Other Non-profit Organizations; and
    (f) 7 CFR part 3052, Audits of States, Local Governments and Non-
profit Organizations.



Sec. 1709.20  Member delegate clause.

    Each grant agreement under this part shall provide that no member of 
Congress shall be admitted to any share or part of a grant program or 
any benefit that may arise there from, but this provision shall not be 
construed to bar as a contractor under a grant a publicly held 
corporation whose ownership might include a member of Congress.



Sec. 1709.21  Audit requirements.

    The grantee shall provide the Agency with an audit for each year, 
beginning with the year in which a portion of the financial assistance 
is expended, in accordance with the following:
    (a) If the grantee is a for-profit entity, an RUS Electric or 
Telecommunication borrower or any other entity not covered by paragraph 
(b) of this section, the recipient shall provide an independent audit 
report in accordance with 7 CFR part 1773, ``Policy on Audits of RUS 
Borrowers'' and the grant agreement.
    (b) If the grantee is a State or local government, or a non-profit 
corporation (other than an RUS Electric or Telecommunication Borrower), 
the recipient shall provide an audit in accordance with 7 CFR part 3052.



Sec. 1709.22  Project changes.

    The Grantee shall obtain prior written approval from the Agency for 
any change to the scope or objectives of the approved grant project.



Sec. Sec. 1709.23-1709.99  [Reserved]



Sec. 1709.100  OMB control number.

    The information collection requirements in this part are approved by 
the Office of Management and Budget and assigned OMB control number 
0572-0136.



              Subpart B_RUS High Energy Cost Grant Program



Sec. 1709.101  Purpose.

    This subpart establishes policies and procedures for the Rural 
Utilities Service (RUS) High Energy Cost Grant Program under section 
19(a)(1) of the Rural Electrification Act of 1936, as amended

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(7 U.S.C. 918a(a)(1)). The purpose of this grant program is to assure 
access to adequate and reliable energy services for persons in extremely 
high energy cost communities by providing financial assistance to 
acquire, construct, extend, upgrade, and otherwise improve energy 
generation, transmission, or distribution facilities serving the 
community.



Sec. 1709.102  Policy.

    (a) All high energy cost grants will be awarded competitively 
subject to the limited exceptions in 7 CFR 3015.158(d).
    (b) RUS may give priority consideration to projects that benefit 
smaller rural communities, communities experiencing economic hardship, 
projects that extend service to households that lack reliable 
centralized or commercial energy services, and projects that correct 
imminent hazards to public safety, welfare, the environment or critical 
community energy facilities. RUS may also give priority to projects that 
are coordinated with State rural development initiatives or that serve a 
Federally-identified Empowerment Zone or Enterprise Community (EZ/EC) or 
a USDA-identified ``Champion Community.'' Priority consideration will be 
provided through the award of additional points under the project 
selection criteria as specified in the grant announcement.



Sec. Sec. 1709.103-1709.105  [Reserved]



Sec. 1709.106  Eligible applicants.

    (a) Eligible applicants for grants to fund projects serving eligible 
extremely high energy cost communities include Persons, States, 
political subdivisions of States, and other entities organized under the 
laws of States.
    (b) Eligible applicants may be for-profit or non-profit business 
entities including but not limited to corporations, associations, 
partnerships, limited liability partnerships (LLPs), cooperatives, 
trusts, and sole proprietorships.
    (c) Eligible government applicants include State and local 
governments, and agencies and instrumentalities of States and local 
governments.
    (d) Indian tribes, other tribal entities, and Alaska Native 
Corporations are eligible applicants.
    (e) Individuals are also eligible applicants under this program, 
however the proposed grant project must provide community benefits and 
not be for the sole benefit of the individual applicant or an individual 
household.
    (f) As a condition of eligibility, the applicant must demonstrate 
the capacity:
    (1) to enter into a binding grant agreement with the Federal 
Government at the time of the award approval; and
    (2) to carry out the proposed grant project according to its terms.



Sec. 1709.107  Eligible communities.

    (a) An eligible community under this program is one in which the 
average home energy costs exceed 275 percent of the national average 
under one or more high energy cost benchmarks established by RUS based 
on the latest available residential energy information from the Energy 
Information Administration (EIA) of the United States Department of 
Energy. RUS will update the national and high energy cost community 
benchmarks periodically to incorporate any changes in national home 
energy costs reported by EIA. RUS will publish the high energy cost 
community benchmark criteria in the grant announcement. Community 
eligibility will be determined by RUS at the time of application based 
on the criteria published in the applicable grant announcement.
    (b) The Application must include information demonstrating that each 
community in the grant's proposed target area exceeds one or more of the 
RUS high energy cost community benchmarks to be eligible for assistance 
under this program. The smallest area that may be designated as a target 
area is a 2000 Census block
    (c) The target community may include an extremely high cost to serve 
portion of a larger service area that does not otherwise meet the 
criteria, provided that the applicant can establish that the costs to 
serve the smaller target area exceed the benchmark.
    (d) In determining the community energy costs, applicants may 
include

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additional revenue sources that lower the rates or out of pocket 
consumer energy costs such as rate averaging, and other Federal, State, 
or private cost contributions or subsidies.
    (e) The applicant may propose a project that will serve high energy 
cost communities across a State or region, but where individual project 
beneficiaries will be selected at a later time. In such cases, to 
establish eligibility, the applicant must provide sufficient information 
in the application to determine that the proposed target area includes 
eligible high energy cost communities and proposed selection criteria to 
assure that grant funds are used to serve eligible communities.



Sec. 1709.108  Supporting data for determining community eligibility.

    The application shall include the following:
    (a) Documentation of energy costs. Documents or references to 
published or other sources for information or data on home energy 
expenditures or equivalent measures used to support eligibility, or 
where such information is unavailable or does not adequately reflect the 
actual cost of average home energy use in a local community, reasonable 
estimates of commercial energy costs.
    (b) Served areas. A comparison of the historical residential energy 
cost or expenditure information for the local commercial energy 
provider(s) serving the target community or target area with the 
benchmark criteria published by the Agency.
    (c) Engineering estimates. Estimates based on engineering standards 
may be used in lieu of historical residential energy costs or 
expenditure information under the following circumstances:
    (1) Where historical community energy cost data are unavailable 
(unserved areas), incomplete or otherwise inadequate;
    (2) Where the target area is not connected to central station 
electric service to a degree comparable with other residential customers 
in the State or region.
    (3) Where historic energy costs do not reflect the costs of 
providing a necessary upgrade or replacement of energy infrastructure 
that would have the effect of raising costs above one or more of the 
Agency benchmarks.
    (d) Independent Agency review. Information to support high energy 
cost eligibility is subject to independent review by the Agency. The 
Agency may reject applications that are not based on credible data 
sources or sound engineering estimates.



Sec. 1709.109  Eligible projects.

    Eligible projects are those that acquire, construct, extend, repair, 
upgrade or otherwise improve energy generation, transmission or 
distribution facilities serving communities with extremely high energy 
costs. All energy generation, transmission and distribution facilities 
and equipment used to provide or improve electricity, natural gas, home 
heating fuels, and other energy services to eligible communities are 
eligible. Projects providing or improving service to communities with 
extremely high energy costs through on-grid and off-grid renewable 
energy technologies, energy efficiency, and energy conservation projects 
and services are eligible. A grant project is eligible if it improves, 
or maintains energy services, or reduces the costs of providing energy 
services to eligible communities. Examples of eligible activities 
include, but are not limited to, the acquisition, construction, 
replacement, repair, or improvement of:
    (a) Electric generation, transmission, and distribution facilities, 
equipment, and services serving the eligible community;
    (b) Natural gas distribution or storage facilities and associated 
equipment and activities serving the eligible community;
    (c) Petroleum product storage and handling facilities serving 
residential or community use.
    (d) Renewable energy facilities used for on-grid or off-grid 
electric power generation, water or space heating, or process heating 
and power for the eligible community;
    (e) Backup up or emergency power generation or energy storage 
equipment, including distributed generation, to serve the eligible 
community; and
    (f) Implementation of cost-effective energy efficiency, energy 
conservation

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measures that are part of the implementation of a coordinated demand 
management or energy conservation program for the eligible community, 
such as, for example, weatherization of residences and community 
facilities, or acquisition and installation of energy-efficient or 
energy saving appliances and devices .



Sec. 1709.110  Use of grant funds.

    (a) Project development costs. Grants may be used to fund the costs 
and activities associated with the development of an eligible energy 
project. RUS will in no case approve the use of grant funds to be used 
solely or primarily for project development costs. Eligible project 
development costs must be reasonable and directly related to the project 
and may include the following:
    (1) Costs of conducting, or hiring a qualified consultant to 
conduct, a feasibility analysis of the proposed project to help 
establish the financial and technical sustainability of the project, 
provided that such costs do not exceed more than 10 percent of total 
project costs;
    (2) Design and engineering costs, including costs of environmental 
and cultural surveys and consulting services necessary to the project 
and associated environmental review, siting and permit approvals; and
    (3) Fees for legal and other professional services directly related 
to the project.
    (b) Construction costs. Grant funds may be used for the reasonable 
costs of construction activities, including initial construction, 
installation, expansion, extension, repair, upgrades, and related 
activities, including the rental or lease of necessary equipment, to 
provide or improve energy generation, transmission, or distribution 
facilities or services;
    (c) Acquisitions and purchase. Grant funds may be used for the 
acquisition of property, equipment, and materials, including the 
purchase of equipment, and materials, the acquisition or leasing of real 
or personal property, equipment, and vehicles associated with and 
necessary for project development, construction, and operation. Grant 
funds may be used for the acquisition of new or existing facilities or 
systems where such action is a cost-effective means to extend or 
maintain service to an eligible community or reduces the costs of such 
service for the primary benefit of community residents.
    (d) Grantee cost contributions. Grant funds may be applied as 
matching funds or cost contributions under Federal or other programs 
where the terms of those programs so allow use of other Federal funds.



Sec. 1709.111  Limitations on use of grant funds.

    (a) Planning and administrative costs. Not more than 4 percent of 
each grant award may be used for the planning and administrative 
expenses of the applicant that are unrelated to the grant project.
    (b) Unproven technology. Only projects that utilize technology with 
a proven operating history, and for which there is an established 
industry for the design, installation, and service (including spare 
parts) of the equipment, are eligible for funding. Energy projects 
utilizing experimental, developmental, or prototype technologies or 
technology demonstrations are not eligible for grant funds. The 
determination by RUS that a project relies on unproven technology shall 
be final.



Sec. 1709.112  Ineligible grant purposes.

    (a) Grant funds may not be used for the costs of preparing the grant 
application, finders fees, fuel purchases, routine maintenance or other 
operating costs, or purchase of equipment, structures or real property 
not directly associated with providing energy services in the target 
community, or, except as provided in Sec. 1709.11(d), project 
construction costs incurred prior to the date of the grant award.
    (b) In general, grant funds may not be used to support projects that 
primarily benefit areas outside of eligible target communities. However, 
grant funds may be used to finance an eligible target community's 
proportionate share of a larger energy project.
    (c) Grant funds may not be used to refinance or repay the 
applicant's outstanding loans or loan guarantees under the Rural 
Electrification Act of 1936, as amended.

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Sec. 1709.113  Limitations on grant awards.

    (a) The Administrator may establish minimum or maximum amount of 
funds that may be awarded in a single grant application within in any 
grant cycle in order to distribute available grant funds as broadly as 
possible. If the Administrator elects to impose a minimum or maximum 
grant amount, the limitations will be published in the grant 
announcement.
    (b) The Administrator may restrict eligible applicants to a single 
award of grant funds or to a monetary cap on grant awards within a grant 
cycle in order to assure that the available grant funds are distributed 
as broadly as possible. If the Administrator elects to impose a limit or 
cap on grant awards, the terms will be established in the grant 
announcement.



Sec. 1709.114  Application process.

    The RUS will request applications for high energy cost grants on a 
competitive basis by publication of a grant announcement as a Notice of 
Funds Availability (NOFA) or Notice of Funding Opportunity. The grant 
announcement will establish the amount of funds available, the 
application package contents and additional requirements, the 
availability of application materials, high energy cost community 
eligibility benchmarks, selection criteria and weights, priority 
considerations, and deadlines and procedures for submitting 
applications.



Sec. 1709.115  Availability of application materials.

    Application materials, including copies of the grant announcement 
and all required forms and certifications will be available by request 
from the Agency and by such other means as the Agency may determine. In 
addition, the Agency may make available an application guide and other 
materials that may be of assistance to prospective applicants.



Sec. 1709.116  Application package.

    The requirements for the application package will be established in 
the grant announcement. A complete application package will consist of 
the standard application for federal assistance (SF-424 series), as 
applicable, a narrative project proposal prepared in accordance with the 
grant announcement, an RUS environmental profile, and such other 
supporting documentation, forms, and certifications as required in the 
grant announcement and this part.



Sec. 1709.117  Application requirements.

    (a) Required forms. The forms required for application and where to 
obtain them will be specified in the announcement. All required forms 
must be completed, signed and submitted by a person authorized to submit 
the proposal on behalf of the applicant. For applications and forms that 
are submitted electronically, the application must be authenticated as 
provided in the grant announcement. In the case of grant applications 
submitted electronically, the applicant may be required to provide 
signed originals of required forms prior to and as a condition of the 
grant award.
    (b) Narrative proposal. Each application must include a narrative 
proposal describing the proposed project and addressing eligibility and 
selection criteria. The grant announcement will specify the contents, 
order, and format for the narrative proposal. The proposal must include 
all the required elements identified in this subsection. The grant 
announcement may establish additional required elements that must be 
addressed in the narrative project proposal.
    (1) Executive summary. A summary of the proposal should briefly 
describe the project including target community, goals, tasks to be 
completed and other relevant information that provides a general 
overview of the project. The applicant must clearly state the amount of 
grant funds requested and identify any priority ratings for which the 
applicant believes it is qualified.
    (2) Applicant eligibility. The narrative and supporting 
documentation must describe the applicant and establish its eligibility.
    (3) Community eligibility. This section must describe the target 
area and communities to be served by the project and demonstrate 
eligibility. The applicant must clearly identify the:

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    (i) Location and population of the areas to be served by the 
project;
    (ii) Population of the local government division to which they 
belong;
    (iii) Identity of local energy providers; and
    (iv) Sources of the high energy cost data and estimates used.
    (4) Project eligibility. The narrative must describe the proposed 
project in sufficient detail to establish that it is an eligible 
project.
    (5) Project description. The project description must:
    (i) Describe the project design, materials, and equipment in 
sufficient detail to support a finding of technical feasibility;
    (ii) Identify the major tasks to be performed and a proposed 
timeline for completion of each task; and
    (iii) Identify the location of the project target area and the 
eligible extremely high energy cost communities to be served.
    (6) Project management. The applicant must describe how and by whom 
the project will be managed during construction and operation. The 
description should address the applicant's organizational structure, key 
project personnel and the degree to which full time employees, 
affiliated entities or contractors will be utilized. The applicant must 
describe the identities, legal relationship, qualifications and 
experience of those persons that will perform project management 
functions. If the applicant proposes to use the equipment or design, 
construction and other services from non-affiliated entities, the 
applicant must describe how it plans to contract for such equipment or 
services.
    (7) Budget. The budget narrative must present a detailed breakdown 
of all estimated costs and allocate these costs among the listed tasks 
in the work plan. All project costs, not just grant funds, must be 
accounted for in the budget. A pro forma operating budget for the first 
year of operations must also be included. The detailed budget 
description must be accompanied by SF-424A, ``Budget Information--Non-
Construction Programs,'' or SF-424C ``Budget Information--Construction 
Programs,'' as applicable.
    (8) Project goals and objectives. The applicant must identify 
unambiguous measures for expected cost reduction, efficiencies or other 
improvements and the degree to which the incremental benefit will be 
enjoyed by residents of the eligible community. The description should 
specifically address how the project will provide or improve energy 
generation, transmission or distribution services in the target area. 
The project objectives and proposed evaluation measures will be the 
basis for project performance measures in the grant agreement.
    (9) Performance measures. The application must include specific 
criteria for measuring project performance. These proposed criteria will 
be used in establishing performance measures incorporated in the grant 
agreement in the event the proposal receives funding under this subpart. 
These suggested criteria are not binding on the Agency. Appropriate 
measures of project performance include expected reductions in home 
energy costs, avoided cost increases, enhanced reliability, new 
households served, or economic and social benefits from improvements in 
energy services.
    (10) Proposal evaluation and selection criteria. The application 
must address individually and in narrative form each of the proposal 
evaluation and selection criteria referenced in the grant announcement.
    (11) Rural development initiatives. The proposal should describe 
whether and how the proposed project will support any State rural 
development initiatives. If the project is in support of a rural 
development initiative, the application should include confirming 
documentation from the appropriate rural development agency. The 
application must identify the extent to which the project is dependent 
upon or tied to other rural development initiatives, funding and 
approvals.
    (12) Environmental profile. The application must include information 
about project characteristics and site specific conditions that may 
involve environmental, historic preservation and other resource issues. 
This information must be presented in sufficient detail so as

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to facilitate the Agency's identification of projects that may require 
additional environmental review under 7 CFR part 1794 before a grant 
award can be approved. The format and requirements for the environmental 
profile will be established in the grant announcement.
    (13) Regulatory and other required project approvals. The applicant 
must identify all regulatory or other approvals required by other 
Federal, State, local, tribal or private entities (including conditions 
precedent to financing) that are necessary to carry out the proposed 
project and an estimated schedule for obtaining the necessary permits 
and approvals.



Sec. 1709.118  Submission of applications.

    Unless otherwise provided in the grant announcement, a complete 
original application package and two copies must be submitted by the 
application deadline to RUS at the address specified in the applicable 
announcement. Instructions for submittal of applications electronically 
will be established in the grant announcement.



Sec. 1709.119  Review of applications.

    (a) RUS will review each application package received to determine 
whether the applicant is eligible and whether the application is timely, 
complete, and responsive to the requirements set forth in the grant 
announcement.
    (b) RUS may, at its discretion, contact the applicant to clarify or 
supplement information in the application needed to determine 
eligibility, identifying information, and grant requests to allow for 
informed review. Failure of the applicant to provide such information in 
response to a written request by the Agency within the time frame 
established by the Agency may result in rejection of the application.
    (c) After consideration of the information submitted, the Assistant 
Administrator, Electric Program will determine whether an applicant or 
project is eligible and whether an application is timely, complete, and 
responsive to the grant announcement and shall notify the applicant in 
writing. The Assistant Administrator's decision on eligibility may be 
appealed to the Administrator.



Sec. 1709.120  Evaluation of applications.

    (a) The Agency will establish one or more rating panels to review 
and rate the grant applications. The panels may include persons not 
employed by the Agency.
    (b) All timely and complete applications that meet the eligibility 
requirements will be referred to the rating panel. The rating panel will 
evaluate and rate all referred applications according to the evaluation 
criteria and weights established in the grant announcement. Panel 
members may make recommendations for conditions on grant awards to 
promote successful performance of the grant or to assure compliance with 
other Federal requirements.
    (c) After the rating panel has evaluated and scored all proposals, 
in accordance with the point allocation specified in the grant 
announcement, the panel will prepare a list of all applications in rank 
order, together with funding level recommendations and recommendations 
for conditions, if any.
    (d) The list of ranked projects and rating panel recommendations 
will be forwarded to the Administrator for review and selection.



Sec. 1709.121  Administrator's review and selection of grant awards.

    (a) The final decision to make an award is at the discretion of the 
Administrator. The Administrator shall make any selections of finalists 
for grant awards after consideration of the applications, the rankings, 
comments, and recommendations of the rating panel, and other pertinent 
information.
    (b) Based on consideration of the application materials, ranking 
panel ratings, comments, and recommendations, and other pertinent 
information, the Administrator may elect to award less than the full 
amount of grant requested by an applicant. Applicants will be notified 
of an offer of a reduced or partial award. If an applicant does not 
accept the Administrator's offer of a reduced or partial award, the 
Administrator may reject the application and offer an award to the next 
highest ranking project.

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    (c) The projects selected by the Administrator will be funded in 
rank order to the extent of available funds.
    (d) In the event an insufficient number of eligible applications are 
received in response to a published grant announcement and selected for 
funding to exhaust the funds available, the Administrator reserves the 
discretion to reopen the application period and to accept additional 
applications for consideration under the terms of the grant 
announcement. A notice regarding the reopening of an application period 
will be published in the Federal Register.



Sec. 1709.122  Consideration of eligible grant applications under later grant 

announcements.

    At the discretion of the Administrator, the grant announcement may 
provide that all eligible but unfunded proposals submitted under 
preceding competitive grant announcements may also be considered for 
funding. This option is provided to reduce the burden on applicants and 
the Agency. The grant announcement shall indicate how applicants may 
request reconsideration of previously submitted, but unfunded, 
applications and how they may supplement their applications.



Sec. 1709.123  Evaluation criteria and weights.

    (a) Establishing evaluation criteria and weights. The grant 
announcement will establish the evaluation criteria and weights to be 
used in ranking the grant proposals submitted. Unless supplemented in 
the grant announcement, the criteria listed in this section will be used 
to evaluate proposals submitted under this program. Additional criteria 
may be included in the grant announcement. In establishing evaluation 
criteria and weights, the total points that may be awarded for project 
design and technical merit criteria shall not be less than 65 percent of 
the total available points, and the total points awarded for priority 
criteria shall not be more than 35 percent of the total available 
points. The distribution of points to be awarded per criterion will be 
identified in the grant announcement.
    (b) Project design and technical merit. In reviewing the grant 
proposal's project design and technical merit, reviewers will consider 
the soundness of the applicant's approach, the project's technical and 
financial feasibility, the adequacy of financial and other resources, 
the capabilities and experience of the applicant and its project 
management team, the project goals, and identified community needs and 
benefits. Points will be awarded under the following project elements:
    (1) Comprehensiveness and feasibility. Reviewers will assess the 
technical and economic feasibility of the project and how well its goals 
and objectives address the challenges of the eligible communities. The 
panel will review the proposed design, construction, equipment and 
materials for the proposed energy facilities to determine technical 
feasibility. Reviewers may propose additional conditions on the grant 
award to assure that the project is technically sound. Budgets will be 
reviewed for completeness and the strength of non-Federal funding 
commitments. Points may not be awarded unless sufficient detail is 
provided to determine whether or not funds are being used for qualified 
purposes. Reviewers will consider the adequacy of the applicant's budget 
and resources to carry out the project as proposed. Reviewers will also 
evaluate how the applicant proposes to manage available resources such 
as grant funds, income generated from the facilities and any other 
financing sources to maintain and operate a financially viable project 
once the grant period has ended. Reviewers must make a finding of 
operational sustainability for any points to be awarded. Projects for 
which future grant funding is likely to be required in order to assure 
ongoing operations will not receive any points.
    (2) Demonstrated experience. Reviewers will consider whether the 
applicant or its project team have demonstrated experience in 
successfully administering and carrying out projects that are comparable 
to that proposed in the application. The reviewers may assign a higher 
point score to proposals that develop the internal capacity to provide 
or improve energy services in the eligible communities over other 
proposals that rely extensively on temporary outside contractors.

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    (3) Community needs. Reviewers will consider the applicant's 
assessment of community energy needs to be addressed by the proposed 
project as well as the severity of physical and economic challenges 
affecting the target communities. In determining whether one proposal 
should receive more points than another under this criterion, reviewers 
will consider the relative burdens placed on the communities and 
individual households by extremely high energy costs, the hardships 
created by limited access to reliable and affordable energy services and 
the availability of other resources to support or supplement the 
proposed grant funding.
    (4) Project evaluation and performance measures. Reviewers will 
consider the applicant's suggested project evaluation and performance 
criteria. Reviewers may award higher points to criteria that are 
quantifiable, directly relevant to project goals, and reflect serious 
consideration than to more subjective performance criteria that do not 
incorporate variables that reflect a reduction in energy cost or 
improvement in service.
    (5) Coordination with rural development initiatives. Proposals that 
include documentation confirming coordination with State rural 
development initiatives may be credited points for this criterion.
    (c) Priority considerations. Subject to the limitation in paragraph 
(a) of this section, evaluation points may also be awarded for projects 
that advance identified priority interests identified in the grant 
announcement to assist the Agency in selecting among competing projects 
when the amount of funding requests exceed available funds. The grant 
announcement may incorporate all or some of the priority criteria listed 
below, and as discussed in paragraph (a) of this section, the grant 
announcement may supplement these criteria. The announcement will also 
specify the points that will be awarded to qualifying applications under 
these priority criteria.
    (1) Community economic hardship. Economic hardship points may be 
awarded where the median household income for the target community is 
significantly below the State average or where the target community 
suffers from economic conditions that severely constrain its ability to 
provide or improve energy facilities serving the community. Applicants 
must describe in detail and document conditions creating severe 
community economic hardship in the proposal.
    (2) Rurality. Priority consideration may be given to proposals that 
serve smaller rural communities. Applications will be scored based on 
the population of the largest incorporated cities, towns or villages or 
census designated places included within the grant's proposed target 
area as determined using the latest available population figures from 
the U.S. Census Bureau.
    (3) Unserved energy needs. Points may be awarded to projects that 
extend or improve electric or other energy services to eligible 
communities or areas of eligible communities that do not have reliable 
centralized or commercial service.
    (4) Imminent hazard. Additional points may be awarded for projects 
that correct a condition posing an imminent hazard to public safety, 
public welfare, the environment, or to a critical community or 
residential energy facility in immediate danger of failure because of a 
deteriorated condition, capacity limitation, or damage from a natural 
disaster or accident.
    (5) Cost sharing. Projects that evidence significant commitments of 
funds, contributed property, equipment, or other in kind support for the 
project may be awarded additional points for this criterion where the 
aggregate value of these contributions exceed ten percent of total 
eligible project costs.



Sec. 1709.124  Grant award procedures.

    (a) Notification of applicants. The Agency will notify all 
applicants in writing whether they have been selected for a grant award. 
Applicants that have been selected as finalists for a competitive grant 
award will be notified in writing of their selection and advised that 
the Agency may request additional information in order to complete the 
required environmental review under 7 CFR 1794 and to meet other pre-
award conditions.

[[Page 73]]

    (b) Letter of conditions. The Agency will notify each applicant 
selected as a finalist in writing setting out the amount of grant funds 
and the terms and conditions under which the grant will be made and 
requesting that the applicant indicate in writing its intent to accept 
these conditions.
    (c) Applicant's intent to meet conditions. Upon reviewing the 
conditions and requirements in the letter of conditions, the selected 
applicant must notify the agency in writing within the time period 
indicated, of its acceptance of the conditions, or if the proposed 
certain conditions cannot be met, the applicant must so advise the 
Agency and may propose alternate conditions. The Agency must concur with 
any changes proposed to the letter of conditions by the applicant before 
the application will be further processed.
    (d) Grant agreement. The Agency and the grantee must sign a grant 
agreement acceptable to the Agency prior to the advance of funds.



Sec. Sec. 1709.125-1709.200  [Reserved]



            Subpart C_Bulk Fuel Revolving Fund Grant Program



Sec. 1709.201  Purpose.

    This subpart establishes policies and procedures for the Rural 
Utilities Service (RUS) State Bulk Fuel Revolving Fund Grants. The 
purpose of this grant program is to assist State entities in 
establishing and supporting a revolving fund to provide a more cost-
effective means of purchasing fuel for communities where the fuel cannot 
be shipped by means of surface transportation.



Sec. 1709.202 Policy.  [Reserved]



Sec. 1709.203  Definitions.

    As used in this subpart, the following definitions apply:
    Eligible area means any area that is primarily dependent on delivery 
of fuel by water or air for a significant part of the year and where 
fuel cannot be shipped routinely by means of surface transportation 
either because of absolute physical constraints or because surface 
transportation is not practical or is prohibitively expensive.
    Fuel means oil, diesel fuel, gasoline and other petroleum products, 
coal, and any other material that can be burned to make energy.
    State entity means a department, agency, or instrumentality of any 
State.
    Surface transportation means transportation by road, rail or 
pipeline.



Sec. Sec. 1709.204-1709.206  [Reserved]



Sec. 1709.207  Eligible applicants.

    Eligible applicants are restricted to State entities in existence as 
of November 9, 2000. Eligible State entities may partner with other 
entities, including other government agencies, in carrying out the 
programs funded by this program. Each applicant must demonstrate that it 
has the authority to enter into a binding agreement with the Federal 
Government to carry out the grant activities.



Sec. 1709.208  Use of grant funds.

    Grant funds must be used to establish and support a revolving loan 
fund that facilitates cost effective fuel purchases for persons, 
communities, and businesses in eligible areas. Where a recipient State 
entity's existing program is authorized to fund multiple purposes, grant 
funds may only be used to the extent the recipient fund finances 
eligible activities.



Sec. 1709.209  Limitations on use of grant funds.

    Not more than 4 percent of the grant award may be used for the 
planning and administrative expenses of the grantee.



Sec. 1709.210  Application process.

    (a) Applications. The Agency will solicit applications on a 
competitive basis by publication of a grant announcement establishing 
the amount of funds available, the maximum grant award, the required 
application materials and where to obtain them, the evaluation and 
selection criteria and weights, and application deadlines. Unless 
otherwise specified in the announcement, applicants must file an 
original application package and two

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copies. Where provided in the grant announcement, applicants may submit 
electronic applications.
    (b) Required forms. The grant application will use the Standard 
Application for Federal Assistance (SF-424 series or its successor) and 
other forms as provided in the grant announcement. The required forms 
must be completed, signed and submitted by a person authorized to submit 
the proposal on behalf of the applicants. Where provided in the grant 
announcement, applicants may file electronic versions of the forms in 
compliance with the instructions in the grant announcement.
    (c) Narrative proposal and required elements. Each grant application 
must include a narrative proposal describing the project and addressing 
the following elements. The form, contents, and order of the narrative 
proposal will be specified in the grant announcement. Additional 
elements may be published in the applicable grant announcement.
    (1) Executive summary. This summary of the proposal must identify 
the State entity applying for the grant and the key agency contact 
information (telephone and fax numbers, mailing address and e-mail 
address). The applicant must clearly state the amount requested in this 
section. It should briefly describe the program, including the estimated 
number of potential beneficiaries in eligible areas, their estimated 
fuel needs, the projects and activities to be financed through the 
revolving fund and how the projects and activities will improve the cost 
effectiveness of fuel procured.
    (2) Applicant eligibility. The application must establish that the 
applicant is a State entity that was in existence as of November 9, 
2000, and has the legal authority to enter into a financial assistance 
relationship with the Federal Government to carry out the grant 
activities.
    (3) Assessment of needs and potential beneficiaries. The application 
must provide estimates of the number, location and population of 
potentially eligible areas in the State and their estimated fuel needs 
and costs. The section must also describe the criteria used to identify 
eligible areas, including the characteristics that make fuel deliveries 
by surface transport impossible or impracticable. The description of 
beneficiary communities should provide a detailed breakdown of the 
density profile of the area to be served by eligible projects. Indicate 
to what extent persons in eligible areas live outside of communities of 
2,500 persons or more, communities of 5,000 or more or outside of 
communities of 20,000 or more. All population estimates should be based 
on Census Bureau data where available. All representations should be 
supported with exhibits such as maps, summary tables and references to 
official information sources.
    (4) Project description. The application must:
    (i) Describe the legal structure and staffing of the revolving fund 
proposal for fuel purchase support.
    (ii) Identify the objectives of the project, the proposed criteria 
for establishing project funding eligibility and how the project is to 
be staffed, managed and financed.
    (iii) Describe how the potential beneficiaries will be informed of 
the availability of revolving fund benefits to them.
    (iv) Explain how the proposed revolving fund program will help 
provide a more cost-effective means of meeting fuel supply needs in 
eligible areas, encourage the adoption of financially sustainable energy 
practices, the adequate planning and investment in bulk fuel facility 
operations and maintenance and cost-effective investments in energy 
efficiency.
    (v) If the revolving fund program is not yet operational, a proposed 
implementation schedule and milestones should be provided.
    (5) Demonstrated experience. The application shall describe past 
accomplishments and experiences that are relevant to determine whether 
the applicant is capable of administering the grant project.
    (6) Budget. The application must include a pro forma operating 
budget for the proposed fund and a description of all funding sources. 
The level of detail must be sufficient for reviewers to determine that 
grant funds will be used only for eligible purposes and to determine the 
extent to which the program is entirely dependent on grant funding

[[Page 75]]

or whether it has financial support from the State or other sources.
    (7) Performance measures and project evaluation. The application 
must provide unambiguous and quantifiable measures that will be used to 
evaluate the success and cost-effectiveness of the revolving fund in 
assuring adequate fuel supplies for eligible communities and for 
assessing the fuel supply projects financed. The grant announcement may 
establish additional required elements that must be addressed in the 
narrative proposal of the application package.



Sec. 1709.211  Submission of applications.

    Completed applications must be submitted to RUS at the address 
specified in the grant announcement on or before the deadline specified 
in the grant announcement. Instructions for submittal of applications 
electronically will be established in the grant announcement. Late 
applications will be rejected.



Sec. 1709.212  Application review.

    The Agency will review all applications to determine whether the 
applicant is eligible and whether the application is timely, complete 
and sufficiently responsive to the requirements set forth in the grant 
announcement to allow for an informed review. Failure to address any of 
the required evaluation criteria or to submit all required forms will 
disqualify the proposal. The Agency reserves the right to contact the 
applicant to clarify information contained in the proposal to resolve 
issues related to eligibility and the grant request. Applications that 
are timely, complete, and responsive will be forwarded for further 
evaluation. Applications that are late, incomplete, or non-responsive 
will be rejected.



Sec. 1709.213  Evaluation of applications.

    (a) The Agency will establish one or more rating panels to review 
and rate the grant applications. The panels may include persons not 
employed by the Agency.
    (b) The rating panel will evaluate and rate all complete 
applications that meet the eligibility requirements according to the 
evaluation and selection criteria and weights established in the grant 
announcement. Panel members may make recommendations for conditions on 
grant awards to promote successful performance of the grant or to assure 
compliance with other Federal requirements.
    (c) After all proposals have been evaluated and scored, the 
proposals, the rankings, recommendations, and comments of the rating 
panel will be forwarded to the Administrator.



Sec. 1709.214  Administrator's review and selection of grant awards.

    (a) The final decision to make a grant award is at the discretion of 
the Administrator. The Administrator shall consider the applications, 
the ranking, comments, and recommendations of the rating panel, and any 
other pertinent information before making a decision about which, if 
any, applications to approve, the amount of funds awarded, and the order 
of approval. The Administrator reserves the right not to make any awards 
from the applications submitted. When the Administrator decides not to 
make any awards, the Administrator shall document in writing the reason 
for the decision.
    (b) Decisions on grant awards will be made by the Administrator 
after consideration of the applications, the rankings and 
recommendations of the rating panel. The Administrator may elect to 
award less than the full amount of grant requested by an applicant.
    (c) The applications selected by the Administrator will be funded in 
rank order to the extent of available funds.



Sec. 1709.215  Consideration of unfunded applications under later grant 

announcements.

    The grant announcement may provide that all eligible but unfunded 
proposals submitted under preceding announcements may also be considered 
for funding. The announcement shall describe whether and how prior 
applicants may request reconsideration and supplement their application 
material.



Sec. 1709.216  Evaluation criteria and weights.

    Unless supplemented in the grant announcement, the criteria listed 
in this

[[Page 76]]

section will be used to evaluate proposals submitted under this program. 
The total points available and the distribution of points to be awarded 
per criterion will be identified in the grant announcement.
    (a) Program Design. Reviewers will consider the financial viability 
of the applicant's revolving fund program design, the proposed criteria 
for establishing eligible projects and borrowers, and how the program 
will improve the cost effectiveness of bulk fuel purchases in eligible 
areas. Programs demonstrating a strong design and the ability to improve 
cost effectiveness will receive more points than applications that are 
less detailed.
    (b) Assessment of needs. Reviewers will award more points to 
programs that serve or give priority to assisting more costly areas than 
those that serve populations that suffer from less severe physical and 
economic challenges.
    (c) Program evaluation and performance measures. Reviewers may award 
more points to performance measures that are relevant to the project 
objective and quantifiable than to performance measures that are more 
subjective and do not incorporate variables that reflect a reduction in 
fuel cost or improvement in service.
    (d) Demonstrated experience. Applicants may be awarded points for 
relevant experience in administering revolving fund or other comparable 
programs.
    (e) Rurality. Reviewers may award more points to proposals that give 
priority in access to funds to communities with low population density 
or that are located in remote eligible areas than to proposals that 
serve eligible, but less remote and higher population density 
communities.
    (f) Cost sharing. Although cost-sharing is not required under this 
program, projects that evidence significant funding or contributed 
property, equipment or other in kind support for the project may be 
awarded points for this criterion where the aggregate value of these 
contributions exceed 25 percent of the annual funding operations.
    (g) Additional priority considerations. The grant announcement may 
provide for additional points to be awarded to projects that advance 
identified Agency priority interests under this program.



Sec. 1709.217  Grant award.

    (a) Notification of applicants. The Agency will notify all 
applicants in writing whether or not they have been selected for a grant 
award.
    (b) Letter of conditions. The Agency will notify a selected 
applicant in writing, setting out the amount of grant approved and the 
conditions under which the grant will be made.
    (c) Applicant's intent to meet conditions. Upon reviewing the 
conditions and requirements in the letter of conditions, the selected 
applicant must complete, sign and return the Agency's ``Letter of Intent 
to Meet Conditions,'' or, if certain conditions cannot be met, the 
applicant may propose alternate conditions to the Agency. The Agency 
must concur with any changes proposed to the letter of conditions by the 
applicant before the application will be further processed.
    (d) Grant agreement. The Agency and the grantee must execute a grant 
agreement acceptable to the Agency prior to the advance of funds.



Sec. Sec. 1709.218-1709.300  [Reserved]

Subparts D-F [Reserved]



    Subpart G_Recovery of Financial Assistance Used for Unauthorized 

                                Purposes



Sec. 1709.601  Policy.

    This subpart prescribes the policies of the Rural Utilities Service 
(RUS) when it is subsequently determined that the recipient of an 
Assistance to High Energy Cost Rural Communities program loan or grant 
was not eligible for all or part of the financial assistance received or 
that the assistance received was used for unauthorized purposes. It is 
the policy of the Agency that when assistance under this part has been 
received by an ineligible recipient or used for unauthorized purposes 
the Agency shall initiate appropriate actions to recover from the 
recipient the sum that is determined to be ineligible or used for 
unauthorized purposes, regardless of amount, unless any applicable 
statute of limitation

[[Page 77]]

has expired. The Agency shall make full use of available authority and 
procedures, including but not limited to those available under 7 CFR 
part 3015, subpart N.



Sec. Sec. 1709.602-1709.999  [Reserved]



PART 1710_GENERAL AND PRE-LOAN POLICIES AND PROCEDURES COMMON TO ELECTRIC 

LOANS AND GUARANTEES--Table of Contents



                            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.
1710.7-1710.49 [Reserved]

              Subpart B_Types of Loans and Loan Guarantees

1710.50 Insured loans.
1710.51 Direct loans.
1710.52 Loan guarantees.
1710.53-1710.99 [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.
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_Load Forecasts

1710.200 Purpose.
1710.201 General.
1710.202 Requirement to prepare a load forecast-power supply borrowers.
1710.203 Requirement to prepare a load forecast-distribution borrowers.
1710.204 Filing requirements for borrowers that must maintain a current 
          RUS approved load forecast on an ongoing basis.
1710.205 Minimum requirements for all borrower load forecasts.
1710.206 Requirements for load forecasts prepared pursuant to RUS 
          approved load forecast work plans.
1710.207 RUS approval criteria for approval of load forecasts by 
          distribution borrowers not required to maintain a current load 
          forecast on an ongoing basis.
1710.208 RUS approval criteria for load forecasts submitted by all power 
          supply borrowers and by distribution borrowers required to 
          maintain a current load forecast on an ongoing basis.
1710.209 Requirements for load forecast work plans.
1710.210 Waiver of requirements or approval criteria.
1710.211-1710.249 [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.

[[Page 78]]

1710.302 Financial forecasts--power supply borrowers.
1710.303 Power cost studies--power supply borrowers.
1710.304-1710.349 [Reserved]

Subpart H [Reserved]

   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., 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, 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.
    Approved load forecast means a load forecast that RUS has determined 
is current for RUS purposes and has been approved by RUS pursuant to 7 
CFR part 1710, subpart E.
    Approved load forecast work plan means a load forecast work plan 
that RUS has determined is current for RUS' purposes and has been 
approved pursuant to 7 CFR part 1710, subpart E.
    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;

[[Page 79]]

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.
    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.
    Distributed generation is the generation of electricity by a 
sufficiently small electric generating system as to allow 
interconnection of the electric generating system near the point of 
service at distribution voltages including points on the customer side 
of the meter. A distributed generating system may be operated in 
parallel or independent of the electric power system. A distributed 
generating system may be fueled by any source, including but not limited 
to renewable energy sources. A distributed generation project may 
include one or more distributed generation systems.
    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

[[Page 80]]

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 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.
    Load forecast 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.
    Load forecast work plan means the plan that contains the resources, 
methods, schedules, and milestones to be used in the preparation and 
maintenance of a load forecast.
    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

[[Page 81]]

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 is a renewable energy system not 
interconnected to an area electric power system (EPS). An off-grid 
renewable energy system in areas without access to an area EPS may 
include energy consuming devices and electric wiring to provide for more 
effective or more efficient use of the electricity produced by the 
system.
    On-grid renewable energy system is a renewable energy system 
interconnected to an area electric power system (EPS) through a normally 
open or normally closed device. It can be interconnected to the EPS on 
either side of a customer's meter.
    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


[[Page 82]]


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) has the same meaning as load 
forecast.
    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 has the same meaning as load forecast work plan.
    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 is an energy conversion system fueled from 
any of the following energy sources: Solar, wind, hydropower, biomass, 
or geothermal. Any of these energy sources may be converted to heat or 
electricity, provided heat is a by-product of electricity generation. 
Non-renewable energy sources may be used by a renewable energy system 
for incidental and necessary means such as, but not limited to, system 
start up, flame stabilization, continuity of system processes, or 
reduction of the moisture content of renewable fuels. Energy from bio-
mass may be converted from any organic matter available on a renewable 
basis, including dedicated energy crops and trees, agricultural food and 
feed crops, agricultural crop wastes and residues, wood wastes and 
residues, aquatic plants, animal wastes, municipal wastes, and other 
waste materials.
    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.
    Rural area means--
    (i) 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) other than 
a city, town, or unincorporated area that has a population of greater 
than 20,000 inhabitants; and
    (ii) Any area within a service area of a borrower for which a 
borrower has an outstanding loan as of June 18, 2008, made under titles 
I through V of the Rural Electrification Act of 1936 (7 U.S.C. 901-
950bb). For initial loans to a borrower made after June 18, 2008, the 
``rural'' character of an area is determined at the time of the initial 
loan to furnish or improve service in the area.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal

[[Page 83]]

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 as any area not considered a rural area per 
the definition contained in this subpart.
    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; 65 FR 
14786, Mar. 20, 2000; 68 FR 37953, June 26, 2003; 74 FR 56543, Nov. 2, 
2009]



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

[[Page 84]]

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. Sec. 1710.7-1710.49  [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 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  Direct loans.

    RUS makes direct loans under section 4 of the RE Act.
    (a) General. Except as otherwise modified by this section, RUS will 
make loans under the direct Treasury rate loan program in the same 
manner that it makes loans under the municipal rate program. The general 
and pre-loan policies and procedures for municipal rate electric loans 
made by RUS may be found in this part and 7 CFR part 1714. Treasury rate 
electric loans are also governed by such municipal rate policies and 
procedures, except as follows:
    (1) Interest rates. The standard interest rate on direct Treasury 
rate loans will be established daily by the United

[[Page 85]]

States Treasury. The borrower will select interest rate terms for each 
advance of funds. The minimum interest rate term shall be one year. 
Interest rate terms will be limited to terms published by the Treasury 
(i.e. 1, 2, 3, 5, 7, 10, 20, and 30). Interest rate terms to final 
maturity date, if other than published by Treasury, will be determined 
by RUS. Interest rates for terms greater than 30 years will be at the 
30-year rate. There will be no interest rate cap on Treasury rate loans.
    (2) Prepayment. A Treasury rate direct electric loan may be repaid 
at par on its rollover maturity date if there is one. Such a loan, or 
portion thereof, may also be prepaid after it has been advanced for not 
less than two years, at any time prior to its rollover or final maturity 
date at its ``net present value'' (NPV) as determined by RUS.
    (3) Supplemental financing. Supplemental financing will not be 
required in connection with Treasury rate direct electric loans.
    (4) Transitional assistance. A Treasury rate direct loan is not 
available to provide transitional assistance to borrowers.
    (b) Loan documents. Successful applicants will be required to 
execute and deliver to RUS a promissory note evidencing the borrower's 
obligation to repay the loan. The note must be in form and substance 
satisfactory to RUS. RUS will require a form of note substantially in 
the form that it currently accepts for direct municipal rate electric 
loans, with such revisions as may be necessary or appropriate to reflect 
the different interest setting provisions and the terms of paragraphs 
(a) (1) and (2) of this section. All notes will be secured in accordance 
with the terms of 7 CFR part 1718.

[66 FR 66294, Dec. 26, 2001]



Sec. 1710.52  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]



Sec. Sec. 1710.53-1710.99  [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

[[Page 86]]

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, 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.

[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) Direct loans under section 4. Direct 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.
    (c) 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

[[Page 87]]

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.
    (d) 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.)
    (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; 66 
FR 66294, Dec. 26, 2001]



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 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,

[[Page 88]]

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 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

[[Page 89]]

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 Sec. Sec. 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 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

[[Page 90]]

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 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

[[Page 91]]

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 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 = 
    (AxC1)+(BxC2)-D

where:

A = The total funds ($) actually advanced from the first loan, including 
both RUS

[[Page 92]]

loan funds and funds from the supplemental loan, plus any unadvanced 
funds still available to the borrower after the rescission.
B = The total amount ($) for facilities of the new loan request, 
including both RUS funds and funds from supplemental loans.
C1 = The proportion (%) of supplemental financing required on 
the old loan according to paragraphs (a), (c)(1) and (c)(2) of this 
section.
C2 = The proportion (%) of supplemental financing required on 
the new loan according to paragraphs (a), (c)(1) and (c)(2) of this 
section.
D = The amount ($) of supplemental funds actually advanced on the first 
loan, plus any unadvanced supplemental funds still available to the 
borrower after the rescission.

    (d) Supplemental financing will not be required in connection with 
hardship rate loans. Borrowers that qualify for hardship rate loans but 
elect to take municipal rate loans instead, will be required to obtain 
supplemental financing pursuant to this section, unless at the time of 
loan approval, there are no funds remaining available for hardship 
loans, in which case supplemental financing will not be required.

[57 FR 1053, Jan. 9, 1992, as amended at 58 FR 66265, Dec. 20, 1993; 60 
FR 3730, Jan. 19, 1995; 61 FR 66870, Dec. 19, 1996]



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 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

[[Page 93]]

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.
    (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

[[Page 94]]

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 1.25, DSC of 1.25, OTIER of 1.1, 
and ODSC of 1.1. OTIER and ODSC shall apply to distribution borrowers 
that receive a loan approved 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

[[Page 95]]

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 
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; 
65 FR 51748, Aug. 25, 2000]



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

[[Page 96]]

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. If the useful life determination proposed by the 
borrower is not deemed appropriate by RUS, RUS will base expected useful 
life on an independent evaluation, the manufacturer's estimated useful-
life or RUS experience with like-property, as applicable. 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 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; 68 
FR 54236, May 7, 2003]



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

[[Page 97]]

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 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.



Sec. Sec. 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

[[Page 98]]

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 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) Load forecast. The load forecast provides the borrower and RUS 
with an understanding of the borrower's future system loads, the factors 
influencing those loads, and estimates of future loads. The load 
forecast provides a basis for projecting annual electricity (kWh) sales 
and revenues, and for engineering estimates of plant additions required 
to provide reliable service to meet the forecasted loads. Subpart E of 
this part contains the information to be included in a load forecast and 
when an approved load forecast is required.
    (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.

[57 FR 1053, Jan. 9, 1992, as amended at 65 FR 14786, Mar. 20, 2000]



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.



Sec. Sec. 1710.154-1710.199  [Reserved]



                        Subpart E_Load Forecasts

    Source: 65 FR 14786, Mar. 20, 2000, unless otherwise noted.



Sec. 1710.200  Purpose.

    This subpart contains RUS policies for the preparation, review, 
approval and use of load forecasts and load forecast work plans. A load 
forecast is a thorough study of a borrower's electric loads and the 
factors that affect those loads in order to estimate, as accurately as 
practicable, the borrower's future requirements for energy and capacity. 
The load forecast of a power supply borrower includes and integrates the 
load forecasts of its member

[[Page 99]]

systems. An approved load forecast, if required by this subpart, is one 
of the primary documents that a borrower is required to submit to 
support a loan application.



Sec. 1710.201  General.

    (a) The policies, procedures and requirements in this subpart are 
intended to implement provisions of the loan documents between RUS and 
the electric borrowers and are also necessary to support approval by RUS 
of requests for financial assistance.
    (b) Notwithstanding any other provisions of this subpart, RUS may 
require any power supply or distribution borrower to prepare a new or 
updated load forecast for RUS approval or to maintain an approved load 
forecast on an ongoing basis, if such documentation is necessary for RUS 
to determine loan feasibility, or to ensure compliance under the loan 
documents.



Sec. 1710.202  Requirement to prepare a load forecast--power supply borrowers.

    (a) A power supply borrower with a total utility plant of $500 
million or more must maintain an approved load forecast that meets the 
requirements of this subpart on an ongoing basis and provide an approved 
load forecast in support of any request for RUS financial assistance. 
The borrower must also maintain an approved load forecast work plan. The 
borrower's approved load forecast must be prepared pursuant to the 
approved load forecast work plan.
    (b) A power supply borrower that is a member of another power supply 
borrower that has a total utility plant of $500 million or more must 
maintain an approved load forecast that meets the requirements of this 
subpart on an ongoing basis and provide an approved load forecast in 
support of any request for RUS financial assistance. The member power 
supply borrower may comply with this requirement by participation in and 
inclusion of its load forecasting information in the approved load 
forecast of its power supply borrower. The approved load forecasts must 
be prepared pursuant to the RUS approved load forecast work plan.
    (c) A power supply borrower that has total utility plant of less 
than $500 million and that is not a member of another power supply 
borrower with a total utility plant of $500 million or more must provide 
an approved load forecast that meets the requirements of this subpart in 
support of an application for any RUS loan or loan guarantee which 
exceeds $50 million. The borrower is not required to maintain on an 
ongoing basis either an approved load forecast or an approved load 
forecast work plan.



Sec. 1710.203  Requirement to prepare a load forecast--distribution borrowers.

    (a) A distribution borrower that is a member of a power supply 
borrower with a total utility plant of $500 million or more must 
maintain an approved load forecast that meets the requirements of this 
subpart on an ongoing basis and provide an approved load forecast in 
support of any request for RUS financial assistance. The distribution 
borrower may comply with this requirement by participation in and 
inclusion of its load forecasting information in the approved load 
forecast of its power supply borrower. The distribution borrower's load 
forecast must be prepared pursuant to the approved load forecast work 
plan of its power supply borrower.
    (b) A distribution borrower that is a member of a power supply 
borrower which is itself a member of another power supply borrower that 
has a total utility plant of $500 million or more must maintain an 
approved load forecast that meets the requirements of this subpart on an 
ongoing basis and provide an approved load forecast in support of any 
request for RUS financial assistance. The distribution borrower may 
comply with this requirement by participation in and inclusion of its 
load forecasting information in the approved load forecast of its power 
supply borrower. The distribution borrower's approved load forecast must 
be prepared pursuant to the approved load forecast work plan of the 
power supply borrower with total utility plant in excess of $500 
million.
    (c) A distribution borrower that is a member of a power supply 
borrower

[[Page 100]]

with a total utility plant of less than $500 million must provide an 
approved load forecast that meets the requirements of this subpart in 
support of an application for any RUS loan or loan guarantee that 
exceeds $3 million or 5 percent of total utility plant, whichever is 
greater. The distribution borrower may comply with this requirement by 
participation in and inclusion of its load forecasting information in 
the approved load forecast of its power supply borrower. The borrower is 
not required to maintain on an ongoing basis either an approved load 
forecast or an approved load forecast work plan.
    (d) A distribution borrower with a total utility plant of less than 
$500 million and that is unaffiliated with a power supply borrower must 
provide an approved load forecast that meets the requirements of this 
subpart in support of an application for any RUS loan or loan guarantee 
which exceeds $3 million or 5 percent of total utility plant, whichever 
is greater. The borrower is not required to maintain on an ongoing basis 
either an approved load forecast or an approved load forecast work plan.
    (e) A distribution borrower with a total utility plant of $500 
million or more must maintain an approved load forecast that meets the 
requirements of this subpart on an ongoing basis and provide an approved 
load forecast in support of any request for RUS financing assistance. 
The borrower must also maintain an approved load forecast work plan. The 
distribution borrower may comply with this requirement by participation 
in and inclusion of its load forecasting information in the approved 
load forecast of its power supply borrower.



Sec. 1710.204  Filing requirements for borrowers that must maintain an 

approved load forecast on an ongoing basis.

    (a) Filing of load forecasts and updates. A power supply or 
distribution borrower required to maintain an approved load forecast on 
an ongoing basis under Sec. 1710.202 or Sec. 1710.203 may elect either 
of the following two methods of compliance:
    (1) Submitting a new load forecast to RUS for review and approval at 
least every 36 months, and then submitting updates to the load forecast 
to RUS for review and approval in each intervening year; or
    (2) Submitting a new load forecast to RUS for review and approval 
not less frequently than every 24 months.
    (b) Extensions. RUS may extend any time period required under this 
section for up to 3 months at the written request of the borrower's 
general manager. A request to extend a time period beyond 3 months must 
be accompanied by a written request from the borrower's general manager, 
an amendment to the borrower's approved load forecast work plan 
incorporating the extension, a board resolution approving the extension 
request and any amendment to the approved load forecast work plan, and 
any other relevant supporting information. RUS may extend the time 
periods contained in this section for up to 24 months.



Sec. 1710.205  Minimum approval requirements for all load forecasts.

    (a) Documents required for RUS approval of a borrower's load 
forecast. The borrower must provide the following documents to obtain 
RUS approval for a load forecast:
    (1) The load forecast and supporting documentation;
    (2) A memorandum from the borrower's general manager to the board of 
directors recommending that the board approve the load forecast and its 
uses; and
    (3) A board resolution from the borrower's board of directors 
approving the load forecast and its uses.
    (b) Contents of Load Forecast. All load forecasts submitted by 
borrowers for approval must include:
    (1) A narrative describing the borrower's system, service territory, 
and consumers;
    (2) A narrative description of the borrower's load forecast 
including future load projections, forecast assumptions, and the methods 
and procedures used to develop the forecast;
    (3) Projections of usage by consumer class, number of consumers by 
class, annual system peak demand, and season of peak demand for the 
number of years agreed upon by RUS and the borrower;

[[Page 101]]

    (4) A summary of the year-by-year results of the load forecast in a 
format that allows efficient transfer of the information to other 
borrower planning or loan support documents;
    (5) The load impacts of a borrower's demand side management 
activities, if applicable;
    (6) Graphic representations of the variables specifically identified 
by management as influencing a borrower's loads; and
    (7) A database that tracks all relevant variables that might 
influence a borrower's loads.
    (c) Formats. RUS does not require a specific format for the 
narrative, documentation, data, and other information in the load 
forecast, provided that all required information is included and 
available. All data must be in a tabular form that can be transferred 
electronically to RUS computer software applications. RUS will evaluate 
borrower load forecasts for readability, understanding, filing, and 
electronic access. If a borrower's load forecast is submitted in a 
format that is not readily usable by RUS or is incomplete, RUS will 
require the borrower to submit the load forecast in a format acceptable 
to RUS.
    (d) Document retention. The borrower must retain its latest approved 
load forecasts, and supporting documentation until RUS approval of its 
next load forecast. Any approved load forecast work plan must be 
retained as part of the approved load forecast.
    (e) Consultation with RUS. The borrower must designate and make 
appropriate staff and consultants available for consultation with RUS to 
facilitate RUS review of the load forecast work plan and the load 
forecast when requested by RUS.
    (f) Correlation and consistency with other RUS loan support 
documents. If a borrower relies on an approved load forecast or an 
update of an approved load forecast as loan support, the borrower must 
demonstrate that the approved load forecast and the other primary 
support documentation for the loan were reconciled. For example, both 
the load forecast and the financial forecast require input assumptions 
for wholesale power costs, distribution costs, other systems costs, 
average revenue per kWh, and inflation. Also, a borrower's engineering 
planning documents, such as the construction work plan, incorporate 
consumer and usage per consumer projections from the load forecast to 
develop system design criteria. The assumptions and data common to all 
the documents must be consistent.
    (g) Coordination. Power supply borrowers and their members that are 
subject to the requirement to maintain an approved load forecast on an 
ongoing basis are required to coordinate preparation of their respective 
load forecasts, updates of load forecasts, and approved load forecast 
work plan. A load forecast of a power supply borrower must consider the 
load forecasts of all its member systems.



Sec. 1710.206  Approval requirements for load forecasts prepared pursuant to 

approved load forecast work plans.

    (a) Contents of load forecasts prepared under an approved load 
forecast work plan. In addition to the minimum requirements for load 
forecasts under Sec. 1710.205, load forecasts developed and submitted 
by borrowers required to have an approved load forecast work plan shall 
include the following:
    (1) Scope of the load forecast. The narrative shall address the 
overall approach, time periods, and expected internal and external uses 
of the forecast. Examples of internal uses include providing information 
for developing or monitoring demand side management programs, supply 
resource planning, load flow studies, wholesale power marketing, retail 
marketing, cost of service studies, rate policy and development, 
financial planning, and evaluating the potential effects on electric 
revenues caused by competition from alternative energy sources or other 
electric suppliers. Examples of external uses include meeting state and 
Federal regulatory requirements, obtaining financial ratings, and 
participation in reliability council, power pool, regional transmission 
group, power supplier or member system forecasting and planning 
activities.
    (2) Resources used to develop the load forecast. The discussion 
shall identify and discuss the borrower personnel, consultants, data 
processing, methods

[[Page 102]]

and other resources used in the preparation of the load forecast. The 
borrower shall identify the borrower's member 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 
current and future work plans.
    (3) A comprehensive description of the database used in the study. 
The narrative shall describe the procedures used to collect, develop, 
verify, validate, update, and maintain the data. A data dictionary 
thoroughly defining the database shall be included. The borrower shall 
make all or parts of the database available or otherwise accessible to 
RUS in electronic format, if requested.
    (4) A narrative for each new load forecast or update of a load 
forecast discussing the methods and procedures used in the analysis and 
modeling of the borrower's electric system loads as provided for in the 
load forecast work plan.
    (5) A narrative discussing the borrower's past, existing, and 
forecast of future electric system loads. The narrative must identify 
and explain substantive assumptions and other pertinent information used 
to support the estimates presented in the load forecast.
    (6) A narrative discussing load forecast uncertainty or alternative 
futures that may determine the borrower's actual loads. Examples of 
economic scenarios, weather conditions, and other uncertainties that 
borrowers may decide to address in their analysis include:
    (i) Most-probable assumptions, with normal weather;
    (ii) Pessimistic assumptions, with normal weather;
    (iii) Optimistic assumptions, with normal weather;
    (iv) Most-probable assumptions, with severe weather;
    (v) Most-probable assumptions, with mild weather;
    (vi) Impacts of wholesale or retail competition; or
    (vii) new environmental requirements.
    (7) A summary of the forecast's results on an annual basis. Include 
alternative futures, as applicable. This summary shall be designed to 
accommodate the transfer of load forecast information to a borrower's 
other planning or loan support documents. Computer-generated forms or 
electronic submissions of data are acceptable. Graphs, tables, 
spreadsheets or other exhibits shall be included throughout the forecast 
as appropriate.
    (8) A narrative discussing the coordination activities conducted 
between a power supply borrower and its members, as applicable, and 
between the borrower and RUS.
    (b) Compliance with an approved load forecast work plan. A borrower 
required to maintain an approved load forecast work plan must also be 
able to demonstrate that both it and its RUS borrower members are in 
compliance with its approved load forecast work plan for the next load 
forecast or update of a load forecast.



Sec. 1710.207  RUS criteria for approval of load forecasts by distribution 

borrowers not required to maintain an approved load forecast on an ongoing 

basis.

    Load forecasts submitted by distribution borrowers that are 
unaffiliated with a power supply borrower, or by distribution borrowers 
that are members of a power supply borrower that has a total utility 
plant less than $500 million and that is not itself a member of another 
power supply borrower with a total utility plant of $500 million or more 
must satisfy the following minimum criteria:
    (a) The borrower considered all known relevant factors that 
influence the consumption of electricity and the known number of 
consumers served at the time the study was developed;
    (b) The borrower considered and identified all loads on its system 
of RE Act beneficiaries and non-RE Act beneficiaries;
    (c) The borrower developed an adequate supporting data base and 
considered a range of relevant assumptions; and
    (d) The borrower provided RUS with adequate documentation and 
assistance to allow for a thorough and independent review.

[[Page 103]]



Sec. 1710.208  RUS criteria for approval of all load forecasts by power supply 

borrowers and by distribution borrowers required to maintain an approved load 

forecast on an ongoing basis.

    All load forecasts submitted by power supply borrowers and by 
distribution borrowers required to maintain an approved load forecast 
must satisfy the following criteria:
    (a) The borrower objectively analyzed all known relevant factors 
that influence the consumption of electricity and the known number of 
customers served at the time the study was developed;
    (b) The borrower considered and identified all loads on its system 
of RE Act beneficiaries and non-RE Act beneficiaries;
    (c) The borrower developed an adequate supporting database and 
analyzed a reasonable range of relevant assumptions and alternative 
futures;
    (d) The borrower adopted methods and procedures in general use by 
the electric utility industry to develop its load forecast;
    (e) The borrower used valid and verifiable analytical techniques and 
models;
    (f) The borrower provided RUS with adequate documentation and 
assistance to allow for a thorough and independent review; and
    (g) In the case of a power supply borrower required to maintain an 
approved load forecast on an ongoing basis, the borrower adequately 
coordinated the preparation of the load forecast work plan and load 
forecast with its member systems.



Sec. 1710.209  Approval requirements for load forecast work plans.

    (a) In addition to the approved load forecast required under 
Sec. Sec. 1710.202 and 1710.203, any power supply borrower with a total 
utility plant of $500 million or more and any distribution borrower with 
a total utility plant of $500 million or more must maintain an approved 
load forecast work plan. RUS borrowers that are members of a power 
supply borrower with a total utility plant of $500 million or more must 
cooperate in the preparation of and submittal of the load forecast work 
plan of their power supply borrower.
    (b) An approved load forecast work plan establishes the process for 
the preparation and maintenance of a comprehensive database for the 
development of the borrower's load forecast, and load forecast updates. 
The approved load forecast work plan is intended to develop and maintain 
a process that will result in load forecasts that will meet the 
borrowers' own needs and the requirements of this subpart. An approved 
work plan represents a commitment by a power supply borrower and its 
members, or by a large unaffiliated distribution borrower, that all 
parties concerned will prepare their load forecasts in a timely manner 
pursuant to the approved load forecast work plan and they will modify 
the approved load forecast work plan as needed with RUS approval to 
address changing circumstances or enhance the usefulness of the approved 
load forecast work plan.
    (c) An approved load forecast work plan for a power supply borrower 
and its members must cover all member systems, including those that are 
not borrowers. However, only members that are borrowers, including the 
power supply borrower, are required to follow the approved load forecast 
work plan in preparing their respective load forecasts. Each borrower is 
individually responsible for forecasting all its RE Act beneficiary and 
non-RE Act beneficiary loads.
    (d) An approved load forecast work plan must outline the 
coordination and preparation requirements for both the power supply 
borrower and its members.
    (e) An approved load forecast work plan must cover a period of 2 or 
3 years depending on the applicable compliance filing schedule elected 
under Sec. 1710.204.
    (f) An approved load forecast work plan must describe the borrower's 
process and methods to be used in producing the load forecast and 
maintaining current load forecasts on an ongoing basis.
    (g) Approved load forecast work plans for borrowers with residential 
demand of 50 percent or more of total kWh

[[Page 104]]

must provide for a residential consumer survey at least every 5 years to 
obtain data on appliance and equipment saturation and electricity 
demand. Any such borrower that is experiencing or anticipates changes in 
usage patterns shall consider surveys on a more frequent schedule. Power 
supply borrowers shall coordinate such surveys with their members. 
Residential consumer surveys 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.
    (h) Approved load forecast work plans must provide for RUS review of 
the load forecasts as the load forecast is being developed.
    (i) A power supply borrower's work plan must have the concurrence of 
the majority of the members that are borrowers.
    (j) The borrower's board of directors must approve the load forecast 
work plan.
    (k) A borrower may amend its approved load forecast work plan 
subject to RUS approval. If RUS concludes that the existing approved 
load forecast work plan will not result in a satisfactory load forecast, 
RUS may require a new or revised load forecast work plan.



Sec. 1710.210  Waiver of requirements or approval criteria.

    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 RUS' objectives and if the 
requirement imposes a substantial burden on the borrower. The borrower's 
general manager must request the waiver in writing.



Sec. Sec. 1710.211-1710.249  [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), 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

[[Page 105]]

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 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.

[[Page 106]]

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 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

[[Page 107]]

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.



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 contained 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 an effective and economical means of meeting the power 
requirements of the consumers. A borrower shall contact RUS as soon as 
practicable in order for RUS to review information submitted by the 
borrower and advise the borrower, in writing, whether there is a need 
for the borrower to investigate and seek alternative sources of power. 
RUS will determine, based on information provided by the borrower or 
otherwise available, whether there is a need to investigate alternative 
sources of power or whether RUS will require information or other 
methods of determining the need for the generation capacity. RUS will 
base its determination on whether RUS is able to conclude that the 
project is needed, the borrower would incur delays and costs in pursuing 
an RFP,

[[Page 108]]

or that an RFP is not likely to produce new alternatives to the project.
    (b) Loan requests for the addition of generation capacity, including 
replacement of existing capacity, will be accepted by RUS when the 
applicant has completed the requirements established by RUS, in a manner 
satisfactory to RUS. The investigations of alternative sources of power 
must be coordinated in advance with RUS. This section applies to RUS 
financed generation capacity whether owned solely by the borrower, owned 
on an undivided ownership basis with other utilities or substantially 
controlled by the borrower.
    (c) The applicant may be required to seek and utilize capacity 
available from RUS borrowers and other organizations before developing 
plans for additional generation capacity. RUS may require, on a case by 
case basis, that the applicant, among other things:
    (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) 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 should 
be placed in at least three national newspapers or trade publications, 
and they meet all planning, coordination or other requirements imposed 
by state authorities, as well as the environmental requirements of RUS.
    (d) When solicitations are received in accordance with paragraph (c) 
of this section, the applicant will evaluate all alternative proposals 
on an economic, present-value basis, giving consideration to cost-
effectiveness, reliability of service, the short-term 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 received in accordance with 
paragraph (c) of this section, and having informed RUS of the results, 
the applicant may be required to negotiate final proposals with the 
entities submitting the best acceptable offers. Contracts requiring RUS 
approval will either be approved in advance by the Administrator or 
contain a provision that the contract is not valid until approved, in 
writing, by the Administrator. The Administrator will approve the 
contracts in a timely manner provided that the borrower has met all 
applicable requirements, including, among other matters, evidence that 
the alternative source of power selected is an economical and effective 
alternative.
    (f) RUS may make independent inquiries with potential power 
suppliers as to the availability of power to meet 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)

[57 FR 1053, Jan. 9, 1992, as amended at 65 FR 31247, May 17, 2000]



Sec. Sec. 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

[[Page 109]]

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 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]

[[Page 110]]



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).
    (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

[[Page 111]]

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 Sec. Sec. 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)



Sec. Sec. 1710.304-1710.349  [Reserved]

Subpart H [Reserved]



       Subpart I_Application Requirements and Procedures for 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

[[Page 112]]

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 type, 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 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

[[Page 113]]

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 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.

[[Page 114]]

    (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 
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 Sec. Sec. 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

[[Page 115]]

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 Sec. Sec. 
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 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)

[[Page 116]]



Sec. Sec. 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.



PART 1714_PRE-LOAN POLICIES AND PROCEDURES FOR INSURED ELECTRIC LOANS--Table 

of Contents



                            Subpart A_General

Sec.
1714.1 [Reserved]
1714.2 Definitions.
1714.3 Applicability of provisions.
1714.4 Interest rates.
1714.5 Determination of interest rates on municipal rate loans.
1714.6 Interest rate term.
1714.7 Interest rate cap.
1714.8 Hardship rate loans.
1714.9 Prepayment of insured loans.
1714.10-1714.49 [Reserved]

                    Subpart B_Terms of Insured Loans

1714.50-1714.54 [Reserved]
1714.55 Advance of funds from insured loans.
1714.56 Fund advance period.
1714.57 Sequence of advances.
1714.58 Amortization of principal.
1714.59 Rescission of loans.

    Authority: 7 U.S.C. 901 et seq.; 1921 et seq.; and 6941 et seq.

    Source: 58 FR 66260, Dec. 20, 1993, unless otherwise noted.



                            Subpart A_General



Sec. 1714.1  [Reserved]



Sec. 1714.2  Definitions.

    The definitions set forth in 7 CFR 1710.2 are applicable to this 
part, unless otherwise stated. References to specific RUS forms and 
other RUS documents, and to specific sections of such forms and 
documents, shall include the corresponding forms, documents, sections 
and lines in any subsequent revisions of these forms and documents.



Sec. 1714.3  Applicability of provisions.

    (a) Insured electric loans approved on or after November 1, 1993. On 
November 1, 1993, the Rural Electrification Loan Restructuring Act, Pub. 
L. 103-129, 107 Stat. 1356, (RELRA) amended the Rural Electrification 
Act of 1936, 7 U.S.C. 901 et seq., (RE Act) to establish a new interest 
rate structure for insured electric loans. Insured electric loans 
approved on or after this date, are either municipal rate loans or 
hardship rate loans. Borrowers meeting the criteria set forth in Sec. 
1714.8 are eligible for 5 percent hardship rate loans. The interest rate 
on loans to other borrowers is the municipal interest rate, and 
borrowers meeting the criteria set forth in Sec. 1714.7 are eligible 
for the interest rate cap on their municipal rate loans. Interest rates 
for the initial interest rate term and rollover terms (Sec. 1714.6) 
will be determined pursuant to Sec. 1714.4. Provisions for prepayment 
are set forth in Sec. 1714.9. The provisions of this subpart apply to 
loans approved on or after November 1, 1993, unless otherwise stated.
    (b) Insured electric loans approved prior to November 1, 1993. These 
loans have a single interest rate applicable to the entire loan. The 
rate is generally 5 percent, but, in some cases, may be as low as 2 
percent. These loans have a single interest rate term and may be prepaid 
at face value at any time. Provisions for discounted prepayment of these 
loans are set forth in 7 CFR part 1786.



Sec. 1714.4  Interest rates.

    (a) Municipal rate loans. Each advance of funds on a municipal rate 
loan shall

[[Page 117]]

bear interest at a single rate for each interest rate term. All interest 
rates applicable to municipal rate loans will be increased by one eighth 
of one percent (0.125 percent), if the borrower elects to include in the 
loan agreement a prepayment option (call provision), allowing the 
borrower to prepay all or a portion of an advance on a date other than a 
rollover maturity date. However, no interest rate for any advances of a 
loan to a borrower who qualifies for the interest rate cap may exceed 7 
percent.
    (b) Hardship rate loans. All advances of funds on hardship rate 
loans shall bear interest at a rate of 5 percent.
    (c) Application procedure. The borrower's board resolution submitted 
with the loan application must indicate whether the application is for a 
municipal rate loan, with or without the interest rate cap, or a 
hardship rate loan. If the application is for a municipal rate loan, the 
board resolution must also indicate whether the borrower intends to 
elect the prepayment option.

[58 FR 66260, Dec. 20, 1993, as amended at 67 FR 16969, Apr. 9, 2002]



Sec. 1714.5  Determination of interest rates on municipal rate loans.

    (a) RUS will post on the RUS website, Electric Program HomePage, a 
schedule of interest rates for municipal rate loans at the beginning of 
each calendar quarter. The schedule will show the year of maturity and 
the applicable interest rates in effect for all funds advanced on 
municipal rate loans during the calendar quarter and all interest rate 
terms beginning in the quarter. All interest rates will be adjusted to 
the nearest one eighth of one percent (0.125 percent).
    (b) The rate for interest rate terms of 20 years or longer will be 
the average of the 20 year rates published in the Bond Buyer in the 4 
weeks specified in paragraph (d) of this section for the ``11-Bond GO 
Index'' of Aa rated general obligation municipal bonds, or the successor 
to this index.
    (c) The rate for terms of less than 20 years will be the average of 
the rates published in the Bond Buyer in the 4 weeks specified in 
paragraph (d) of this section in the table of ``Municipal Market Data--
General Obligation Yields'' for Aa rated bonds, or the successor to this 
table, for obligations maturing in the same year as the interest rate 
term selected by the borrower.
    (d) The interest rates on municipal rate loans shall not exceed the 
interest rate determined under section 307(a)(3)(A) of the Consolidated 
Farm and Rural Development Act (7 U.S.C. 1927(a)(3)(A)) for Water and 
Waste Disposal loans. The method used to determine this rate is set 
forth in the regulations of the Farmers Home Administration (FmHA) at 7 
CFR 1942.17(f) (1) and (4). Pursuant to the FmHA rule, the interest 
rates are set using as guidance the average of the Bond Buyer Index for 
the four weeks prior to the first Friday of the last month before the 
beginning of the quarter. Information about the Bond Buyer is available 
by writing Bond Buyer, One State Street Plaza, New York, NY 10004-1549, 
or by calling 1-800-982-0633.

[58 FR 66260, Dec. 20, 1993, as amended at 67 FR 16969, Apr. 9, 2002]



Sec. 1714.6  Interest rate term.

    (a) Municipal rate loans. Selection of interest rate terms shall be 
made by the borrower for each advance of funds. The minimum interest 
rate term shall be one year. RUS will send the borrower written 
confirmation of each rollover maturity date and the applicable interest 
rate.
    (1) The initial interest rate term will begin on the date of the 
advance. All rollover interest rate terms will begin on the first day of 
a month, and except for the last interest rate term to final maturity, 
shall end on the last day of a month. All terms except for the initial 
interest rate term on an advance, and the last term to final maturity 
shall be in yearly increments.
    (2) The following limits apply to the number of advances of funds 
that may be made to the borrower on any municipal rate loan:
    (i) If the loan period is 2 years or less, not more than 6 advances;
    (ii) If the loan period is more than 2 years, not more than 8 
advances.
    (3) For the initial interest rate term of an advance, a letter from 
an authorized official of the borrower indicating

[[Page 118]]

the selection of the term shall accompany the request for the advance.
    (4) At the end of any interest rate term, the borrower shall pay all 
accrued interest and principal balance then due, and either prepay the 
remaining principal of the advance at face value, or roll over the 
remaining principal for a new term, provided that no interest rate term 
may end later than the date of the final maturity.
    (i) If the borrower elects to prepay all or part of the remaining 
principal of the advance at face value, it must notify the Director of 
the appropriate Regional Division or the Power Supply Division in 
writing not later than 20 days before the rollover maturity date.
    (ii) If the borrower wishes to elect a new interest rate term that 
is different from the term previously selected, it must notify RUS in 
writing of the new term not later than 20 days before the end of the 
current term. The election of the new term shall be addressed to the 
Director, Financial Operations Division, Rural Utilities Service, 
Washington, DC 20250-1500.
    (iii) If the borrower fails to notify RUS within the timeframes set 
out in this paragraph of its intention to prepay or elect a different 
interest rate term, RUS will automatically roll over the remaining 
principal for the shorter of, and at the interest rate applicable to:
    (A) A period equal in length to the term that is expiring; or
    (B) The remaining period to final maturity.
    (b) Hardship rate loans. Loans made at the 5 percent hardship rate 
are made for a single term that cannot exceed the final maturity as set 
forth in 7 CFR 1710.115. The hardship interest rate applies to the 
entire amount of the loan.

[58 FR 66260, Dec. 20, 1993, as amended at 60 FR 3734, Jan. 19, 1995]



Sec. 1714.7  Interest rate cap.

    Except as provided in paragraph (c) of this section, the municipal 
interest rate may not exceed 7 percent on a loan advance to a borrower 
primarily engaged in providing retail electric service if the borrower 
meets, at the time of loan approval, either the consumer density test 
set forth in paragraph (a) of this section, or both the rate disparity 
test for the interest rate cap and the consumer income test set forth in 
paragraph (b) of this section.
    (a) Low consumer density test. The borrower meets this test if the 
average number of consumers per mile of line of its total electric 
system, based on the most recent data available at the time of loan 
approval is less than 5.50.
    (b)(1) Rate disparity test for the interest rate cap. The borrower 
meets this test if its average revenue per kWh sold is more than the 
average revenue per kWh sold by all electric utilities in the state in 
which the borrower provides service. To determine whether a borrower 
meets this test, RUS will compare the borrower's average total revenue 
with statewide data in the table of Average Revenue per Kilowatthour for 
Electric Utilities by Sector, Census Division and State, in the Electric 
Power Annual issued by the Energy Information Administration of the 
Department of Energy (DOE), or the successor to this table. The test 
will be based on the most recent calendar year for which full year DOE 
data are available at the time of loan approval and borrower data for 
the same year.
    (2) Consumer income test.The borrower meets this test if either the 
average per capita income of the residents receiving electric service 
from the borrower is less than the average per capita income of 
residents of the state in which the borrower provides service or the 
median household income of the households receiving electric service 
from the borrower is less than the median household income of the 
households in the state.
    (i) To qualify under the consumer income test, the borrower must 
include in its loan application information about the location of its 
residential consumers. The borrower must provide to RUS, based on the 
most recent data available at the time of loan application, either the 
number of consumers in each county it serves or the number of consumers 
in each census tract it serves. Using the most recently published 
decennial census data on income from the Bureau of the Census, RUS will 
compare, on a weighted average basis, the average per capita and median 
household income of the counties

[[Page 119]]

or census tracts served by the borrower with state figures.
    (ii) In cases where conditions have substantially changed so that 
the decennial census data no longer accurately describes the economic 
conditions of the borrower's consumers, the borrower may provide RUS 
with more current income data from a reliable source such as a State 
agency. The Administrator has the sole discretion to determine whether 
such data submitted by the borrower is sufficient to determine whether 
the borrower qualifies under the consumer income test.
    (3) Borrowers serving 2 or more states. If a borrower serves 
consumers in 2 or more states, the rate disparity test and the consumer 
income test will be determined on a weighted average based on the 
percentage of the borrower's total consumers that are served in each 
state.
    (c) High density test. If the average number of consumers per mile 
of the borrower's total electric system exceeds 17, the interest rate 
cap will not apply to funds used for the purpose of furnishing or 
improving electric service to consumers located in an area that is an 
urban area at the time of loan approval, notwithstanding that the area 
must have been deemed a rural area for the purpose of qualifying for a 
loan under this part. (See the definition of ``rural area'' in 7 CFR 
1710.2.) If the average number of consumers per mile of line of the 
borrower's total electric system exceeds 17, the borrower must include, 
as a note on RUS Form 740c, Cost Estimates and Loan Budget for Electric 
Borrowers, submitted as part of the loan application for a loan subject 
to the interest rate cap, a breakdown of funds included in the proposed 
loan to furnish or improve service to consumers located in such urban 
areas. For such borrowers only funds for those facilities serving 
consumers located outside an urban area are eligible for the interest 
rate cap.



Sec. 1714.8  Hardship rate loans.

    Except as provided in paragraph (d) of this section, the 
Administrator shall make an insured electric loan for eligible purposes 
at the 5 percent hardship rate to a borrower primarily engaged in 
providing retail electric service if the borrower meets, at the time of 
loan approval, both the rate disparity test for hardship and the 
consumer income test described in paragraph (a) of this section; or the 
extremely high rates test set forth in paragraph (b) of this section. A 
loan at the 5 percent hardship rate may also be made to any borrower 
pursuant to paragraph (c) of this section who, in the sole discretion of 
the Administrator, has experienced a severe hardship. The Administrator 
may not require a loan from a supplemental source in connection with a 
hardship rate loan.
    (a)(1) Rate disparity test for hardship. The borrower meets this 
test if its average revenue per kWh sold is not less than 120 percent of 
the average revenue per kWh sold by all electric utilities in the state 
in which the borrower provides service, and its average residential 
revenue per kWh is not less than 120 percent of the average residential 
revenue per kWh sold by all electric utilities in the state in which the 
borrower provides service. To determine whether a borrower meets this 
test, RUS will compare the borrower's average total revenue and average 
residential revenue with statewide data in the table of Average Revenue 
per Kilowatthour for Electric Utilities by Sector, Census Division and 
State, in the Electric Power Annual issued by the Energy Information 
Administration of the Department of Energy (DOE), or the successor to 
this table. The test will be based on the most recent calendar year for 
which full year DOE data are available at the time of loan approval and 
borrower data for the same year.
    (2) Consumer income test. The borrower meets this test if either the 
average per capita income of the residents receiving electric service 
from the borrower is less than the average per capita income of the 
residents of the state in which the borrower provides service or the 
median household income of the residents receiving electric service from 
the borrower is less than the median household income of the households 
in the state. RUS will determine whether the borrower qualifies under 
this test according to the procedure set forth in Sec. 1714.7(b)(2).

[[Page 120]]

    (3) Borrowers serving 2 or more states. If a borrower serves 
consumers in 2 or more states, the rate disparity test and the consumer 
income tests will be determined on a weighted average based on the 
percentage of the borrower's total consumers that are served in each 
state.
    (b) Extremely high rates test. Except as provided in this paragraph, 
the Administrator shall make an insured electric loan at the 5 percent 
hardship rate to any borrower whose residential revenue exceeds 15.0 
cents per kWh sold. Residential revenue shall be calculated for the most 
recent full calendar year for which data are available and shall include 
sales to both seasonal and nonseasonal consumers. If, at the time of 
loan approval, the area to be served is an urbanized area 
(notwithstanding that the area must be deemed a rural area to qualify 
for a loan under this part (See the definition of ``rural area'' in 7 
CFR 1710.2)), then the borrower must satisfy the provisions of 
paragraphs (a) and (d) of this section to qualify to the 5 percent 
hardship interest rate. If at the time of loan approval, such area is 
outside an urbanized area, the loan shall not be subject to the 
conditions and limitations set forth in paragraphs (a) and (d) of this 
section.
    (c) Administrator's discretion. The Administrator may make a 
hardship rate loan if, in the sole discretion of the Administrator, the 
borrower has experienced a severe hardship. The Administrator shall 
consider, among other matters, whether factors beyond the control or 
substantial influence of the borrower have had severe adverse effect on 
the borrower's ability to provide service consistent with the purposes 
of the RE Act, and which prudent management could not reasonably 
anticipate and either prevent or insure against. Among the factors that 
may be considered are system damage due to unusual weather or other 
natural disasters or Acts of God, loss of substantial loads, extreme 
rate disparity compared to a contiguous utility, and other factors that 
cause severe financial hardship. The Administrator will also consider 
whether a hardship rate loan will provide significant relief to the 
borrower in dealing with the severe hardship.
    (d) High density test. Except as provided in paragraph (b) of this 
section, if the average number of consumers per mile of the borrower's 
total electric system exceeds 17, the 5 percent hardship rate will not 
apply to funds used for the purpose of furnishing or improving electric 
service to consumers located in an area that is an urban area at the 
time of loan approval, notwithstanding that the area must have been 
deemed a rural area for the purpose of qualifying for a loan under this 
part. (See the definition of ``rural area'' in 7 CFR 1710.2.) If the 
average number of consumers per mile of line of the borrower's total 
electric system exceeds 17, the borrower must include, as a note on RUS 
Form 740c, Cost Estimates and Loan Budget for Electric Borrowers, 
submitted as part of the loan application for a loan at the 5 percent 
hardship rate, a breakdown of funds included in the proposed loan to 
furnish or improve service to consumers located in urban areas. For such 
borrowers only funds for those facilities serving consumers located 
outside an urban area are eligible for the 5 percent hardship rate.

(Approved by the Office of Management and Budget under control number 
0572-1013)



Sec. 1714.9  Prepayment of insured loans.

    This section sets out provisions for prepayment of insured electric 
loans at face value. Provisions for discounted prepayment of RUS loans 
are set out in 7 CFR part 1786.
    (a) Municipal rate loans. Loan documents for municipal rate loans 
shall provide for the following:
    (1) Prepayment on a rollover maturity date. All, or a portion of, 
the outstanding balance on any advance from a municipal rate loan may be 
prepaid on any rollover maturity date pursuant to Sec. 1714.6(a)(4).
    (2) Prepayment on a date other than a rollover maturity date. A 
borrower may elect at the time of loan approval to include a prepayment 
option (call provision) that will allow the borrower to prepay all, or a 
portion of, the outstanding balance on any advance on a date other than 
a rollover maturity date. Interest rates on advances from

[[Page 121]]

loans with a prepayment provision will be increased as set forth in 
Sec. 1714.4(a).
    (b) Hardship rate loans. Loan documents for hardship loans shall 
provide that the loan may be prepaid at face value at any time without 
penalty.



Sec. Sec. 1714.10-1714.49  [Reserved]



                    Subpart B_Terms of Insured Loans

    Source: 60 FR 3734, Jan. 19, 1995, unless otherwise noted.



Sec. Sec. 1714.50-1714.54  [Reserved]



Sec. 1714.55  Advance of funds from insured loans.

    The borrower shall request advances of funds as needed. Advances are 
subject to RUS approval and must be requested in writing on RUS Form 595 
or an RUS approved equivalent. Funds will not be advanced until the 
Administrator has received satisfactory evidence that the borrower has 
met all applicable conditions precedent to the advance of funds, 
including evidence that the supplemental financing required under 7 CFR 
part 1710 and any concurrent loan guaranteed by RUS are available to the 
borrower under terms and conditions satisfactory to RUS.



Sec. 1714.56  Fund advance period.

    (a) For loans approved on or after February 21, 1995, the fund 
advance period begins on the date of the loan note and is one year 
longer than the loan period, but not less than 4 years. For example, the 
fund advance period for a loan with a 2-year loan period terminates 
automatically 4 years after the date of the loan note; a loan with a 4-
year loan period terminates automatically 5 years after the date of the 
loan note. The Administrator may extend the fund advance period on any 
loan if the borrower meets the requirements of paragraph (c) of this 
section. As defined in 7 CFR 1710.2, the loan period begins on the date 
shown on page 1 of RUS Form 740c submitted with the loan application.
    (b) For loans approved on or after June 1, 1984, and before February 
21, 1995, the fund advance period begins on the date of the loan 
contract, or the most recent amendment thereto, and terminates 
automatically 4 years from the date of the loan contract, or the most 
recent amendment thereto, except as provided in paragraph (c) of this 
section.
    (c) The Administrator may agree to an extension of the fund advance 
period for loans approved on or after June 1, 1984, if the borrower 
demonstrates to the satisfaction of the Administrator that the loan 
funds continue to be needed for approved loan purposes (i.e., facilities 
included in an RUS approved construction work plan). Policies for 
extension of the fund advance period following certain mergers, 
consolidations, and transfers of systems substantially in their entirety 
are set forth in 7 CFR 1717.156.
    (1) To apply for an extension, the borrower must send to RUS, at 
least 120 days before the automatic termination date, the following:
    (i) A certified copy of a board resolution requesting an extension 
of the Government's obligation to advance loan funds;
    (ii) Evidence that the unadvanced loan funds continue to be needed 
for approved loan purposes; and
    (iii) Notice of the estimated date for completion of construction.
    (2) In the case of financial hardship, as determined by the 
Administrator, RUS may agree to an extension of the fund advance period 
even though the borrower has failed to meet the 120-day requirement of 
paragraph (c)(1) of this section.
    (3) If the Administrator approves a request for an extension, RUS 
will notify the borrower in writing of the extension and the terms and 
conditions thereof. An extension will be effective only if it is 
obtained in writing prior to the automatic termination date.
    (d) Advances of funds from loans approved before June 1, 1984, are 
generally made during the first 6 years of the note.
    (e) RUS will rescind the balance of any loan funds not advanced to a 
borrower as of the final date approved for advancing funds.

[60 FR 3734, Jan. 19, 1995, as amended at 61 FR 66871, Dec. 19, 1996]

[[Page 122]]



Sec. 1714.57  Sequence of advances.

    (a) Except as set forth in paragraph (b) of this section, concurrent 
loan funds will be advanced in the following order:
    (1) 50 percent of the RUS insured loan funds;
    (2) 100 percent of the supplemental loan funds;
    (3) The remaining amount of the RUS insured loan funds.
    (b) At the borrower's request and with RUS approval, all or part of 
the supplemental loan funds may be advanced before funds in paragraph 
(a)(1) of this section.



Sec. 1714.58  Amortization of principal.

    (a) For insured loans approved on or after February 21, 1995:
    (1) Amortization of funds advanced during the first 2 years after 
the date of the note shall begin no later than 2 years from the date of 
the note. Except as set forth in paragraph (a)(2) of this section, 
amortization of funds advanced 2 years or more after the date of the 
note shall begin with the scheduled loan payment billed in the month 
following the month of the advance.
    (2) For advances made 2 years or more after the date of the note, 
the Administrator may authorize deferral of amortization of principal 
for a period of up to 2 years from the date of the advance if the 
Administrator determines that failure to authorize such deferral would 
adversely affect either the Government's financial interest or the 
achievement of the purposes of the RE Act.
    (b) For insured loans approved before February 21, 1995, 
amortization of principal shall begin 2 years after the date of the note 
for advances made during the first and second years of the loan, and 4 
years after the date of the note for advances made during the third and 
fourth years.



Sec. 1714.59  Rescission of loans.

    (a) A borrower may request rescission of a loan with respect to any 
funds unadvanced by submitting a certified copy of a resolution by the 
borrower's board of directors.
    (b) RUS may rescind loans pursuant to Sec. 1714.56.
    (c) Borrowers who prepay RUS loans at a discounted present value 
pursuant to 7 CFR part 1786, subpart F, are required to rescind the 
unadvanced balance of all outstanding electric notes pursuant to 7 CFR 
1786.158(j).



PART 1717_POST-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND GUARANTEED 

ELECTRIC LOANS--Table of Contents



Subparts A-C [Reserved]

       Subpart D_Mergers and Consolidations of Electric Borrowers

Sec.
1717.150 General.
1717.151 Definitions.
1717.152 Required documentation for all mergers.
1717.153 Transitional assistance.
1717.154 Transitional assistance in connection with new loans.
1717.155 Transitional assistance affecting new and preexisting loans.
1717.156 Transitional assistance affecting preexisting loans.
1717.157 Requests for transitional assistance.
1717.158 Mergers with borrowers who prepaid RUS loans.
1717.159 Applications for RUS approvals of mergers.
1717.160 Application contents.
1717.161 Application process.

Subparts E-F [Reserved]

 Subpart G_Federal Pre-emption in Rate Making in Connection With Power 
                            Supply Borrowers

1717.300 Purpose.
1717.301 Policy.
1717.302 Definitions and rules of construction.
1717.303 Requirements of RUS documents.
1717.304 State regulatory authority rate jurisdiction.
1717.305 Pre-emption.
1717.306 RUS required rates.
1717.307 Distribution members' rates.
1717.308 RUS approval of nonconforming rates.
1717.309 Additional statutory pre-emption.
1717.310-1717.349 [Reserved]

  Subpart H_Federal Pre-emption in Rate Making in Connection With RUS 
                    Electric Borrowers in Bankruptcy

1717.350 Purpose.
1717.351 Policy.

[[Page 123]]

1717.352 Definitions and rules of construction.
1717.353 Requirements of RUS documents.
1717.354 Pre-emption.
1717.355 RUS required rates.
1717.356 Additional statutory pre-emption.

Subparts I-L [Reserved]

                     Subpart M_Operational Controls

1717.600 General.
1717.601 Applicability.
1717.602 Definitions.
1717.603 RUS approval of extensions and additions.
1717.604 Long-range engineering plans and construction work plans.
1717.605 Design standards, plans and specifications, construction 
          standards, and RUS accepted materials.
1717.606 Standard forms of construction contracts, and engineering and 
          architectural services contracts.
1717.607 Contract bidding requirements.
1717.608 RUS approval of contracts.
1717.609 RUS approval of general manager.
1717.610 RUS approval of compensation of the board of directors.
1717.611 RUS approval of expenditures for legal, accounting, 
          engineering, and supervisory services.
1717.612 RUS approval of borrower's bank or other depository.
1717.613 RUS approval of data processing and system control equipment.
1717.614 Notification of rate changes.
1717.615 Consolidations and mergers.
1717.616 Sale, lease, or transfer of capital assets.
1717.617 Limitations on distributions.

   Subpart N_Investments, Loans, and Guarantees by Electric Borrowers

1717.650 Purpose.
1717.651 General.
1717.652 Definitions.
1717.653 Borrowers in default.
1717.654 Transactions below the 15 percent level.
1717.655 Exclusion of certain investments, loans, and guarantees.
1717.656 Exemption of certain borrowers from controls.
1717.657 Investments above the 15 percent level by certain borrowers not 
          exempt under Sec. 1717.656(a).
1717.658 Records, reports and audits.
1717.659 Effect of this subpart on RUS loan contract and mortgage.

Subpart O [Reserved]

1717.700-1717.749 [Reserved]

Subpart P [Reserved]

1717.750-1717.799 [Reserved]

Subpart Q [Reserved]

1717.800-1717.849 [Reserved]

Subpart R_Lien Accommodations and Subordinations for 100 Percent Private 
                                Financing

1717.850 General.
1717.851 Definitions.
1717.852 Financing purposes.
1717.853 Loan terms and conditions.
1717.854 Advance approval--100 percent private financing of 
          distribution, subtransmission and headquarters facilities, and 
          certain other community infrastructure.
1717.855 Application contents: Advance approval--100 percent private 
          financing of distribution, subtransmission and headquarters 
          facilities, and certain other community infrastructure.
1717.856 Application contents: Normal review--100 percent private 
          financing.
1717.857 Refinancing of existing secured debt--distribution and power 
          supply borrowers.
1717.858 Lien subordination for rural development investments.
1717.859 Application process and timeframes.
1717.860 Lien accommodations and subordinations under section 306E of 
          the RE Act.
1717.861-1717.899 [Reserved]

 Subpart S_Lien Accommodations for Supplemental Financing Required by 7 
                              CFR 1710.110

1717.900 Qualification requirements.
1717.901 Early approval.
1717.902 Other RUS requirements.
1717.903 Liability.
1717.904 Exemptions pursuant to section 306E of the RE Act.
1717.905-1717.949 [Reserved]

Subpart T [Reserved]

1717.950-1717.999 [Reserved]

Subpart U [Reserved]

1717.1000-1717.1049 [Reserved]

Subpart V [Reserved]

1717.1050-1717.1099 [Reserved]

Subpart W [Reserved]

1717.1100-1717.1149 [Reserved]

Subpart X [Reserved]

1717.1150-1717.1199 [Reserved]

[[Page 124]]

                      Subpart Y_Settlement of Debt

1717.1200 Purpose and scope.
1717.1201 Definitions.
1717.1202 General policy.
1717.1203 Relationship between RUS and Department of Justice.
1717.1204 Policies and conditions applicable to settlements.
1717.1205 Waiver of existing conditions on borrowers.
1717.1206 Loans subsequent to settlement.
1717.1207 RUS obligations under loan guarantees.
1717.1208 Government's rights under loan documents.

    Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

    Source: 55 FR 38646, Sept. 19, 1990, unless otherwise noted.

Subparts A-C [Reserved]



       Subpart D_Mergers and Consolidations of Electric Borrowers

    Source: 61 FR 66871, Dec. 19, 1996, unless otherwise noted.



Sec. 1717.150  General.

    (a) This subpart establishes RUS policies and procedures for mergers 
of electric borrowers. These policies and procedures are intended to 
provide borrowers with the flexibility to negotiate and enter into 
mergers that offer advantages to the borrowers and to rural communities, 
and adequately protect the integrity and credit quality of RUS loans and 
loan guarantees.
    (b) Consistent with prudent lending practices, the maintenance of 
adequate security for RUS loans and loan guarantees, and the objectives 
of the Rural Electrification Act of 1936, as amended, (7 U.S.C. 901 et 
seq.) (RE Act), RUS encourages electric borrowers to consider mergers 
when such action is likely to contribute, in the long-term, to greater 
operating efficiency and financial soundness. Borrowers are specifically 
encouraged to explore mergers that are likely to enhance the ability of 
the successor to provide reliable electric service at reasonable cost to 
RE Act beneficiaries.
    (c) Pursuant to the loan documents and RUS regulations, certain 
mergers are subject to RUS approval. See Sec. 1717.615.
    (d) Since RUS must take action in order to advance funds and 
otherwise conduct business with a successor, RUS encourages borrowers to 
consult RUS early in the process regardless of whether RUS approval of 
the merger is required. RUS will provide technical assistance and 
guidance to borrowers to help expedite the processing of their requests 
and to help resolve potential problems early in the process.



Sec. 1717.151  Definitions.

    The definitions set forth in 7 CFR 1710.2 are applicable to this 
subpart unless otherwise stated. In addition, for the purpose of this 
subpart, the following terms shall have the following meanings:
    Active borrower means an electric borrower that has, on the 
effective date, an outstanding insured or guaranteed loan from RUS for 
rural electrification, and whose eligibility for future RUS financing is 
not restricted pursuant to 7 CFR part 1786.
    Active distribution borrower means an electric distribution borrower 
that has, on the effective date, an outstanding insured or guaranteed 
loan from RUS for rural electrification, and whose eligibility for 
future RUS financing is not restricted pursuant to 7 CFR part 1786.
    Consolidation. See Merger.
    Coverage ratios means collectively TIER, OTIER, DSC and ODSC, as 
these terms are defined in 7 CFR 1710.2.
    Effective date means the date a merger is effective pursuant to 
applicable state law.
    Former distribution borrower means any organization that
    (1) Sells or intends to sell electric power and energy at retail;
    (2) At one time had an outstanding loan made or guaranteed by RUS, 
or its predecessor the Rural Electrification Administration (REA) for 
rural electrification; and
    (3) Either repaid such loans at face value or prepaid pursuant to 7 
CFR part 1786.
    Loan documents means the mortgage (or other security instrument 
acceptable to RUS), the loan contract, and the promissory note(s) 
entered into between the borrower and RUS.
    Merger means:

[[Page 125]]

    (1) A consolidation where two or more companies are extinguished and 
a new successor is created, acquiring the assets, liabilities, 
franchises and powers of those passing out of existence;
    (2) A merger where one company is absorbed by another, the former 
ceasing to exist as a separate business entity, and the latter retaining 
its own identity and acquiring the assets, liabilities, franchises and 
powers of the former; or
    (3) A transfer of mortgaged property by one company to another where 
the transferee acquires substantially as an entirety the assets, 
liabilities, franchises, and powers of the transferor.
    New loan means a loan to a successor approved by RUS on or after the 
effective date.
    Preexisting loan means a loan to a borrower approved by RUS prior 
to, and outstanding on the effective date.
    Successor means the entity that continues as the surviving business 
entity as of the effective date, and acquires all the assets, 
liabilities, franchises, and powers of the entity or entities ceasing to 
exist as of the effective date.
    Transitional assistance means financial relief provided to borrowers 
by RUS during a limited period of time following a merger.



Sec. 1717.152  Required documentation for all mergers.

    In order for RUS to advance funds, send bills, and otherwise conduct 
business with a successor, the documents listed in this section must be 
submitted to RUS regardless of the need for RUS approval of the merger. 
Borrowers are responsible for ensuring that these documents are received 
by RUS in timely fashion. In cases of mergers that require RUS approval, 
or cases where borrowers must submit requests for transitional 
assistance, the documents listed in this section may be combined with 
the documents required by Sec. 1717.157 and/or Sec. 1717.160 where 
appropriate.
    (a) Prior to the effective date, borrowers must submit:
    (1) A transmittal letter on corporate letterhead signed by the 
manager of each active borrower that is a party to the proposed merger 
indicating the borrower's intention to merge and tentative timeframes, 
including the proposed effective date;
    (2) An original certified board resolution from each party to the 
proposed merger affirming the board's support of the merger;
    (3) All documents necessary to evidence the merger pursuant to 
applicable law. Examples include plan of merger, articles of merger, 
amended articles of incorporation, bylaws, and notices and filings 
required by law. These documents may be copies of documents filed 
elsewhere, unless otherwise specified by RUS; and
    (4) A letter addressed to the Administrator from the counsel of at 
least one of the active borrowers briefly describing the merger and 
indicating the relevant statutes under which the merger will be 
consummated.
    (b) On or after the effective date, borrowers must submit:
    (1) An opinion of counsel from the successor addressing, among other 
things, any pending litigation, proper authorization and consummation of 
the merger, proper filing and perfection of RUS' security interest, and 
all approvals required by law. RUS will provide the form of the opinion 
of counsel to the successor;
    (2) A letter signed by the manager of the successor advising RUS of 
the effective date of the merger; the corporate name, address, and phone 
number; the names of the officers of the successor; and the taxpayer 
identification number; and
    (3) Evidence of proper filing and perfection of RUS' security 
interest, as instructed by RUS, and an executed loan contract.



Sec. 1717.153  Transitional assistance.

    RUS recognizes that short-term financial stresses can follow even 
the most beneficial mergers. To help stabilize electric rates, enhance 
the credit quality of outstanding loans made or guaranteed by the 
Government, and otherwise ease the transition period before the long-
term efficiencies and economies of a merger can be realized, RUS may 
approve one or more types of transitional assistance to a successor 
under the conditions set forth in this part.

[[Page 126]]



Sec. 1717.154  Transitional assistance in connection with new loans.

    Requests for transitional assistance in connection with new loans 
may be submitted to RUS no later than the loan application.
    (a) Loan processing priority. (1) RUS loans are generally processed 
in chronological order based on the date the complete application is 
received in the regional or division office. At the borrower's request, 
RUS may offer loan processing priority for the first loan to a 
successor, provided that the loan is approved by RUS not later than 5 
years after the effective date of the merger. In considering the 
request, the Administrator will take into account, among other factors, 
the amount of the loan application, whether there is a significant 
backlog in pending loan applications, the impact that loan priority 
would have on the backlog, the savings and efficiencies to be realized 
from the merger and the relative importance of loan priority to 
facilitating the merger. The Administrator may, in his or her sole 
discretion, grant or decline to grant priority, or grant priority for a 
limited amount of the loan application while deferring for later 
consideration the remainder of the application.
    (2) For any subsequent loans approved during those 5 years, RUS may 
offer loan processing priority. In reviewing requests for loan 
processing priority on subsequent loans, RUS will consider the loan 
authority for the fiscal year, the borrower's projected cash flows, its 
electric rates and rate disparity, and the likely mitigation effects of 
priority loan processing. See 7 CFR 1710.108 and 1710.119.
    (3) Loan processing priority is available following any merger where 
at least one of the merging parties is an active borrower.
    (b) Supplemental financing.(1) RUS generally requires that an 
applicant for a municipal rate loan obtain a portion of its debt 
financing from a supplemental source without an RUS guarantee. See 7 CFR 
1710.110. RUS will, at the borrower's request, waive the requirement to 
obtain supplemental financing for the first RUS loan approved after the 
effective date if that first loan is a municipal rate loan whose loan 
period does not exceed 2 years, and the loan is approved by RUS not 
later than 5 years after the effective date. For any subsequent loans 
approved during these 5 years, or if the borrower requests a loan period 
longer than 2 years, RUS may, subject to the availability of loan funds, 
waive or reduce the amount of supplemental financing required. In 
reviewing requests to reduce or waive supplemental financing on 
subsequent loans or on loans with a loan period longer than 2 years, RUS 
will consider the differences in interest rates between RUS and 
supplemental loans and the impacts of this difference on the borrower's 
projected cash flows and its electric rates and rate disparity. If 
significant differences would result, the waiver will be granted.
    (2) Waiver of supplemental financing may be available if:
    (i) All parties to the merger are active distribution borrowers, or
    (ii) At least one of the merging parties is an active distribution 
borrower, all merging parties are either active distribution borrowers 
or former distribution borrowers, and the merger is effective after 
December 19, 1996.
    (c) Reimbursement of general funds and interim financing.(1) 
Borrowers may request RUS loan funds to reimburse general funds and/or 
interim financing used to finance equipment and facilities included in a 
RUS approved construction work plan or amendment if the construction was 
completed immediately preceding the current loan period. This 
reimbursement period is generally limited to 24 months. See 7 CFR 
1710.109. RUS may, in connection with the first RUS loan approved after 
the effective date, approve a reimbursement period of up to 48 months 
prior to the current loan period if the loan is approved not later than 
5 years after the effective date. In reviewing requests for this longer 
reimbursement period, RUS will consider the stresses that the 
transaction and other costs of entering into the merger places on the 
borrower's rates and cash flows, and the mitigating effects of more 
generous reimbursement.
    (2) A longer reimbursement period may be available if:
    (i) All parties to the merger are active distribution borrowers, or

[[Page 127]]

    (ii) At least one of the merging parties is an active distribution 
borrower, all merging parties are either active distribution borrowers 
of former distribution borrowers, and the merger is effective after 
December 19, 1996.

[61 FR 66871, Dec. 19, 1996, as amended at 67 FR 58322, Sept. 16, 2002]



Sec. 1717.155  Transitional assistance affecting new and preexisting loans.

    Requests for transitional assistance affecting new and preexisting 
loans must be received by RUS no later than 2 years after the effective 
date.
    (a) Section 12 deferments. (1) Section 12 of the RE Act (7 U.S.C. 
912) allows RUS to extend the time of payment of interest or principal 
of RUS loans. Section 12 deferments do not extend the final maturity of 
the loan; lower payments during the deferment period result in higher 
payments later. Therefore, RUS may approve a Section 12 deferment of 
loan payments of up to 5 years only if such deferments will help to 
avoid substantial increases in retail electric rates during the 
transition period, without placing borrowers in financial stress after 
the deferment period.
    (2) Section 12 deferment may be available following any merger where 
at least one of the merging parties is an active borrower.
    (b) Coverage ratios. Required levels for coverage ratios are set 
forth in 7 CFR 1710.114 and in the loan documents. RUS may approve a 
plan, on a case by case basis, that provides for a phase-in period for 
these coverage ratios of up to 5 years from the effective date. Under 
such a plan the successor would be permitted to project and achieve 
lower levels for one or more of these coverage ratios during the phase-
in period.
    (1) A phase-in plan for coverage ratios must provide a pro forma 
level for each ratio during each year of the phase-in period and be 
supported by a financial forecast covering a period of not less than 10 
years from the effective date of the merger. The plan must demonstrate 
that a minimum TIER level of 1.00 will be achieved in each year, that 
trends will be generally favorable, that the borrower will achieve the 
levels required in its loan documents and RUS regulations by the end of 
the phase-in period, and that these levels will be maintained in 
subsequent years.
    (2) In reviewing phase-in plans for coverage ratios, RUS will review 
rates, rate disparity, and likely mitigating effects of the proposed 
phase-in plan.
    (3) The borrower is responsible for obtaining approvals of 
supplemental lenders.
    (4) Upon RUS approval of a phase-in plan, the levels in that plan 
will be substituted for the levels required in the borrower's 
preexisting loan documents and will be incorporated in any new loan or 
security documents.
    (5) A phase in plan for coverage ratios may be available if:
    (i) All parties to the merger are active distribution borrowers, or
    (ii) At least one of the merging parties is an active distribution 
borrower, all merging parties are either active distribution borrowers 
or former distribution borrowers, and the merger is effective after 
December 19, 1996.



Sec. 1717.156  Transitional assistance affecting preexisting loans.

    The fund advance period for an insured loan, which is the period 
during which RUS may advance loan funds to a borrower, terminates 
automatically after a specific period of time. See 7 CFR 1714.56. If, on 
the effective date the original fund advance period or the fund advance 
period as extended pursuant to 7 CFR 1714.56(c), on any preexisting RUS 
loan to any of the active borrowers involved in a merger has not 
terminated, such fund advance period shall be automatically lengthened 
by 2 years. On the borrower's request RUS will prepare documents 
necessary for the advance of loan funds. RUS will prepare documents for 
the borrower's execution that will reflect this extension and will 
provide the legal authority for RUS to advance funds to the successor.



Sec. 1717.157  Requests for transitional assistance.

    (a) If the merger requires RUS approval, the borrower should, where 
possible, indicate that it desires transitional assistance at the time 
it requests approval of the merger. The formal request for transitional 
assistance

[[Page 128]]

must be received by RUS as specified in Sec. Sec. 1717.155 and 171.156. 
Documents listed in this section may be combined with the documents 
required by Sec. Sec. 1717.152 and/or 1717.160 where appropriate. If 
the request for transitional assistance is submitted at the same time as 
a loan application, documents listed in this section may be combined 
with the loan application documents where appropriate. See 7 CFR part 
1710, subpart I. A request for transitional assistance must include:
    (1) Transmittal letter(s) formally listing the types of transitional 
assistance requested. If the request is submitted before the effective 
date, a transmittal letter must be signed by the manager of each party 
to the transaction. If the request is submitted on or after the 
effective date, a transmittal letter must be signed by the manager of 
the successor. Transmittal letter(s) must be signed originals on 
corporate letterhead stationery;
    (2) Board resolution(s). If the request is submitted before the 
effective date, a separate board resolution must be submitted from each 
entity involved in the merger. If the request is submitted on or after 
the effective date, a board resolution from the successor must be 
submitted. Each board resolution must be a certified original;
    (3) A merger plan, financial forecasts, and any available studies 
such as net present value analyses showing the anticipated costs and 
benefits of the merger and likely timeframes for the merger. The merger 
plan must clearly identify those benefits that cannot be achieved 
without a merger, and those benefits that can be achieved through other 
means;
    (4) If the transitional assistance requires RUS approval, the type 
and extent of the mitigation that the transitional assistance is 
expected to provide; and
    (5) Other information that may be relevant.
    (b) Borrowers are responsible for ensuring that requests for 
transitional assistance are complete and sound in form and substance 
when they are submitted to RUS. After submitting a request, borrowers 
shall promptly notify RUS of any changes or events that materially 
affect the request or any information in the request.
    (c) In considering whether to approve requests for transitional 
assistance, RUS will evaluate the costs and benefits of the merger; the 
type and extent of the likely transitional stress; whether the 
transitional assistance requested is likely to materially mitigate such 
stress; and the likely impacts on electric rates and on the security of 
RUS loans. Review factors applicable to each type of transitional 
assistance are set forth in Sec. Sec. 1717.154-1717.156.



Sec. 1717.158  Mergers with borrowers who prepaid RUS loans.

    In some cases, an active distribution borrower may merge with a 
borrower that has prepaid RUS debt at a discount pursuant to 7 CFR part 
1786, and whose eligibility for future RUS financing is thereby 
restricted. During the period when the restrictions on future financing 
are in effect, the successor will be eligible for RUS loans to finance 
facilities to serve consumers located in the territory that was served 
by the active distribution borrower immediately prior to the effective 
date, provided that other requirements for loan eligibility are met.



Sec. 1717.159  Applications for RUS approvals of mergers.

    If a proposed merger requires RUS approval according to RUS 
regulations and/or the loan documents executed by any of the active 
borrowers involved, the application must be submitted to RUS not later 
than 90 days prior to the effective date of the proposed borrower 
action. A distribution borrower should consult with its assigned RUS 
general field representative, and a power supply borrower with the 
Director, Power Supply Division for general information prior to 
submitting the request.



Sec. 1717.160  Application contents.

    An application for RUS approval of a merger must include the 
documents listed in this section. Documents listed in this section may 
be combined with the documents required by Sec. Sec. 1717.152 and/or 
1717.157 where appropriate.
    (a) Transmittal letters signed by the managers of all borrowers and 
non-borrowers who are parties to the proposed

[[Page 129]]

merger. These letters must include the actual corporate name, address, 
and taxpayer identification number of all parties to the proposed 
merger. The transmittal letters must be signed originals on corporate 
letterhead stationery.
    (b) Resolutions from the boards of directors of all borrowers and 
non-borrowers who are parties to the proposed merger. This document is 
the formal request by each entity for RUS approval of the proposed 
merger. The board resolution must include a description of the proposed 
merger, including timeframes, and authorization for RUS to release 
appropriate information to supplemental or other lenders, and for these 
lenders to release appropriate information to RUS. Each board resolution 
must be a certified original.
    (c) Evidence that the proposed merger will result in a viable 
entity, and that the security of outstanding RUS loans will not be 
adversely affected by the action. This evidence shall include financial 
forecasts, and any available studies such as net present value analyses 
covering a period of not less than 10 years from the effective date of 
the merger, as well as information about any threatened actions by other 
parties that could adversely affect the financial condition of any of 
the parties to the proposed merger, or of the successor. Such threatened 
actions may include annexations or other actions affecting service 
territory, loads, rates or other such matters.
    (d) Regulatory information about pending federal or state 
proceedings pertaining to any of the parties that could have material 
effects on the successor.
    (e) Rate information. Distribution and power supply borrowers shall 
submit schedules of proposed rates after the merger, including the 
effects of the proposed action on rates and the status of any pending 
rate cases before a state regulatory authority. The rates of power 
supply borrowers are subject to RUS approval. If rates are not projected 
to change after the merger, a statement to that effect will suffice.
    (f) Area coverage and line extension policies. If any distribution 
systems are parties to the proposed merger, a statement of proposed area 
coverage and line extension policies for the successor.



Sec. 1717.161  Application process.

    (a) Borrowers are responsible for ensuring that their applications 
for RUS approval of a merger are complete and sound in form and 
substance when they are submitted to RUS. After submitting an 
application, borrowers shall promptly notify RUS of any changes or 
events that materially affect the application or any information in the 
application.
    (b) In reviewing borrower requests for approval of mergers, RUS will 
consider the likely effects of the action on the ability of the 
successor to provide reliable electric service at reasonable cost to RE 
Act beneficiaries and on the security of outstanding RUS loans. Among 
the factors RUS will consider are whether the proposed merger is likely 
to:
    (1) Contribute to greater operating efficiency and financial 
soundness;
    (2) Mitigate high electric rates and or rate disparity;
    (3) Help borrowers to diversify their loads or otherwise hedge 
risks;
    (4) Have beneficial effects on rural economic development in the 
community served by the borrower, such as diversifying the economic base 
or alleviating unemployment; and
    (5) Provide other benefits consistent with the purposes of the RE 
Act.
    (c) RUS will not approve a merger if, in the sole judgment of the 
Administrator, such action is likely to have an adverse effect on the 
credit quality of outstanding loans made or guaranteed by the 
Government. RUS will thoroughly review each request for approval of such 
action, including review of the feasibility and security of outstanding 
Government loans according to the standards in 7 CFR 1710.112 and 
1710.113, respectively, and in other RUS regulations.
    (d) RUS will keep the borrowers apprised of the progress of their 
applications.

Subparts E-F [Reserved]

[[Page 130]]



 Subpart G_Federal Pre-emption in Rate Making in Connection With Power 

                            Supply Borrowers



Sec. 1717.300  Purpose.

    This subpart contains regulations of the Rural Utilities Service 
(RUS) implementing provisions of Section 4 of the RE Act (7 U.S.C. 904) 
which authorize the Administrator to establish terms and conditions of 
loans and implementing provisions of the RUS wholesale power contracts 
and other RUS documents which provide for the establishment of rates to 
be charged by power supply borrowers for the sale of electric power and 
energy. This subpart contains the general regulations of RUS for the 
pre-emption, under certain circumstances, which are not exclusive, of 
the regulation of a power supply borrower's rates by a state regulatory 
authority under state law and for the exercise of exclusive jurisdiction 
over rates by RUS pursuant to the RUS documents.



Sec. 1717.301  Policy.

    (a) RUS makes and guarantees loans to borrowers to bring electric 
service to persons in rural areas. RUS requires, as a condition to 
making or guaranteeing any loans to power supply borrowers, that the 
borrower enter into RUS wholesale power contracts with its several 
members and assign and pledge such contracts as security for the 
repayment of loans made or guaranteed by RUS and for other loans which, 
pursuant to the RE Act, RUS has permitted to be secured pursuant to the 
RUS mortgage. The RUS wholesale power contract requires, among other 
matters, that the rates charged for power and energy sold thereunder 
produce revenues sufficient to enable the power supply borrower to make 
payments on account of all indebtedness of the power supply borrower. 
The Administrator relies upon the RUS wholesale power contracts together 
with other RUS documents to find and certify, as required in section 4 
of the RE Act (7 U.S.C. 904), that the security for the loan is 
reasonably adequate and the loan will be repaid within the time agreed.
    (b) RUS requires power supply borrowers to take such actions as may 
be necessary to charge rates for the sale of electric power and energy 
which are sufficient to pay the principal and interest on loans made or 
guaranteed by RUS in a timely manner and to meet the requirements of the 
RUS wholesale power contract and other RUS documents.
    (c) With respect to power supply borrowers which are not subject to 
rate regulation by a state regulatory authority, RUS requires that such 
borrowers establish rates and obtain RUS approval of such rates as 
required by the terms of the RUS wholesale power contract and other RUS 
documents.
    (d) With respect to power supply borrowers which are subject to 
regulation by a state regulatory authority, RUS does not make or 
guarantee a loan for the construction, operation or enlargement of any 
generating plant or transmission facility unless the consent of the 
state regulatory authority having jurisdiction in the premises is first 
obtained.
    (e) Pursuant to applicable provisions of state law state regulatory 
authorities regulate many aspects of a power supply borrowers business 
activities, including such matters as the setting of wholesale electric 
rates, the borrowing of money, and the mortgaging of property. A state 
regulatory authority's jurisdiction over the rates charged by a power 
supply borrower shall be pre-empted where the Administrator has 
determined that such jurisdiction has compromised Federal interests, 
including without limitation, the ability of the borrower to repay its 
secured loans in accordance with the terms of the RUS documents. 
Thereupon, RUS shall, pursuant to the RUS documents, exercise exclusive 
jurisdiction over the rates charged by a power supply borrower.

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



Sec. 1717.302  Definitions and rules of construction.

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

[[Page 131]]

guaranteed by RUS for rural electrification. Unless otherwise stated in 
the text, ``borrower'' shall mean power supply borrower.
    Loan contract means the agreement, as amended, supplemented, or 
restated from time to time, between a borrower and RUS providing for 
loans made or guaranteed pursuant to the RE Act.
    Power supply borrower means any borrower engaged in the wholesale 
sale of electric power and energy to distribution members either 
directly or though other power supply borrowers pursuant to RUS 
wholesale power contracts.
    RE Act means Rural Electrification Act of 1936, as amended (7 U.S.C. 
901 et seq.).
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    RUS documents means the loan contract, mortgage and RUS wholesale 
power contract of a power supply borrower.
    RUS mortgage means the mortgage and security agreement, as from time 
to time supplemented, amended and restated, made by and among the 
borrower, RUS, and, if a party thereto, third party lenders, or any 
other form of mortgage or security instrument or indenture of mortgage 
and deed of trust, securing the payment of outstanding loans made or 
guaranteed by RUS and other lenders.
    RUS wholesale power contract means the contract for the wholesale 
sale of electric power and energy between a power supply borrower and 
its member as approved by RUS.
    Secured loans shall mean outstanding loans secured pursuant to the 
RUS mortgage.
    State regulatory authority means any state board or local governing 
body having jurisdiction under state law to regulate, or in any way, 
approve the electric rates charged by a power supply borrower or 
electric distribution member of a power supply borrower.
    (b) Rules of Construction. Unless the context shall otherwise 
indicate, the terms defined in Sec. 1717.302(a) hereof include the 
plural as well as the singular, and the singular as well as the plural. 
The words ``herein,'' and ``hereunder'', and words of similar import, 
refer to this subpart as a whole. ``Includes'' and ``including'' are not 
limiting and ``or'' is not exclusive.

[55 FR 38646, Sept. 19, 1990, as amended at 59 FR 66440, Dec. 27, 1994]



Sec. 1717.303  Requirements of RUS documents.

    (a) Pursuant to the terms of the RUS documents each power supply 
borrower shall establish and adjust rates for the sale of electric power 
and energy in such a manner as to assure that the borrower will be able 
to make required payments on secured loans.
    (b) Pursuant to the terms of the RUS wholesale power contract, the 
Board of Directors or Board of Trustees of the power supply borrower 
shall review rates not less frequently than once each calendar year and 
revise its rates as therein set forth. \1\ The RUS wholesale power 
contract further provides that the borrower shall notify the 
Administrator not less than 30 nor more than 45 days prior to the 
effective date

[[Page 132]]

of any adjustment and shall set forth the basis upon which the rate is 
to be adjusted and established. The RUS wholesale power contract 
provides that no final revision in rates shall be effective unless 
approved in writing by the Administrator.
---------------------------------------------------------------------------

    \1\ The Wholesale Power Contract, with minor modifications which are 
approved by RUS on a case by case basis, provides that the rate charged 
for electric power and energy, shall produce revenues which shall be 
sufficient, but only sufficient, with the revenues of the Seller from 
all other sources, to meet the cost of the operation and maintenance 
(including without limitation, replacements, insurance, taxes and 
administrative and general overhead expenses) of the generating plant 
transmission system and related facilities of the Seller, the cost of 
any power and energy purchased for resale hereunder by the Seller, the 
cost of transmission service, make payments on account of principal and 
interest on all indebtedness of the Seller, and to provide for the 
establishment and maintenance of reasonable reserves. (Section 4. Rates 
(b), RUS Form 444, ``Wholesale Power Contract--Federated Cooperative''; 
Rev. 6-60.)
---------------------------------------------------------------------------

    (c) Pursuant to the terms of the RUS mortgage, each power supply 
borrower must design its rates as therein set forth and must give 90 
days prior notice to RUS of any proposed change in its general rate 
structure.

(Approved by the Office of Management and Budget under control number 
0572-0089)



Sec. 1717.304  State regulatory authority rate jurisdiction.

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



Sec. 1717.305  Pre-emption.

    (a) Inadequate rates. State regulatory authority jurisdiction over a 
power supply borrower's rates shall be pre-empted by the RE Act if the 
Administrator shall have determined that the borrower's rates approved 
by the state regulatory authority are, after taking into account the 
borrower's costs and expenses, inadequate to produce revenues sufficient 
to permit the borrower to make required payments on its secured loans 
and the borrower has failed to make required payments on its secured 
loans.
    (b) Public notice. The Administrator shall:
    (1) Notify the borrower and the state regulatory authority in 
writing of the determination, indicating the jurisdiction of the state 
regulatory authority over the rates of the borrower has been pre-empted 
pursuant to this part and the borrower shall henceforth establish its 
rates in accordance with the term of the RUS documents.
    (2) publish a notice in the Federal Register informing the public of 
the action.

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



Sec. 1717.306  RUS required rates.

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

[[Page 133]]

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

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



Sec. 1717.307  Distribution members' rates.

    A state regulatory authority which has been pre-empted as provided 
in this subpart may continue to exercise jurisdiction, pursuant to 
applicable provisions of state law, over all other business affairs of 
the power supply borrower and over the rates of its distribution 
members: Provided, however, that the state regulatory authority shall 
treat any RUS approved rate for the power supply borrower as fair and 
reasonable and shall not in any manner, directly or indirectly, prevent 
or impede the distribution member from recovering the costs of paying 
the RUS approved rates to the power supply borrower.



Sec. 1717.308  RUS approval of nonconforming rates.

    Borrowers may request and RUS may approve rates which do not conform 
with the requirements of the RUS wholesale power contract and other RUS 
documents if RUS determines, in its sole discretion, that such approval 
is in the interests of RUS. If RUS approval is granted prior to pre-
emption hereunder, and if the state regulatory authority shall have 
approved such rates, then, so long as RUS's approval of the 
nonconforming rates remains in effect, the jurisdiction of the state 
regulatory authority over the rates of the borrower shall not be pre-
empted hereunder.



Sec. 1717.309  Additional statutory pre-emption.

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



Sec. Sec. 1717.310-1717.349  [Reserved]



  Subpart H_Federal Pre-emption in Rate Making in Connection With RUS 

                    Electric Borrowers in Bankruptcy

    Source: 55 FR 38653, Sept. 19, 1990, unless otherwise noted.



Sec. 1717.350  Purpose.

    This subpart contains regulations of the Rural Utilities Service 
(RUS) implementing provisions of section 4 of the RE Act (7 U.S.C. 904) 
which authorizes the Administrator to establish terms and conditions of 
loans, and provisions of the RUS documents which provide for the 
establishment of rates for electric service to be charged by RUS 
electric borrowers. This subpart contains the general regulations of RUS 
for the pre-emption of the regulation by a State Regulatory Authority 
under State law of an RUS borrower's rates and for the exercise by RUS, 
pursuant to the RUS documents, of exclusive jurisdiction over rates of a 
borrower by or against whom a case under the Bankruptcy Code of 1978, as 
amended, has commenced.



Sec. 1717.351  Policy.

    (a) RUS makes and guarantees loans to borrowers to bring electric 
service to persons in rural areas. To accomplish this objective, RUS 
normally requires, as a condition to making or guaranteeing any loans to 
an electric borrower, that the borrower execute

[[Page 134]]

and deliver the RUS documents in the form prescribed by RUS. The RUS 
mortgage secures repayment of the loans made or guaranteed by RUS and 
other loans which, pursuant to the RE Act, RUS has permitted to be 
secured pursuant to the RUS mortgage. The Administrator relies upon the 
RUS mortgage together with other RUS documents to find and certify, as 
required by section 4 of the RE Act (7 U.S.C. 904), that the security 
for the loan is reasonably adequate and the loan will be repaid within 
the time agreed.
    (b) RUS requires borrowers to take such actions as may be necessary 
to establish rates for electric service which are sufficient to pay the 
principal of and interest on the loans made or guaranteed by RUS in a 
timely manner and to meet the requirements of the RUS documents.
    (c) With respect to borrowers whose rates are not regulated by a 
State Regulatory Authority, RUS requires that such borrowers establish 
rates and to obtain RUS approval of such rates as required by the RUS 
documents.
    (d) To protect Federal interests, including without limitation the 
ability of the borrower to repay RUS loans, RUS's policy is to exercise, 
pursuant to the RUS documents, exclusive jurisdiction over the rates for 
electric service charged by a borrower by or against whom a case under 
the Bankruptcy Code of 1978, as amended, has commenced.



Sec. 1717.352  Definitions and rules of construction.

    (a) Definitions. For the purpose of this subpart, the following 
terms shall have the following meanings:
    Administrator means the Administrator of RUS.
    Bankruptcy code of 1978, as amended, means the Bankruptcy Reform Act 
of 1978, as amended (11 U.S.C. 101 et seq.).
    Borrower means any organization which has an outstanding loan made 
or guaranteed by RUS for rural electrification.
    RE Act means Rural Electrification Act of 1936, as amended (7 U.S.C. 
901 et seq.).
    REA means the Rural Electrification Administration formerly an 
agency of the United States Department of Agriculture and predecessor 
agency to RUS with respect to administering certain electric and 
telephone loan programs.
    RUS means the Rural Utilities Service, an agency of the United 
States Department of Agriculture established pursuant to Section 232 of 
the Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor 
to REA with respect to administering certain electric and telephone 
programs. See 7 CFR 1700.1.
    RUS documents means the RUS loan contract, RUS mortgage and, if the 
Borrower is engaged in the wholesale sale of electric power and energy 
to members pursuant to RUS Wholesale Power Contracts, the RUS Wholesale 
Power Contract.
    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.
    RUS mortgage means the mortgage and security agreement, as from time 
to time supplemented, amended and restated, made by and among the 
borrower, RUS, and, if a party thereto, third party lenders, or any 
other form of mortgage or security instrument or indenture of mortgage 
and deed of trust, securing the payment of outstanding loans made or 
guaranteed by RUS and other lenders.
    RUS wholesale power contract means the contract for the wholesale 
sale of electric power and energy between a power supply borrower and 
its member as approved by RUS.
    Secured loans shall mean outstanding loans secured pursuant to the 
RUS mortgage.
    State regulatory authority means any state board or local governing 
body having jurisdiction under state law to regulate, or in any way, 
approve the electric rates charged by a borrower.
    (b) Rules of construction. Unless the context shall otherwise 
indicate, the terms defined in Sec. 1717.352(a) hereof include the 
plural as well as the singular, and the singular as well as the plural. 
The words ``herein,'' and ``hereunder'', and words of similar import, 
refer to this subpart as a whole. ``Includes'' and

[[Page 135]]

``including'' are not limiting and ``or'' is not exclusive.

[55 FR 38653, Sept. 19, 1990, as amended at 59 FR 66440, Dec. 27, 1994]



Sec. 1717.353  Requirements of RUS documents.

    Each borrower shall establish and adjust rates for electric service 
as set forth in the RUS documents to assure that the borrower will be 
able to make required payments on secured loans and to otherwise meet 
the terms of the RUS documents.



Sec. 1717.354  Pre-emption.

    State Regulatory Authority jurisdiction over an RUS borrower's rates 
shall be pre-empted by the RE Act and RUS shall have exclusive 
jurisdiction over the borrower's rates:
    (a) On October 19, 1990, with respect to any borrower by or against 
whom a case under the Bankruptcy Code of 1978, as amended, was commenced 
prior to and remains outstanding on October 19, 1990; and
    (b) With respect to all other borrowers, upon the filing of a 
petition by or against the borrower commencing a case under the 
Bankruptcy Code of 1978, as amended.



Sec. 1717.355  RUS required rates.

    (a) Upon the pre-emption of State Regulatory Authority as provided 
in this subpart, RUS will exercise exclusive jurisdiction over the rates 
of the borrower pursuant to the terms of the RUS documents.
    (b) So long as the State Regulatory Authority shall be pre-empted 
hereunder, RUS shall be considered the governmental regulatory body with 
jurisdiction over rates for all purposes, including for the purposes of 
the RUS documents and for the purposes of section 1129(a)(6) of the 
Bankruptcy Code of 1978, as amended (11 U.S.C. 1129(a)(6)).
    (c) RUS shall, pursuant to the terms of the RUS documents, exercise 
exclusive jurisdiction over the rates of the borrower until the 
Administrator shall in writing approve the resumption of jurisdiction by 
the State Regulatory Authority. The Administrator shall approve 
resumption only after determining that such jurisdiction shall be 
exercised in a manner consistent with Federal interests.



Sec. 1717.356  Additional statutory pre-emption.

    This subpart addresses pre-emption of State law and State Regulatory 
Authority upon the filing of a petition by or against the borrower 
commencing a case under the Bankruptcy Code of 1978, as amended. Nothing 
in this subpart waives, limits, or otherwise affects the explicit pre-
emption or pre-emption, which is implicit and shall occur pursuant to 
the RE Act as a matter of law, of State law or action of a State 
Regulatory Authority where such State law or such action compromises 
Federal interests, including the ability of any borrower to repay loans 
made or guaranteed by RUS.

Subparts I-L [Reserved]



                     Subpart M_Operational Controls

    Source: 60 FR 67405, Dec. 29, 1995, unless otherwise noted.



Sec. 1717.600  General.

    (a) General. The loan contract and mortgage between the Rural 
Utilities Service (RUS) and electric borrowers imposes certain 
restrictions and controls on the borrowers and gives RUS (and other co-
mortgagees in the case of the mortgage) the right to approve or 
disapprove certain actions contemplated by the borrowers. Certain of 
these controls and approval rights are referred to informally as 
``operational controls'' because they pertain to decisions or actions 
with respect to the operation of the borrowers' electric systems. The 
approval authority granted to RUS by the loan contract or mortgage 
regarding each decision or action subject to controls is often stated in 
broad, unlimited terms. This subpart lists the main operational controls 
affecting borrowers and establishes for each area of control the 
circumstances under which RUS approval of a decision or action by a 
borrower is either required or not required. In some cases, only the 
general principles or general circumstances pertaining to RUS approval 
or control are presented in this subpart, while the details regarding 
the

[[Page 136]]

circumstances and requirements of RUS approval or control are set forth 
in other RUS regulations. Since this subpart addresses only the main 
operational controls, failure to address a control or approval right in 
this subpart in no way invalidates such controls or rights established 
by the loan contract, mortgage, other agreements between a borrower and 
RUS, and RUS regulations.
    (b) Case by case amendments. Upon written notice to a borrower, RUS 
may amend or annul the approvals and exceptions to controls set forth in 
this subpart or other RUS regulations if the borrower is in violation of 
any provision of its loan documents or any other agreement with RUS, or 
if RUS determines that loan security and/or repayment is threatened. 
Such amendment or annulment will apply to decisions and actions of the 
borrower after said written notice has been provided by RUS.
    (c) Generic notices. By written notice to all borrowers or a group 
of borrowers, RUS may grant or waive approval of decisions and actions 
by the borrowers that are controlled under the loan documents and RUS 
regulations. RUS may also by written notice withdraw or cut back its 
grant or waiver of approval of said decisions and actions made by 
previous written notice, but may not by such notice extend its authority 
to approve decisions and actions by borrowers beyond the authority 
granted by the loan documents and RUS regulations.



Sec. 1717.601  Applicability.

    (a) The approvals and exceptions to controls conveyed by this 
subpart apply only to controls and approval rights normally included in 
RUS loan documents dated prior to January 29, 1996. They do not apply to 
special controls and approval requirements included in loan documents or 
other agreements executed between a borrower and RUS that relate to 
individual problems or circumstances specific to an individual borrower.
    (b) The approvals and exceptions to controls granted by RUS in this 
subpart shall not in any way affect the rights of other co-mortgagees 
under the mortgage or their loan contracts.



Sec. 1717.602  Definitions.

    Terms used in this subpart that are not defined in this section have 
the meanings set forth in 7 CFR part 1710. In addition, for the purposes 
of this subpart:
    Default means an event of default as defined in the borrower's loan 
documents or other agreement with RUS, and furthermore includes any 
event that has occurred and is continuing which, with notice or lapse of 
time and notice, would become an event of default.
    Equity means the borrower's total margins and equities computed 
pursuant to RUS accounting requirements but excluding any regulatory 
created assets.
    Financed or funded by RUS means financed or funded wholly or in part 
by a loan made or guaranteed by RUS, including concurrent supplemental 
loans required by 7 CFR 1710.110, loans to reimburse funds already 
expended by the borrower, and loans to replace interim financing.
    Interchange agreement means a contractual arrangement that can 
include a variety of services utilities provide each other to increase 
reliability and efficiency, and to avoid duplicating expenses. Some 
examples are: transmission service (the use of transmission lines to 
move power and energy from one area to another); emergency service (an 
agreement by one utility to furnish another with power and energy to 
protect it in times of emergency, such as power plant outages); reserve 
sharing (contributions to a common pool of generating plant reserves so 
that each individual utility's reserves can be reduced); and economic 
exchanges (swapping power and energy from different plants to avoid 
running the most expensive units).
    Interconnection agreement means a contract governing the terms for 
establishing or using one or more electrical connections between two or 
more electric systems permitting a flow of power and energy among the 
systems.
    Loan documents means the mortgage (or other security instrument 
acceptable to RUS), the loan contract, and the promissory note entered 
into between the borrower and RUS.

[[Page 137]]

    Net utility plant means the amount constituting the total utility 
plant of the borrower, less depreciation, computed in accordance with 
RUS accounting requirements.
    Pooling agreement means a contract among two or more interconnected 
electric systems to operate on a coordinated basis to achieve economies 
and/or enhance reliability in supplying their respective loads.
    Power supply contract means any contract entered into by a borrower 
for the sale or purchase, at wholesale, of electric energy.
    Regulatory created assets means the sum of any amounts properly 
recordable as unrecovered plant and regulatory study costs or as other 
regulatory assets, computed pursuant to RUS accounting requirements.
    RUS accounting requirements means the system of accounts prescribed 
for electric borrowers by RUS regulations as such RUS accounting 
requirements exist at the date of applicability thereof.
    RUS regulations mean regulations of general applicability published 
by RUS from time to time as they exist at the date of applicability 
thereof, and shall also include any regulations of other federal 
entities which RUS is required by law to implement.
    Total assets means an amount constituting the total assets of the 
borrower as computed pursuant to RUS accounting requirements, but 
excluding any regulatory created assets.
    Wheeling agreement means a contract providing for the use of the 
electric transmission facilities of one electric utility to transmit 
power and energy of another electric utility or other entity to a third 
party. Such transmission may be accomplished directly or by 
displacement.



Sec. 1717.603  RUS approval of extensions and additions.

    (a) Distribution borrowers. Prior written approval by RUS is 
required for a distribution borrower to extend or add to its electric 
system if the extension or addition will be financed by RUS. For 
extensions and additions that will not be financed by RUS, approval is 
hereby given to distribution borrowers to make such extensions and 
additions to their electric systems, including the use of (or commitment 
to use) general funds of the borrower, except for the following:
    (1) Construction, procurement, or leasing of generating facilities 
if the combined capacity of the facilities to be built, procured, or 
leased, including any future facilities included in the planned project, 
will exceed the lesser of 5 megawatts or 30 percent of the borrower's 
equity;
    (2) Acquisition or leasing of existing electric facilities or 
systems in service whose purchase price, or capitalized value in the 
case of a lease, exceeds 10 percent of the borrower's net utility plant; 
and
    (3) Construction, procurement, or leasing of electric facilities 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.
    (b) Power supply borrowers. Prior written approval by RUS is 
required for a power supply borrower to extend or add to its electric 
system if the extension or addition will be financed by RUS. 
Requirements for RUS approval of extensions and additions that will not 
be financed by RUS are set forth in other RUS regulations.
    (c) Additional details. Additional details relating to RUS approval 
of extensions and additions of a borrower's electric system financed by 
RUS are set forth in other RUS regulations, e.g., in 7 CFR parts 1710 
and 1726.



Sec. 1717.604  Long-range engineering plans and construction work plans.

    (a) All borrowers are required to maintain up-to-date long-range 
engineering plans and construction work plans (CWPs) in form and 
substance as set forth in 7 CFR part 1710, subpart F.
    (b) Applications for financing from RUS must be supported by a long-
range engineering plan and CWP approved by RUS.
    (c) RUS approval is not required for 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

[[Page 138]]

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



Sec. 1717.605  Design standards, plans and specifications, construction 

standards, and RUS accepted materials.

    All borrowers, regardless of the source of funding, are required to 
comply with applicable RUS requirements with respect to system design, 
construction standards, and the use of RUS accepted materials. Borrowers 
must comply with applicable RUS requirements with respect to plans and 
specifications only if the construction or procurement will be financed 
by RUS. These requirements are set forth in other RUS regulations, 
especially in 7 CFR parts 1724 and 1728.



Sec. 1717.606  Standard forms of construction contracts, and engineering and 

architectural services contracts.

    All borrowers are encouraged to use the standard forms of contracts 
promulgated by RUS for construction, materials, equipment, engineering 
services, and architectural services, regardless of the source of 
funding for such construction and services. Borrowers are required to 
use these standard forms of contracts only if the construction, 
procurement or services are financed by RUS, and only to the extent 
required by RUS regulations. RUS requirements with respect to such 
standard forms of contract are set forth in 7 CFR part 1724 for 
architectural and engineering services, and in 7 CFR part 1726 for 
construction, materials, and equipment.



Sec. 1717.607  Contract bidding requirements.

    Borrowers must follow RUS requirements regarding bidding for 
contracts for construction, materials, and equipment only if financing 
of the construction or procurement will be provided by RUS. These 
requirements are set forth in 7 CFR part 1726.



Sec. 1717.608  RUS approval of contracts.

    (a) Construction contracts and architectural and engineering 
contracts. RUS approval of contracts for construction and procurement 
and for architectural and engineering services is required only when 
such construction, procurement or services are financed by RUS. Detailed 
requirements regarding RUS approval of such contracts are set forth in 7 
CFR part 1724 for architectural and engineering services, and in 7 CFR 
part 1726 for construction and procurement.
    (b) Large retail power contracts. RUS approval of contracts to sell 
electric power to retail customers is required only if 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 requirement applies regardless of the source of 
funding of any plant extensions, additions or improvements that may be 
involved in connection with the contract.
    (c) Power supply arrangements. (1) 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 are deemed approved if they have 
a term of 2 years or less. Amendments to said power supply arrangements 
are also deemed approved provided that the amendment does not extend the 
term of the arrangement for more than 2 years beyond the date of the 
amendment.
    (2) Any amendment to a schedule or exhibit contained in any power 
supply arrangement subject to RUS approval, which 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 is deemed approved.
    (3) The provisions of this paragraph (c) 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.
    (d) System management and maintenance contracts. RUS approval of 
contracts for the management and operation of a borrower's electric 
system or

[[Page 139]]

for the maintenance of the electric system is required only if such 
contracts cover all or substantially all of the electric system.
    (e) Other contracts. [Reserved]



Sec. 1717.609  RUS approval of general manager.

    (a) If a borrower's mortgage or loan contract grants RUS the 
unconditioned right to approve the employment and/or the employment 
contract of the general manager of the borrower's system, such approval 
is hereby granted provided that the borrower is in compliance with all 
provisions of its loan documents and any other agreements with RUS.
    (b) If a borrower is in default with respect to any provision of its 
loan documents or any other agreement with RUS:
    (1) Such borrower, if directed in writing by RUS, shall replace its 
general manager within 30 days after the date of such written notice; 
and
    (2) Such borrower shall not hire a general manager without prior 
written approval by RUS.



Sec. 1717.610  RUS approval of compensation of the board of directors.

    If a borrower's mortgage or loan contract requires the borrower to 
obtain approval from RUS for compensation provided to members of the 
borrower's board of directors, such requirement is hereby waived.



Sec. 1717.611  RUS approval of expenditures for legal, accounting, 

engineering, and supervisory services.

    (a) If a borrower's mortgage or loan contract requires the borrower 
to obtain approval from RUS before incurring expenses for legal, 
accounting, supervisory (other than for the management and operation of 
the borrower's electric system, see Sec. 1717.608(d)), or other similar 
services, such approval is hereby granted. 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.
    (b) If a borrower's mortgage or loan contract requires the borrower 
to obtain approval from RUS before incurring expenses for engineering 
services, such approval is hereby granted if such services will not be 
financed by RUS. Approval requirements with respect to engineering 
services financed by RUS are set forth in other RUS regulations.



Sec. 1717.612  RUS approval of borrower's bank or other depository.

    If a borrower's mortgage or loan contract gives RUS the authority to 
approve the bank or other depositories used by the borrower, such 
approval is hereby granted. 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.



Sec. 1717.613  RUS approval of data processing and system control equipment.

    If a borrower's mortgage or loan contract requires the borrower to 
obtain approval from RUS before purchasing data processing equipment or 
system control equipment, such approval is hereby granted if the 
equipment will not be financed by RUS.



Sec. 1717.614  Notification of rate changes.

    If a distribution borrower is required by its loan documents to 
notify RUS in writing of proposed changes in electric rates more than 30 
days prior to the effective date of such rates, the required 
notification period shall be 30 days. Moreover, such notification shall 
be required only upon the request of RUS.



Sec. 1717.615  Consolidations and mergers.

    A distribution or power supply borrower may without the prior 
approval of RUS, consolidate or merge with any other corporation or 
convey or transfer the mortgaged property substantially as an entirety 
if the following conditions are met:
    (a) Such consolidation, merger, conveyance or transfer shall be on 
such terms as shall fully preserve the lien and security of the RUS 
mortgage and the rights and powers of the mortgagees;

[[Page 140]]

    (b) 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;
    (c) Immediately after giving effect to such transaction, no default 
under the mortgage shall have occurred and be continuing;
    (d) 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, 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;
    (e) The borrower shall have delivered to the mortgagees an opinion 
of counsel in form and substance satisfactory to each of the mortgagees; 
and
    (f) 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 having:
    (1) Equity equal to at least 27% of its total assets on a pro forma 
basis after giving effect to such transaction;
    (2) A pro forma TIER of not less than 1.25 and a pro forma DSC of 
not less than 1.25 for each of the two preceding calendar years;
    (3) Net utility plant equal to or greater than 1.0 times its total 
long-term debt on a pro forma basis.

[60 FR 67405, Dec. 29, 1995, as amended at 65 FR 51748, Aug. 25, 2000; 
67 FR 70153, Nov. 21, 2002]



Sec. 1717.616  Sale, lease, or transfer of capital assets.

    A distribution borrower may without the prior approval of RUS sell, 
lease, or transfer any capital asset if the following conditions are 
met:
    (a) The borrower is not in default;
    (b) In the most recent year for which data are available, the 
borrower achieved a TIER of at least 1.25, 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;
    (c) 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;
    (d) Fair market value is obtained for the assets;
    (e) 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;
    (f) The proceeds of such sale, lease, or transfer, less ordinary and 
reasonable expenses incident to such transaction, are immediately:
    (1) Applied as a prepayment of all notes secured under the mortgage 
equally and ratably;
    (2) 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
    (3) Applied to the acquisition of construction of utility plant.

[60 FR 67405, Dec. 29, 1995, as amended at 65 FR 51748, Aug. 25, 2000]



Sec. 1717.617  Limitations on distributions.

    If a distribution or power supply borrower is required by its loan 
documents to obtain prior approval from RUS before declaring or paying 
any dividends, paying or determining to pay any patronage refunds, or 
retiring any patronage capital, or making any other cash distributions, 
such approval is hereby given if the following conditions are met:
    (a) After giving effect to the distribution, the borrower's equity 
will be greater than or equal to 30 percent of its total assets;

[[Page 141]]

    (b) The borrower is current on all payments due on all notes secured 
under the mortgage;
    (c) The borrower is not otherwise in default under its loan 
documents; and
    (d) After giving effect to the distribution, the borrower's current 
and accrued assets will be not less than its current and accrued 
liabilities.



   Subpart N_Investments, Loans, and Guarantees by Electric Borrowers

    Authority: 7 U.S.C. 901-950b; Pub.L. 103-354, 108 Stat. 3178 (7 
U.S.C. 6941 et seq.); Title I, Subtitle D, Pub.L. 100-203, 101 Stat. 
1330.

    Source: 60 FR 48877, Sept. 21, 1995, unless otherwise noted.



Sec. 1717.650  Purpose.

    This subpart sets forth general regulations for implementing and 
interpreting provisions of the RUS mortgage and loan contract regarding 
investments, loans, and guarantees made by electric borrowers, as well 
as the provisions of the Rural Electrification Act of 1936, as amended, 
including section 312 (7 U.S.C. 901 et seq.) (RE Act), permitting, in 
certain circumstances, that electric borrowers under the RE Act may, 
without restriction or prior approval of the Administrator of the Rural 
Utilities Service (RUS), invest their own funds and make loans or 
guarantees.



Sec. 1717.651  General.

    (a) Policy. RUS electric borrowers are encouraged to utilize their 
own funds to participate in the economic development of rural areas, 
provided that such activity does not in any way put government funds at 
risk or impair a borrower's ability to repay its indebtedness to RUS and 
other lenders. In considering whether to make loans, investments, or 
guarantees, borrowers are expected to act in accordance with prudent 
business practices and in conformity with the laws of the jurisdictions 
in which they serve. RUS assumes that borrowers will use the latitude 
afforded them by section 312 of the RE Act primarily to make needed 
investments in rural community infrastructure projects (such as water 
and waste systems, garbage collection services, etc.) and in job 
creation activities (such as providing technical, financial, and 
managerial assistance) and other activities to promote business 
development and economic diversification in rural communities. 
Nonetheless, RUS believes that borrowers should continue to give primary 
consideration to safety and liquidity in the management of their funds.
    (b) Applicability of this subpart. This subpart applies to all 
distribution and power supply borrowers regardless of when their loan 
contract or mortgage was executed.



Sec. 1717.652  Definitions.

    As used in this subpart:
    Borrower means any organization that has an outstanding loan made or 
guaranteed by RUS for rural electrification.
    Cash-construction fund-trustee account means the account described 
in the Uniform System of Accounts as one to which funds are deposited 
for financing the construction or purchase of electric facilities.
    Distribution borrower means a Distribution Borrower as defined in 7 
CFR 1710.2.
    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 the Margins and Equities of the borrower as defined in 
the

[[Page 142]]

Uniform System of Accounts, less regulatory created assets.
    Guarantee means to undertake collaterally to answer for the payment 
of another's debt or the performance of another's duty, liability, or 
obligation, including, without limitation, the obligations of 
subsidiaries. Some examples of such guarantees include guarantees of 
payment or collection on a note or other debt instrument (assuring 
returns on investments); issuing performance bonds or completion bonds; 
or cosigning leases or other obligations of third parties.
    Invest means to commit money in order to earn a financial return on 
assets, including, without limitation, all investments properly recorded 
on the borrower's books and records in investment accounts as those 
accounts are used in the Uniform System of Accounts for RUS Borrowers. 
Borrowers may submit any proposed transaction to RUS for an 
interpretation of whether the action is an investment for the purposes 
of this definition.
    Make loans means to lend out money for temporary use on condition of 
repayment, usually with interest.
    Mortgaged property means any asset of the borrower which is pledged 
in the RUS mortgage.
    Natural gas distribution system means any system of community 
infrastructure that distributes natural gas and whose services are 
available by design to all or a substantial portion of the members of 
the community.
    Operating DSC means Operating Debt Service Coverage (ODSC) of the 
borrower's electric system calculated as:
[GRAPHIC] [TIFF OMITTED] TR21SE95.001

where:

All amounts are for the same year and are based on the RUS system of 
accounts;
A=Depreciation and Amortization Expense of the electric system;
B=Interest on Long-term Debt of the electric system, except that 
Interest on Long-term Debt shall be increased by \1/3\ of the amount, if 
any, by which the rentals of Restricted Property of the electric system 
exceed 2 percent of Total Margins and Equities;
C=Patronage Capital & Operating Margins of the electric system 
(distribution borrowers) or Operating Margins of the electric system 
(power supply borrowers); and
D=Debt Service Billed (RUS + other) which equals all interest and 
principal billed or billable during the calendar year for long-term debt 
of the electric system plus \1/3\ of the amount, if any, by which the 
rentals of Restricted Property of the electric system exceed 2 percent 
of Total Margins and Equities. Unless otherwise indicated, all terms 
used in defining ODSC and OTIER are as defined in RUS Bulletin 1717B-2 
Instructions for the Preparation of the Financial and Statistical Report 
for Electric Distribution Borrowers, and RUS Bulletin 1717B-3 
Instructions for the Preparation of the Operating Report for Power 
Supply Borrowers and for Distribution Borrowers with Generating 
Facilities, or the successors to these bulletins.

    Operating TIER means Operating Times Interest Earned Ratio (OTIER) 
of the borrower's electric system calculated as:
[GRAPHIC] [TIFF OMITTED] TR21SE95.002

where:

All amounts are for the same year and are based on the RUS system of 
accounts;
A=Interest on Long-term Debt of the electric system, except that 
Interest on Long-term Debt shall be increased by 1/3 of the amount, if 
any, by which the rentals of Restricted Property of the electric system 
exceed 2 percent of Total Margins and Equities; and
B=Patronage Capital & Operating Margins of the electric system 
(distribution borrowers) or Operating Margins of the electric system 
(power supply borrowers).

    Own funds means money belonging to the borrower other than funds on 
deposit in the cash-construction fund-trustee account.
    Power supply borrower means a Power Supply Borrower as defined in 7 
CFR 1710.2.

[[Page 143]]

    Regulatory created assets means the sum of the amounts properly 
recordable in Account 182.2 Unrecovered Plant and Regulatory Study 
Costs, and Account 182.3 Other Regulatory Assets of the Uniform System 
of Accounts.
    RUS means the Rural Utilities Service, an agency of the U.S. 
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, 7 U.S.C. 
6941 et seq.) and, for purposes of this subpart, includes its 
predecessor, the Rural Electrification Administration.
    RUS loan contract means the loan contract between the borrower and 
RUS.
    RUS 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.
    Solid waste disposal system means any system of community 
infrastructure that provides collection and/or disposal of solid waste 
and whose services are available by design to all or a substantial 
portion of the members of the community.
    Subsidiary means a company which is controlled by the borrower 
through ownership of voting stock, and is further defined in 7 CFR 
1767.10.
    Supplemental lender means a lender that has provided a supplemental 
source of financing that is secured by the RUS mortgage.
    Telecommunication and other electronic communication system means 
any community infrastructure that provides telecommunication or other 
electronic communication services and whose services are available by 
design to all or a substantial portion of the members of the community.
    Total assets means the total assets of the borrower as calculated 
according to the Uniform System of Accounts, less regulatory created 
assets.
    Total utility plant means the sum of the borrower's Electric Plant 
Accounts and Construction Work in Progress--Electric Accounts, as such 
terms are used in the Uniform System of Accounts.
    Uniform System of Accounts means the system of accounts prescribed 
for RUS borrowers in 7 CFR part 1767.
    Water and waste disposal system means any system of community 
infrastructure that supplies water and/or collects and treats waste 
water and whose services are available by design to all or a substantial 
portion of the members of the community.



Sec. 1717.653  Borrowers in default.

    Any borrower not in compliance with all provisions of its mortgage, 
loan contract, or any other agreements with RUS must, unless the 
borrower's mortgage, loan contract, or other agreement with RUS 
specifically provides otherwise with respect to such a borrower:
    (a) Obtain prior written approval from the Administrator to invest 
its own funds or to make loans or guarantees regardless of the aggregate 
amount of such investments, loans, or guarantees; and
    (b) If requested by the Administrator, restructure or reduce the 
amount of its investments, loans, and guarantees to a level determined 
by the Administrator, in his or her sole discretion, to be in the 
financial interest of the government with respect to loan security and/
or repayment. If the borrower does not so restructure or reduce its 
portfolio within a reasonable period of time determined by the 
Administrator, which shall not exceed 12 months from the date the 
borrower was notified of the required action, then, upon written notice 
from RUS, the borrower shall be in default of its RUS loan contract and 
mortgage.



Sec. 1717.654  Transactions below the 15 percent level.

    (a) A borrower in compliance with all provisions of its RUS 
mortgage, RUS loan contract, and any other agreements with RUS may, 
without prior written approval of the Administrator, invest its own 
funds or make loans or guarantees not in excess of 15 percent of its 
total utility plant without regard to any provision contained in any RUS 
mortgage or RUS loan contract to the effect that the borrower must 
obtain prior approval from RUS, provided, however, that the borrower may 
not,

[[Page 144]]

without the prior written approval of the Administrator, make such 
investments, loans, and guarantees to extend, add to, or modify its 
electric system. Moreover, funds necessary to make timely payments of 
principal and interest on loans secured by the RUS mortgage remain 
subject to RUS controls on borrower investments, loans and guarantees.
    (b) RUS will not consider requests from borrowers to exclude 
investments, loans, or guarantees made below the 15 percent level. 
(Categorical exclusions are set forth in Sec. 1717.655.)



Sec. 1717.655  Exclusion of certain investments, loans, and guarantees.

    (a) In calculating the amount of investments, loans and guarantees 
permitted under this subpart, there is excluded from the computation any 
investment, loan or guarantee of the type which by the terms of the 
borrower's RUS mortgage or RUS loan contract the borrower may make in 
unlimited amounts without RUS approval.
    (b) Furthermore, the borrower may make unlimited investments, 
without prior approval of the Administrator, in:
    (1) Securities or deposits issued, guaranteed or fully insured as to 
payment by the United States Government or any agency thereof;
    (2) Capital term certificates, bank stock, or other similar 
securities of the supplemental lender which have been purchased as a 
condition of membership in the supplemental lender, or as a condition of 
receiving financial assistance from such lender, as well as any other 
investment made in, or loans made to, the National Rural Utilities 
Cooperative Finance Corporation, the Saint Paul Bank for Cooperatives, 
and CoBank, ACB;
    (3) Patronage capital allocated from an electric power supply 
cooperative of which the borrower is a member; and
    (4) Patronage capital allocated from an electric distribution 
cooperative to a power supply borrower.
    (c) Without prior approval of the Administrator, the borrower may 
also:
    (1) Invest or lend funds derived directly from:
    (i) Grants which the borrower in not obligated to repay, regardless 
of the source or purpose of the grant; and
    (ii) Loans received from or guaranteed by any Federal, State or 
local government program designed to promote rural economic development, 
provided that the borrower uses the loan proceeds for such purpose;
    (2) Make loans guaranteed by an agency of USDA, up to the amount of 
principal whose repayment, with interest, is fully guaranteed; and
    (3)(i) Make unlimited investments in and unlimited loans to finance 
the following community infrastructure that serves primarily consumers 
located in rural areas as defined in 7 CFR 1710.2, and guarantee debt 
issued for the construction or acquisition of such infrastructure, up to 
an aggregate amount of such guarantees not to exceed 20 percent of the 
borrower's equity:
    (A) Water and waste disposal systems;
    (B) Solid waste disposal systems;
    (C) Telecommunication and other electronic communication systems; 
and
    (D) Natural gas distribution systems.
    (ii) In each of the four cases in paragraph (c)(3)(i) of this 
section, if the system is a component of a larger organization other 
than the borrower itself (e.g., if it is a component of a subsidiary of 
the borrower or a corporation independent of the borrower), to be 
eligible for the exemption the borrower must certify annually that a 
majority of the gross revenues of the larger organization during the 
most recent fiscal year came from customers of said system who were 
located in a rural area.
    (d) Also excluded from the calculation of investments, loans and 
guarantees made by the borrower are:
    (1) Amounts properly recordable in Account 142 Customer Accounts 
Receivable, and Account 143 Other Accounts Receivable;
    (2) Any investment, loan, or guarantee that the borrower is required 
to make by an agency of USDA, for example, as a condition of obtaining 
financial assistance for itself or any other person or organization;
    (3) Investments included in an irrevocable trust for the purpose of 
funding

[[Page 145]]

post-retirement benefits of the borrower's employees;
    (4) Reserves required by a reserve bond agreement or other agreement 
legally binding on the borrower, that are dedicated to making required 
payments on debt secured under the RUS mortgage, not to exceed the 
amount of reserves specifically required by such agreements; and
    (5) Investments included in an irrevocable trust approved by RUS and 
dedicated to the payment of decommissioning costs of nuclear facilities 
of the borrower.
    (e) Grandfathered exclusions. All amounts of individual investments, 
loans, and guarantees excluded by RUS as of February 16, 1995 shall 
remain excluded. Such exclusions must have been based on the RUS 
mortgage, RUS loan contract, regulations, bulletins, memoranda, or other 
written notice from RUS. Profits, interest, and other returns earned 
(regardless of whether or not they are reinvested) on such investments, 
loans and guarantees after February 16, 1995 shall be excluded only if 
they are eligible for exclusion under paragraphs (a) through (d) of this 
section. Any new commitments of money to such investments, loans and 
guarantees shall likewise be excluded only if they are eligible under 
paragraphs (a) through (d) of this section.
    (f) Any investment, loan or guarantee made by a borrower that is not 
excluded under this section or under Sec. 1717.657(d) shall be included 
in the aggregate amount of investments, loans and guarantees made by the 
borrower, regardless of whether RUS has specifically approved the 
investment, loan or guarantee under Sec. 1717.657(c), or has approved a 
related transaction (e.g., a lien accommodation).



Sec. 1717.656  Exemption of certain borrowers from controls.

    (a) Any distribution or power supply borrower that meets all of the 
following criteria is exempted from the provisions of the RUS mortgage 
and loan contract that require RUS approval of investments, loans, and 
guarantees, except investments, loans, and guarantees made to extend, 
add to, or modify the borrower's electric system:
    (1) The borrower is in compliance with all provisions of its RUS 
mortgage, RUS loan contract, and any other agreements with RUS;
    (2) The average revenue per kWh for residential service received by 
the borrower during the two most recent calendar years does not exceed 
130 percent of the average revenue per kWh for residential service 
during the same period for all residential consumers located in the 
state or states served by the borrower. This criterion applies only to 
distribution borrowers and does not apply to power supply borrowers. If 
a borrower serves customers in more than one state, the state average 
revenue per kWh will be based on a weighted average using the kWh sales 
by the borrower in each state as the weight. The calculation will be 
based on the two most recent calendar years for which both borrower and 
state-wide data are available. If a borrower fails to qualify for an 
exemption based solely on its failure to meet this criterion on rate 
disparity, at the borrower's request the Administrator may, at his or 
her sole discretion, exempt the borrower if he or she finds that the 
borrower's strengths with respect to the other criteria are sufficient 
to offset any weakness due to rate disparity;
    (3) In the most recent calendar year for which data are available, 
the borrower achieved an operating TIER of at least 1.0 and an operating 
DSC of at least 1.0, in each case based on the average of the two 
highest ratios achieved in the three most recent calendar years;
    (4) The borrower's ratio of net utility plant to long-term debt is 
at least 1.1, based on year-end data for the most recent calendar year 
for which data are available; and
    (5) The borrower's equity is equal to at least 27 percent of its 
total assets, based on year-end data for the most recent calendar year 
for which data are available.
    (b) While borrowers meeting the criteria in paragraph (a) of this 
section are exempt from RUS approval of investments, loans and 
guarantees, they are nevertheless subject to the record-keeping, 
reporting, and other requirements of Sec. 1717.658.

[[Page 146]]

    (c) Any borrower exempt under paragraph (a) of this section that 
ceases to meet the criteria for exemption shall, upon written notice 
from RUS, no longer be exempt and shall be subject to the provisions of 
this subpart applicable to non-exempt borrowers. A borrower may regain 
its exemption if it subsequently meets the criteria in paragraph (a) of 
this section, and is so notified in writing by RUS.
    (d)(1) A borrower that loses its exemption and is not in compliance 
with all provisions of its mortgage, loan contract, or any other 
agreement with RUS may be required to restructure or reduce its 
portfolio of investments, loans and guarantees as provided in Sec. 
1717.653(b). If the borrower's portfolio exceeds the 15 percent level, 
the borrower will be required to restructure or reduce its portfolio to 
the 15 percent level or below. For example, if the borrower's mortgage 
or loan contract has an approval threshold, the borrower may be required 
to reduce its portfolio to that level, which in many cases is 3 percent 
of total utility plant.
    (2) A borrower that loses its exemption but is in compliance with 
all provisions of its mortgage, loan contract, and any other agreements 
with RUS will be required, if its investments, loans and guarantees 
exceed the 15 percent level, to restructure or reduce its portfolio to 
the 15 percent level, unless the Administrator, in his or her sole 
discretion, determines that such action would not be in the financial 
interest of the government with respect to loan security and/or 
repayment. (Such borrower is eligible to ask RUS to exclude a portion of 
its investments under the conditions set forth in Sec. 1717.657(d).)
    (3) If a borrower required to reduce or restructure its portfolio 
does not fully comply within a reasonable period of time determined by 
the Administrator, which shall not exceed 12 months from the date the 
borrower was notified of its loss of exemption, then, upon written 
notice from RUS, the borrower shall be in default of its RUS loan 
contract and/or RUS mortgage.
    (e) By no later than July 1 of each year, RUS will provide written 
notice to any borrowers whose exemption status has changed as a result 
of more recent data being available for the qualification criteria set 
forth in paragraph (a) of this section, or as a result of other reasons, 
such as corrections in the available data. An explanation of the reasons 
for any changes in exemption status will also be provided to the 
borrowers affected.



Sec. 1717.657  Investments above the 15 percent level by certain borrowers not 

exempt under Sec. 1717.656(a).

    (a) General. (1) This section applies only to borrowers that are in 
compliance with all provisions of their mortgage, loan contract, and any 
other agreements with RUS and that do not qualify for an exemption from 
RUS investment controls under Sec. 1717.656(a).
    (2) Nothing in this section shall in any way affect the 
Administrator's authority to exercise approval rights over investments, 
loans, and guarantees made by a borrower that is not in compliance with 
all provisions of its mortgage, loan contract and any other agreements 
with RUS.
    (b) Distribution borrowers. Distribution borrowers not exempt from 
RUS investment controls under Sec. 1717.656(a) may not make 
investments, loans and guarantees in an aggregate amount in excess of 15 
percent of total utility plant. Above the 15 percent level, such 
borrowers will be restricted to excluded investments, loans and 
guarantees as defined in Sec. 1717.655. (However, they are eligible to 
ask RUS to exclude a portion of their investments under the conditions 
set forth in paragraph (d) of this section.)
    (c) Power supply borrowers. (1) Power supply borrowers not exempt 
from RUS investment controls under Sec. 1717.656(a) may request 
approval to exceed the 15 percent level if all of the following criteria 
are met:
    (i) Satisfactory evidence has been provided that the borrower is in 
compliance with all provisions of its RUS mortgage, RUS loan contract, 
and any other agreements with RUS;
    (ii) The borrower is not in financial workout and has not had its 
government debt restructured;
    (iii) The borrower has equity equal to at least 5 percent of its 
total assets; and
    (iv) After approval of the investment, loan or guarantee, the 
aggregate of the

[[Page 147]]

borrower's investments, loans and guarantees will not exceed 20 percent 
of the borrower's total utility plant.
    (2) Borrower requests for approval to exceed the 15 percent level 
will be considered on a case by case basis. The requests must be made in 
writing.
    (3) In considering borrower requests, the Administrator will take 
the following factors into consideration:
    (i) The repayment of all loans secured under the RUS mortgage will 
continue to be assured, and loan security must continue to be reasonably 
adequate, even if the entire investment or loan is lost or the borrower 
is required to perform for the entire amount of the guarantee. These 
risks will be considered along with all other risks facing the borrower, 
whether or not related to the investment, loan or guarantee;
    (ii) In the case of investments, the investment must be made in an 
entity separate from the borrower, such as a subsidiary, whereby the 
borrower is protected from any liabilities incurred by the separate 
entity, unless the borrower demonstrates to the satisfaction of the 
Administrator that making the investment directly rather than through a 
separate entity will present no substantial risk to the borrower in 
addition to the possibility of losing all or part of the original 
investment;
    (iii) The borrower must be economically and financially sound as 
indicated by its costs of operation, competitiveness, operating TIER and 
operating DSC, physical condition of the plant, ratio of equity to total 
assets, ratio of net utility plant to long-term debt, and other factors; 
and
    (iv) Other factors affecting the security and repayment of 
government debt, as determined by the Administrator on a case by case 
basis.
    (4) If the Administrator approves an investment, loan or guarantee, 
such investment, loan or guarantee will continue to be included when 
calculating the borrower's ratio of aggregate investments, loans and 
guarantees to total utility plant.
    (d) Distribution and power supply borrowers. If the aggregate of the 
investments, loans and guarantees of a distribution or power supply 
borrower exceeds 15 percent of the borrower's total utility plant as a 
result of the cumulative profits or margins, net of losses, earned on 
said transactions over the past 10 calendar years (i.e., the sum of all 
profits earned during the 10 years on all transactions--including 
interest earned on cash accounts, loans, and similar transactions--less 
the sum of all losses experienced on all transactions during the 10 
years) then:
    (1) The borrower will not be in default of the RUS loan contract or 
RUS mortgage with respect to required approval of investments, loans and 
guarantees, provided that the borrower had not made additional net 
investments, loans or guarantees without approval after reaching the 15 
percent level; and
    (2) At the request of the borrower, the Administrator in his or her 
sole discretion may decide to exclude up to the amount of net profits or 
margins earned on the borrower's investments, loans and guarantees 
during the past 10 calendar years, if the Administrator determines that 
such exclusion will not increase loan security risks. The borrower must 
provide documentation satisfactory to the Administrator as to the 
current status of its investments, loans and guarantees and the net 
profits earned during the past 10 years. Any exclusion approved by the 
Administrator may or may not reduce the level of investments, loans and 
guarantees to or below the 15 percent level. If such exclusion does not 
reduce the level to or below the 15 percent level, RUS will notify the 
borrower in writing that it must reduce or restructure its investments, 
loans and guarantees to a level of not more than 15 percent of total 
utility plant. If the borrower does not come within the 15 percent level 
within a reasonable period of time determined by the Administrator, 
which shall not exceed 12 months from the date the borrower was notified 
of the required action, then, upon written notice from RUS, the borrower 
shall be in default of its RUS loan contract and mortgage.



Sec. 1717.658  Records, reports and audits.

    (a) Every borrower shall maintain accurate records concerning all 
investments, loans and guarantees made by it. Such records shall be kept 
in a manner that will enable RUS to readily determine:

[[Page 148]]

    (1) The nature and source of all income, expenses and losses 
generated from the borrower's loans, guarantees and investments;
    (2) The location, identity and lien priority of any loan collateral 
resulting from activities permitted by this subpart; and
    (3) The effects, if any, which such activities may have on the 
feasibility of loans made, guaranteed or lien accommodated by RUS.
    (b) In determining the aggregate amount of investments, loans and 
guarantees made by a borrower, the borrower shall use the recorded value 
of each investment, loan or guarantee as reflected on its books and 
records for the next preceding end-of-month, except for the end-of-year 
report which shall be based on December 31 information. Every borrower 
shall also report annually to RUS, in the manner and on the form 
specified by the Administrator, the current status of each investment, 
outstanding loan and outstanding guarantee which it has made pursuant to 
this subpart.
    (c) The records of borrowers shall be subject to the auditing 
procedures prescribed in part 1773 of this chapter. RUS reserves the 
right to review the financial records of any subsidiaries of the 
borrower to determine if the borrower is in compliance with this 
subpart, and to ascertain if the debts, guarantees (as defined in this 
subpart), or other obligations of the subsidiaries could adversely 
affect the ability of the borrower to repay its debts to the Government.
    (d) RUS will monitor borrower compliance with this subpart based 
primarily on the annual financial and statistical report submitted by 
the borrower to RUS and the annual auditor's report on the borrower's 
operations. However, RUS may inspect the borrower's records at any time 
during the year to determine borrower compliance. If a borrower's most 
recent annual financial and statistical report shows the aggregate of 
the borrower's investments, loans and guarantees to be below the 15 
percent level, that in no way relieves the borrower of its obligation to 
comply with its RUS mortgage, RUS loan contract, and this subpart with 
respect to Administrator approval of any additional investment, loan or 
guarantee that would cause the aggregate to exceed the 15 percent level.



Sec. 1717.659  Effect of this subpart on RUS loan contract and mortgage.

    (a) Nothing in this subpart shall affect any provision, covenant, or 
requirement in the RUS mortgage, RUS loan contract, or any other 
agreement between a borrower and RUS with respect to any matter other 
than the prior approval by RUS of investments, loans, and guarantees by 
the borrower, such matters including, without limitation, extensions, 
additions, and modifications of the borrower's electric system. Also, 
nothing in this subpart shall affect any rights which supplemental 
lenders have under the RUS mortgage, or under their loan contracts or 
other agreements with their borrowers, to limit investments, loans and 
guarantees by their borrowers to levels below 15 percent of total 
utility plant.
    (b) RUS will require that any electric loan made or guaranteed by 
RUS after October 23, 1995 shall be subject to a provision in the loan 
contract or mortgage restricting investments, loans and guarantees by 
the borrower substantially as follows: The borrower shall not make any 
loan or advance to, or make any investment in, or purchase or make any 
commitment to purchase any stock, bonds, notes or other securities of, 
or guaranty, assume or otherwise become obligated or liable with respect 
to the obligations of, any other person, firm or corporation, except as 
permitted by the RE Act and RUS regulations.
    (c) RUS reserves the right to change the provisions of the RUS 
mortgage and loan contract relating to RUS approval of investments, 
loans and guarantees made by the borrower, on a case-by-case basis, in 
connection with providing additional financial assistance to a borrower 
after October 23, 1995.

Subpart O [Reserved]



Sec. Sec. 1717.700-1717.749  [Reserved]

Subpart P [Reserved]

[[Page 149]]



Sec. Sec. 1717.750-1717.799  [Reserved]

Subpart Q [Reserved]



Sec. Sec. 1717.800-1717.849  [Reserved]



Subpart R_Lien Accommodations and Subordinations for 100 Percent Private 

                                Financing

    Source: 58 FR 53843, Oct. 19, 1993, unless otherwise noted.



Sec. 1717.850  General.

    (a) Scope and applicability. (1) This subpart R establishes policies 
and procedures for the accommodation, subordination or release of the 
Government's lien on borrower assets, including approvals of supporting 
documents and related loan security documents, in connection with 100 
percent private sector financing of facilities and other purposes. 
Policies and procedures regarding lien accommodations for concurrent 
supplemental financing required in connection with an RUS insured loan 
are set forth in subpart S of this part.
    (2) This subpart and subpart S of this part apply only to debt to be 
secured under the mortgage, the issuance of which is subject to the 
approval of the Rural Utilities Service (RUS) by the terms of the 
borrower's mortgage with respect to the issuance of additional debt or 
the refinancing or refunding of debt. If RUS approval is not required 
under such terms of the mortgage itself, a lien accommodation is not 
required. If the loan contract or other agreement between the borrower 
and RUS requires RUS approval with respect to the issuance of debt or 
making additions to or extensions of the borrower's system, such 
required approvals do not by themselves result in the need for a lien 
accommodation.
    (b) Overall policy. (1) Consistent with prudent lending practices, 
the maintenance of adequate security for RUS's loans, and the objectives 
of the Rural Electrification Act (RE Act), it is the policy of RUS to 
provide effective and timely assistance to borrowers in obtaining 
financing from other lenders by sharing RUS's lien on a borrower's 
assets in order to finance electric facilities, equipment and systems, 
and certain other types of community infrastructure. In certain 
circumstances, RUS may facilitate the financing of such assets by 
subordinating its lien on specific assets financed by other lenders.
    (2) It is also the policy of RUS to provide effective and timely 
assistance to borrowers in promoting rural development by subordinating 
RUS's lien for financially sound rural development investments under the 
conditions set forth in Sec. 1717.858.
    (c) Decision factors. In determining whether to accommodate, 
subordinate, or release its lien on property pledged by the borrower 
under the RUS mortgage, RUS will consider the effects of such action on 
the achievement of the purposes of the RE Act, the repayment and 
security of RUS loans secured by the mortgage, and other factors set 
forth in this subpart. The following factors will be considered in 
assessing the effects on the repayment and security of RUS loans:
    (1) The value of the added assets compared with the amount of new 
debt to be secured;
    (2) The value of the assets already pledged under the mortgage, and 
any effects of the proposed transaction on the value of those assets;
    (3) The ratio of the total outstanding debt secured under the 
mortgage to the value of all assets pledged as security under the 
mortgage;
    (4) The borrower's ability to repay debt owed to the Government, as 
indicated by the following factors:
    (i) Revenues, costs (including interest, lease payments and other 
debt service costs), margins, Times Interest Earned Ratio (TIER), Debt 
Service Coverage (DSC), and other case-specific economic and financial 
factors;
    (ii) The variability and uncertainty of future revenues, costs, 
margins, TIER, DSC, and other case-specific economic and financial 
factors;
    (iii) Future capital needs and the ability of the borrower to meet 
those needs at reasonable cost;
    (iv) The ability of the borrower's management to manage and control 
its system effectively and plan for future needs; and

[[Page 150]]

    (5) Other factors that may be relevant in individual cases, as 
determined by RUS.
    (d) Environmental considerations. Under certain circumstances, such 
as when the project does not qualify for a categorical exclusion, the 
environmental requirements of 7 CFR part 1794 may apply to applications 
for lien accommodations, subordinations, and releases.
    (e) Co-mortgagees. Other mortgagees under existing mortgages shared 
with RUS may have the right to approve requests for lien accommodations, 
subordinations and releases. In those cases, borrowers would have to 
obtain the approval of such mortgagees in order for the lien of the 
mortgage to be accommodated, subordinated or released. Any reference in 
this subpart to waiving by RUS of any of its rights under the mortgage 
shall apply only to the rights of RUS and shall not apply to the rights 
of any other co-mortgagee.
    (f) Safety and performance standards. (1) To be eligible for a lien 
accommodation or subordination from RUS, a borrower must comply with RUS 
standards regarding facility and system planning and design, 
construction, procurement, and the use of materials accepted by RUS, as 
required by the borrower's mortgage, loan contract, or other agreement 
with RUS, and as further specified in RUS regulations.
    (2) RUS ``Buy American'' requirements shall not apply.
    (g) Advance of funds. (1) The advance of funds from 100 percent 
private loans lien accommodated or subordinated by RUS will not be 
subject to RUS approval. It is the private lender's responsibility to 
adopt reasonable measures to ensure that such loan funds are used for 
the purposes for which the loan was made and the lien accommodation or 
subordination granted. RUS encourages lenders to adopt the following 
measures:
    (i) Remit loan advances to a separate subaccount of the Cash-
Construction Fund-Trustee Account;
    (ii) Obtain a certification from a registered professional engineer, 
for each year during which funds from the separate subaccount are 
utilized by the borrower, that all materials and equipment purchased and 
facilities constructed during the year from said funds comply with RUS 
safety and performance standards, as required by paragraph (f) of this 
section, and are included in an CWP or CWP amendment approved by the 
borrower's board of directors;
    (iii) Obtain an auditor's certification from a Certified Public 
Accountant, for each year during which funds are advanced to or remitted 
from the separate subaccount, certifying:
    (A) The amount of loan funds advanced to and remitted from the 
separate subaccount during the period of review;
    (B) That based on the auditor's review of construction work orders 
and other records, all moneys disbursed from the separate subaccount 
during the period of review were used for purposes contemplated in the 
loan agreement and the lien accommodation; and
    (iv) Immediately notify RUS in writing if the lender is unable to 
obtain the certifications cited in paragraphs (g)(1)(ii) and (g)(1)(iii) 
of this section.
    (2) The measures listed in paragraph (g)(1) of this section will 
normally be sufficient to meet the lender's responsibility provided that 
additional measures are not reasonably required based on the particular 
circumstances of an individual case. Should a lender fail to carry out 
its responsibility in the manner described in this paragraph (g) or in 
another manner acceptable to RUS, RUS may disqualify such lender from 
participation in advance approval under Sec. Sec. 1717.854 and 1717.857 
and condition the lender's receipt of a lien accommodation or 
subordination upon the lender providing satisfactory evidence that it 
will fulfill its responsibility under this paragraph (g).
    (h) Contracting and procurement procedures. (1) Facilities financed 
with debt obtained entirely from non-RUS sources, without an RUS loan 
guarantee, are not subject to RUS post-loan requirements regarding 
contracting, procurement and bidding procedures; contract close-out 
procedures pertaining to project completion, final payment of 
contractor, and related matters; and standard forms of construction and 
procurement contracts listed in 7 CFR 1726.300.

[[Page 151]]

    (2) To the extent that provisions in a borrower's loan contract or 
mortgage in favor of RUS may be inconsistent with paragraphs (g)(1) and 
(h)(1) of this section, paragraphs (g)(1) and (h)(1) of this section are 
intended to constitute an approval or waiver under the terms of such 
instruments, and in any regulations implementing such instruments, with 
respect to facilities financed with debt obtained entirely from non-RUS 
sources without an RUS guarantee.
    (i) Access of handicapped to buildings and seismic safety. A 
borrower must meet the following requirements to be eligible for a lien 
accommodation or subordination for 100 percent private financing of the 
construction of buildings:
    (1) The borrower must provide RUS with a certification by the 
project architect that the buildings will be designed and constructed in 
compliance with Section 504 of the Rehabilitation Act of 1973 as amended 
(29 U.S.C. 794), as applicable under that Act, and that the facilities 
will be readily accessible to and usable by persons with handicaps in 
accordance with the Uniform Federal Accessibility Standards (UFAS), 
(Appendix A to 41 CFR part 101.19, subpart 101-19.6). The certification 
must be included in the borrower's application for a lien accommodation 
or subordination. In addition to these requirements, building 
construction may also be subject to requirements of The Americans with 
Disabilities Act (42 U.S.C. 12101 et seq.); and
    (2) The borrower must comply with RUS's seismic safety requirements 
set forth in 7 CFR part 1792, subpart C.
    (j) Breach of warranty. Any breach of any warranty or agreement or 
any material inaccuracy in any representation, warranty, certificate, 
document, or opinion submitted pursuant to this subpart, including, 
without limitation, any agreement or representation regarding the use of 
funds from loans lien accommodated or subordinated pursuant to this 
subpart, shall constitute a default by the borrower under the terms of 
its loan agreement with RUS.
    (k) Guaranteed loans. The provisions of this subpart do not apply to 
lien accommodations or subordinations sought for loans guaranteed by 
RUS. Such lien accommodations and subordinations are governed by RUS 
regulations on guaranteed loans.
    (l) Release of lien. To avoid repetition, release of lien is not 
mentioned in every instance where it may be an acceptable alternative to 
subordination of RUS's lien. Generally, lien subordination is favored 
over release of lien, and any decision to release RUS's lien is at the 
sole discretion of RUS.
    (m) Waiver authority. Consistent with the RE Act and other 
applicable laws, any requirement, condition, or restriction imposed by 
this subpart, or subpart S of this part, on a borrower, private lender, 
or application for a lien accommodation or subordination may be waived 
or reduced by the Administrator, if the Administrator determines that 
said action is in the Government's financial interest with respect to 
ensuring repayment and reasonably adequate security for loans made or 
guaranteed by RUS.
    (n) Liability. It is the intent of this subpart that any failure on 
the part of RUS to comply with any provisions hereof, including without 
limitation, those provisions setting forth specified timeframes for 
action by RUS on applications for lien accommodations or lien 
subordinations, shall not give rise to liability of any kind on the part 
of the Government or any employees of the Government including, without 
limitation, liability for damages, fees, expenses or costs incurred by 
or on behalf of a borrower, private lender or any other party.

[58 FR 53843, Oct. 19, 1993, as amended at 60 FR 67408, Dec. 29, 1995]



Sec. 1717.851  Definitions.

    Terms used in this subpart have the meanings set forth in 7 CFR 
1710.2. References to specific RUS forms and other RUS documents, and to 
specific sections or lines of such forms and documents, shall include 
the corresponding forms, documents, sections and lines in any subsequent 
revisions of these forms and documents. In addition to the terms defined 
in 7 CFR 1710.2, the following terms have the following meanings for the 
purposes of this subpart:
    Borrower's financial and statistical report means RUS Form 7, Parts 
A

[[Page 152]]

through D, for distribution borrowers, and RUS Form 12a for power supply 
borrowers.
    Calendar day means any day of the year, except a Federal holiday 
that falls on a work day.
    Capital investment. For the purposes of Sec. 1717.860, capital 
investment means an original investment in an asset that is intended for 
long-term continued use or possession and, for accounting purposes, is 
normally depreciated or depleted as it is used. For example, such assets 
may include land, facilities, equipment, buildings, mineral deposits, 
patents, trademarks, and franchises. Original investments do not include 
refinancings or refundings.
    Current refunding means any refunding of debt where the proceeds of 
the new debt are applied to refund the old debt within 90 days of the 
issuance of the new debt.
    Default under the RUS mortgage, loan contract, restructuring 
agreement, or any other agreement between the borrower and RUS means any 
event of default or any event which, with the giving of notice or lapse 
of time or both, would become an event of default.
    Equity, less deferred expenses, means Line 33 of Part C of RUS Form 
7 less assets properly recordable in Account 182.2, Unrecovered Plant 
and Regulatory Study Costs, and Account 182.3, Other Regulatory Assets.
    Front-end costs means the reasonable cost of engineering, 
architectural, environmental and other studies and plans needed to 
support the construction of facilities and other investments eligible 
for a lien accommodation or subordination under this subpart.
    Lien accommodation means the sharing of the Government's (RUS's) 
lien on property, usually all property, covered by the lien of the RUS 
mortgage.
    Lien subordination means allowing another lender to take a first 
mortgage lien on certain property covered by the lien of the RUS 
mortgage, and the Government (RUS) taking a second lien on such 
property.
    Natural gas distribution system means any system of community 
infrastructure whose primary function is the distribution of natural gas 
and whose services are available by design to all or a substantial 
portion of the members of the community.
    Net utility plant means Part C, Line 5 of RUS Form 7 (distribution 
borrowers) or Section B, Line 5 of RUS Form 12a (power supply 
borrowers).
    Power cost study means the study defined in 7 CFR 1710.303.
    Solid waste disposal system means any system of community 
infrastructure whose primary function is the collection and/or disposal 
of solid waste and whose services are available by design to all or a 
substantial portion of the members of the community.
    Telecommunication and other electronic communication system means 
any system of community infrastructure whose primary function is the 
provision of telecommunication or other electronic communication 
services and whose services are available by design to all or a 
substantial portion of the members of the community.
    Total assets, less deferred expenses means Line 26 of Part C of RUS 
Form 7 less assets properly recordable in Account 182.2, Unrecovered 
Plant and Regulatory Study Costs, and Account 182.3, Other Regulatory 
Assets.
    Total outstanding long-term debt means Part C, Line 38 of RUS Form 
7.
    Transaction costs means the reasonable cost of legal advice, 
accounting fees, filing fees, recording fees, call premiums and 
prepayment penalties, financing costs (including, for example, 
underwriting commissions, letter of credit fees and bond insurance), and 
printing associated with borrower financing.
    Water and waste disposal system means any system of community 
infrastructure whose primary function is the supplying of water and/or 
the collection and treatment of waste water and whose services are 
available by design to all or a substantial portion of the members of 
the community.
    Weighted average life of the loan means the average life of the loan 
based on the proportion of original loan principal paid during each year 
of the loan. It shall be determined by calculating the sum of all loan 
principal payments, expressed as a fraction of the original loan 
principal amount, times the number of years and fractions of years 
elapsed at the time of each payment

[[Page 153]]

since issuance of the loan. For example, given a $5 million loan, with a 
maturity of 5 years and equal principal payments of $1 million due on 
the anniversary date of the loan, the weighted average life would be: 
(.2)(1 year) + (.2)(2 years) + (.2)(3 years) + (.2)(4 years) + (.2)(5 
years) = .2 years + .4 years + .6 years + .8 years + 1.0 years = 3.0 
years. If instead the loan had a balloon payment of $5 million at the 
end of 5 years, the weighted average life would be: ($5 million/$5 
million)(5 years) = 5 years.

[58 FR 53843, Oct. 19, 1993, as amended at 59 FR 3986, Jan. 28, 1994; 60 
FR 67409, Dec. 29, 1995]



Sec. 1717.852  Financing purposes.

    (a) Purposes eligible. The following financing purposes, except as 
excluded in paragraph (b) of this section, are eligible for a lien 
accommodation from RUS, or in certain circumstances a subordination of 
RUS's lien on specific assets, provided that all applicable provisions 
of this subpart are met:
    (1) The acquisition, construction, improvement, modification, and 
replacement (less salvage value) of systems, equipment, and facilities, 
including real property, used to supply electric and/or steam power to:
    (i) RE Act beneficiaries; and/or
    (ii) End-user customers of the borrower who are not beneficiaries of 
the RE Act. Such systems, equipment, and facilities include those listed 
in 7 CFR 1710.251(c) and 1710.252(c), as well as others that are 
determined by RUS to be an integral component of the borrower's system 
of supplying electric and/or steam power to consumers, such as, for 
example, coal mines, coal handling facilities, railroads and other 
transportation systems that supply fuel for generation, programs of 
demand side management and energy conservation, and on-grid and off-grid 
renewable energy systems;
    (2) The purchase, rehabilitation and integration of existing 
distribution facilities, equipment and systems, and associated service 
territory;
    (3) The following types of community infrastructure substantially 
located within the electric service territory of the borrower: water and 
waste disposal systems, solid waste disposal systems, telecommunication 
and other electronic communications systems, and natural gas 
distribution systems;
    (4) Front-end costs, when and as the borrower has obtained a binding 
commitment from the non-RUS lender for the financing required to 
complete the procurement or construction of the facilities;
    (5) Transaction costs included as part of the cost of financing 
assets or refinancing existing debt, provided, however, that the amount 
of transaction costs eligible for lien accommodation or subordination 
normally shall not exceed 5 percent of the principal amount of financing 
or refinancing provided, net of all transaction costs;
    (6) The refinancing of existing debt secured under the mortgage;
    (7) Interest during construction of generation and transmission 
facilities if approved by RUS, case by case, depending on the financial 
condition of the borrower, the terms of the financing, the nature of the 
construction, the treatment of these costs by regulatory authorities 
having jurisdiction, and such other factors deemed appropriate by RUS; 
and
    (8) Lien subordinations for certain rural development investments, 
as provided in Sec. 1717.858.
    (b) Purposes ineligible. The following financing purposes are not 
eligible for a lien accommodation or subordination from RUS:
    (1) Working capital, including operating funds, unless in the 
judgment of RUS the working capital is required to ensure the repayment 
of RUS loans and/or other loans secured under the mortgage;
    (2) Facilities, equipment, appliances, or wiring located inside the 
premises of the consumer, except:
    (i) Certain load-management equipment (see 7 CFR 1710.251(c));
    (ii) Renewable energy systems and RUS-approved programs of demand 
side management and energy conservation; and
    (iii) As determined by RUS on a case by case basis, facilities 
included as part of certain cogeneration projects to furnish electric 
and/or steam power to end-user customers of the borrower;
    (3) Investments in a lender required of the borrower as a condition 
for obtaining financing; and

[[Page 154]]

    (4) Debt incurred by a distribution or power supply borrower to 
finance facilities, equipment or other assets that are not part of the 
borrower's electric system or one of the four community infrastructure 
systems cited in paragraph (a)(3) of this section, except for certain 
rural development investments eligible for a lien subordination under 
Sec. 1717.858.
    (c) Lien subordination for electric utility investments. RUS will 
consider subordinating its lien on specific electric utility assets 
financed by the lender, when the assets can be split off without 
materially reducing the stability, safety, reliability, operational 
efficiency, or liquidation value of the rest of the system.

[58 FR 53843, Oct. 19, 1993, as amended at 59 FR 3986, Jan. 28, 1994; 60 
FR 67409, Dec. 29, 1995]



Sec. 1717.853  Loan terms and conditions.

    (a) Terms and conditions. A loan, bond or other financing 
instrument, for which a lien accommodation or subordination is requested 
from RUS, must comply with the following terms and conditions:
    (1) The maturity of the loan or bond used to finance facilities or 
other capital assets must not exceed the weighted average of the 
expected remaining useful lives of the assets being financed;
    (2) The loan or bond must have a maturity of not less than 5 years, 
except for loans or bonds used to refinance debt that has a remaining 
maturity of less than 5 years;
    (3) The principal of the loan or bond must be amortized at a rate 
that will yield a weighted average life not greater than the weighted 
average life that would result from level payments of principal and 
interest; and
    (4) The loan, or any portion of the loan, may bear either a variable 
(set annually or more frequently) or a fixed interest rate.
    (b) RUS approval. Loan terms and conditions and the loan agreement 
between the borrower and the lender are subject to RUS approval. 
However, RUS will usually waive its right of approval for distribution 
borrowers that meet the conditions for advance approval of a lien 
accommodation or subordination set forth in Sec. 1717.854. RUS may also 
waive its right of approval in other cases. RUS's decision to waive its 
right of approval will depend on the adequacy of security for RUS's 
loans, the current and projected financial strength of the borrower and 
its ability to meet its financial obligations, RUS's familiarity with 
the lender and its lending practices, whether the transaction is 
ordinary or unusual, and the uncertainty and credit risks involved in 
the transaction.



Sec. 1717.854  Advance approval--100 percent private financing of 

distribution, subtransmission and headquarters facilities, and certain other 

community infrastructure.

    (a) Policy. Requests for a lien accommodation or subordination from 
distribution borrowers for 100 percent private financing of 
distribution, subtransmission and headquarters facilities, and for 
community infrastructure listed in Sec. 1717.852(a)(3), qualify for 
advance approval by RUS if they meet the conditions of this section and 
all other applicable provisions of this subpart. Advance approval means 
RUS will approve these requests once RUS is satisfied that the 
conditions of this section and all other applicable provisions of this 
subpart have been met.
    (b) Eligible purposes. Lien accommodations or subordinations for the 
financing of distribution, subtransmission, and headquarters facilities 
and community infrastructure listed in Sec. 1717.852(a)(3) are eligible 
for advance approval, except those that involve the purchase of existing 
facilities and associated service territory.
    (c) Qualification criteria. To qualify for advance approval, the 
following requirements, as well as all other applicable requirements of 
this subpart, must be met:
    (1) The borrower has achieved a TIER of at least 1.25 and a DSC of 
at least 1.25 for each of 2 calendar years immediately preceding, or any 
2 consecutive 12 month periods ending within 180 days immediately 
preceding, the issuance of the debt;
    (2) The ratio of the borrower's equity, less deferred expenses, to 
total assets, less deferred expenses, is not less than 27 percent, after 
adding the principal

[[Page 155]]

amount of the proposed loan to the total assets of the borrower;
    (3) The borrower's net utility plant as a ratio to its total 
outstanding long-term debt is not less than 1.0, after adding the 
principal amount of the proposed loan to the existing outstanding long-
term debt of the borrower;
    (4) There are no actions or proceedings against the borrower, 
pending or overtly threatened in writing before any court, governmental 
agency, or arbitrator that would materially adversely affect the 
borrower's operations and/or financial condition;
    (5) The borrower is current on all debt payments and all other 
financial obligations, and is not in default under the RUS mortgage, the 
RUS loan contract, the borrower's wholesale power contract, any debt 
restructuring agreement, or any other agreement with RUS;
    (6) The borrower has:
    (i) Submitted the annual auditor's report, report on compliance, 
report on internal controls, and management letter in accordance with 7 
CFR part 1773;
    (ii) Received an unqualified opinion in the most recent auditor's 
report;
    (iii) Resolved all material findings and recommendations made in the 
most recent Loan Fund and Accounting Review;
    (iv) Resolved all material findings and recommendations made in the 
most recent financial statement audit, including those material findings 
and recommendations made in the report on internal control, report on 
compliance, and management letter;
    (v) Resolved all outstanding material accounting issues with RUS; 
and
    (vi) Resolved any significant irregularities to RUS's satisfaction; 
and
    (7) If the borrower has a power supply contract with a power supply 
borrower, the power supply borrower is current on all debt payments and 
all other financial obligations, and is not in default under the RUS 
mortgage, the loan contract, any debt restructuring agreement, or any 
other agreement with RUS.
    (d) Right of normal review reserved. RUS reserves the right to 
review any request for lien accommodation or subordination under its 
normal review process rather than under advance approval procedures if 
RUS, in its sole discretion, determines there is reasonable doubt as to 
whether the requirements of paragraphs (b) and (c) of this section have 
been or will be met, or whether the borrower will be able to meet all of 
its present and future financial obligations.

[58 FR 53843, Oct. 19, 1993, as amended at 60 FR 67410, Dec. 29, 1995; 
65 FR 51748, Aug. 25, 2000]



Sec. 1717.855  Application contents: Advance approval--100 percent private 

financing of distribution, subtransmission and headquarters facilities, and 

certain other community infrastructure.

    Applications for a lien accommodation or subordination that meet the 
requirements of Sec. 1717.854 must include the following information 
and documents:
    (a) A certification by an authorized official of the borrower that 
the borrower and, as applicable, the loan are in compliance with all 
conditions set forth in Sec. 1717.854(c) and all applicable provisions 
of Sec. Sec. 1717.852 and 1717.853;
    (b) A resolution of the borrower's board of directors requesting the 
lien accommodation or subordination and including the amount and 
maturity of the proposed loan, a general description of the facilities 
or other purposes to be financed, the name and address of the lender, 
and an attached term sheet summarizing the terms and conditions of the 
proposed loan;
    (c) The borrower's financial and statistical report, the data in 
which shall not be more than 60 days old when the complete application 
is received by RUS;
    (d) Draft copy of any new mortgage or mortgage amendment 
(supplement) required by RUS or the lender, unless RUS has notified the 
borrower that it wishes to prepare these documents itself;
    (e) A copy of the loan agreement, loan note, bond or other financing 
instrument, unless RUS has notified the borrower that these documents 
need not be submitted;
    (f) Borrower's environmental report and/or other environmental 
documentation, if required by 7 CFR part 1794;

[[Page 156]]

    (g) RUS Form 740c, Cost Estimates and Loan Budget for Electric 
Borrowers, and RUS Form 740g, Application for Headquarters Buildings;
    (h) A CWP or CWP amendment covering the proposed project, in 
accordance with 7 CFR part 1710, subpart F, and subject to RUS approval, 
and a resolution of the borrower's board of directors adopting the CWP;
    (i) The certification by the project architect for any buildings to 
be constructed, as required by Sec. 1717.850(i);
    (j) A certification by an authorized official of the borrower that 
flood hazard insurance will be obtained for the full value of any 
buildings, or other facilities susceptible to damage if flooded, that 
will be located in a flood hazard area;
    (k) Form AD-1047, Certification Regarding Debarment, Suspension, and 
Other Responsibility Matters--Primary Covered Transactions, as required 
by 7 CFR part 3017;
    (l) A report by the borrower stating whether or not it is delinquent 
on any Federal debt, and if delinquent, the amount and age of the 
delinquency and the reasons therefor; and a certification, if not 
previously provided, that the borrower has been informed of the 
Government's collection options;
    (m) The written acknowledgement from a registered engineer or 
architect regarding compliance with seismic provisions of applicable 
model codes for any buildings to be constructed, as required by 7 CFR 
1792.104; and
    (n) Other information that RUS may require to determine whether all 
of the applicable provisions of this subpart have been met.

[58 FR 53843, Oct. 19, 1993, as amended at 60 FR 67410, Dec. 29, 1995]



Sec. 1717.856  Application contents: Normal review--100 percent private 

financing.

    Applications for a lien accommodation or subordination for 100 
percent private financing for eligible purposes that do not meet the 
requirements of Sec. 1717.854 must include the following information 
and documents:
    (a) A certification by an authorized official of the borrower that:
    (1) The borrower and, as applicable, the loan are in compliance with 
all applicable provisions of Sec. Sec. 1717.852 and 1717.853; and
    (2) There are no actions or proceedings against the borrower, 
pending or overtly threatened in writing before any court, governmental 
agency, or arbitrator that would materially adversely affect the 
borrower's operations and/or financial condition. If this certification 
cannot be made, the application must include:
    (i) An opinion of borrower's counsel regarding any actions or 
proceedings against the borrower, pending or overtly threatened in 
writing before any court, governmental agency, or arbitrator that would 
materially adversely affect the borrower's operations and/or financial 
condition. The opinion shall address the merits of the claims asserted 
in the actions or proceedings, and include, if appropriate, an estimate 
of the amount or range of any potential loss; and
    (ii) A certification by an authorized official of the borrower as to 
the amount of any insurance coverage applicable to any loss that may 
result from the actions and proceedings addressed in the opinion of 
borrower's counsel;
    (b) The information and documents set forth in Sec. 1717.855 (b) 
through (n);
    (c) A long-range financial forecast providing financial projections 
for at least 10 years, which demonstrates that the borrower's system is 
economically viable and that the proposed loan is financially feasible, 
and a resolution of the borrower's board of directors adopting the long-
range financial forecast. The financial forecast must comply with the 
requirements of 7 CFR part 1710 subpart G. RUS may, in its sole 
discretion, waive the requirement of this paragraph that a long range 
financial forecast be provided, if:
    (1) The borrower is current on all of its financial obligations and 
is in compliance with all requirements of its mortgage and loan 
agreement with RUS;
    (2) In RUS's judgment, granting a lien accommodation or 
subordination for the proposed loan will not adversely affect the 
repayment and security of outstanding debt of the borrower owed to or 
guaranteed by RUS;

[[Page 157]]

    (3) The borrower has achieved the TIER and DSC and any other 
coverage ratios required by its mortgage or loan contract in each of the 
two most recent calendar years; and
    (4) The amount of the proposed loan does not exceed the lesser of 
$10 million or 10 percent of the borrower's current net utility plant;
    (d) [Reserved]
    (e) As applicable to the type of facilities being financed, a CWP, 
related engineering and cost studies, a power cost study, and a 
resolution of the borrower's board of directors adopting these 
documents. These documents must meet the requirements of 7 CFR part 
1710, subpart F and, as applicable, subpart G;
    (f) Unless the requirement has been waived in writing by RUS, a 
current, RUS-approved power requirements study, which must meet the 
requirements of 7 CFR part 1710, subpart E, to the same extent as if the 
loan were being made by RUS, and a resolution of the borrower's board of 
directors adopting the study; and
    (g) A discussion of the borrower's compliance with RUS requirements 
on accounting, financial reporting, record keeping, and irregularities 
(see Sec. 1717.854(c)(5)). RUS will review the case and determine the 
effect of any noncompliance on the feasibility and security of RUS's 
loans, and whether the requested lien accommodation or subordination can 
be approved.

[58 FR 53843, Oct. 19, 1993, as amended at 60 FR 3735, Jan. 19, 1995; 60 
FR 67410, Dec. 29, 1995]



Sec. 1717.857  Refinancing of existing secured debt--distribution and power 

supply borrowers.

    (a) Advance approval. All applications for a lien accommodation or 
subordination for the refinancing of existing secured debt that meet the 
qualification criteria of this paragraph, except applications from 
borrowers in default under their mortgage or loan contract with RUS, are 
eligible for advance approval. Such lien accommodations and 
subordinations are deemed to be in the Government's interest, and RUS 
will approve them once RUS is satisfied that the requirements of this 
paragraph and paragraph (c) of this section have been met. The 
qualification criteria are as follows:
    (1) The refinancing is a current refunding and does not involve 
interest rate swaps, forward delivery contracts, or similar features;
    (2) The principal amount of the refinancing loan does not exceed the 
sum of the outstanding principal amount of the debt being refinanced 
plus the amount of transactions costs included in the refinancing loan 
that are eligible for lien accommodation or subordination under Sec. 
1717.852(a)(4);
    (3) The weighted average life of the refinancing loan is not greater 
than the weighted average remaining life of the loan being refinanced; 
and
    (4) The present value of the cost of the refinancing loan, including 
all transaction costs and any required investments in the lender, is 
less than the present value of the cost of the loan being refinanced, as 
determined by a method acceptable to RUS. The discount rate used in the 
present value analysis shall be equal to either:
    (i) The current rate on Treasury securities having a maturity equal 
to the weighted average life of the refunding loan, plus one-eighth 
percent, or
    (ii) A rate approved by RUS based on documentation provided by the 
borrower as to its marginal long-term borrowing cost.
    (b) Other applications. Applications for a lien accommodation or 
subordination for refinancing that do not meet the requirements of 
paragraph (a) of this section will be reviewed by RUS under normal 
review procedures for these applications. In the case of either advance 
approval or normal review, a lien subordination would be authorized only 
if the lien of the mortgage was subordinated with respect to the assets 
securing the loan being refinanced.
    (c) Application contents--advance approval of refinancing. 
Applications for a lien accommodation or subordination for refinancing 
of existing secured debt that meet the qualification criteria for 
advance approval set forth in paragraph (a) of this section, must 
include the following information and documents:

[[Page 158]]

    (1) A certification by an authorized official of the borrower that 
the application meets the requirements of paragraph (a) of this section 
and all applicable provisions of Sec. Sec. 1717.852 and 1717.853;
    (2) Documentation and analysis demonstrating that the application 
meets the qualification criteria set forth in paragraph (a) of this 
section;
    (3) A resolution of the borrower's board of directors requesting the 
lien accommodation or subordination and including the amount and 
maturity of the proposed loan, a general description of the debt to be 
refinanced, the name and address of the lender, and an attached term 
sheet summarizing the terms and conditions of the proposed loan;
    (4) The borrower's financial and statistical report, the data in 
which shall not be more than 60 days old when the complete application 
is received by RUS;
    (5) Draft copy of any new mortgage or mortgage amendment 
(supplement) required by RUS or the lender, unless RUS has notified the 
borrower that it wishes to prepare these documents itself;
    (6) A copy of the loan agreement, loan note, bond or other financing 
instrument, unless RUS has notified the borrower that these documents 
need not be submitted;
    (7) Form AD-1047, Certification Regarding Debarment, Suspension, and 
Other Responsibility Matters--Primary Covered Transactions, as required 
by 7 CFR part 3017;
    (8) A report by the borrower stating whether or not it is delinquent 
on any Federal debt, and if delinquent, the amount and age of the 
delinquency and the reasons therefor; and a certification, if not 
previously provided, that the borrower has been informed of the 
Government's collection options; and
    (9) Other information, documents and opinions that RUS may require 
to determine whether all of the applicable provisions of this subpart 
have been met.
    (d) Application contents--normal review of refinancing. Applications 
for a lien accommodation or subordination for refinancing of existing 
secured debt that do not meet the requirements for advance approval set 
forth in paragraph (a) of this section, must include the following 
information and documents:
    (1) The information and documents set forth in paragraphs (c)(3) 
through (9) of this section;
    (2) A complete description of the refinancing loan and the 
outstanding debt to be refinanced;
    (3) An analysis comparing the refinancing loan with the loan being 
refinanced as to the weighted average life and the net present value of 
the costs of the two loans; and
    (4) If the present value of the cost of the refinancing loan is 
greater than the present value of the cost of the debt being refinanced, 
financial forecasts for at least 5 years comparing the borrower's debt 
service and other costs, revenues, margins, cash flows, TIER, and DSC, 
with and without the proposed refinancing.
    (e) Application process and timeframes. The application process and 
timeframes for RUS review and action for refinancings are set forth in 
Sec. 1717.859(d).
    (f) Prepayments of concurrent RUS insured loans. If the loan being 
refinanced was made concurrently as supplemental financing required by 
RUS in connection with an RUS insured loan, the refinancing will not be 
considered a prepayment under the RUS mortgage, and no proportional 
prepayment of the concurrent RUS insured loan will be required, provided 
that the principal amount of the refinancing loan is not less than the 
amount of loan principal being refinanced, and the weighted average life 
of the refinancing loan is materially equal to the weighted average 
remaining life of the loan being refinanced. The refinancing loan shall 
be considered a concurrent loan.

[58 FR 53843, Oct. 19, 1993, as amended at 60 FR 67410, Dec. 29, 1995]



Sec. 1717.858  Lien subordination for rural development investments.

    (a) Policy. RUS encourages borrowers to consider investing in 
financially sound projects that are likely to have a positive effect on 
economic development and employment in rural areas. In addition to the 
guidance set forth in Sec. 1717.651, RUS recommends that such

[[Page 159]]

investments be made through a subsidiary of the borrower in order to 
clearly separate the financial risks and the revenues and costs of the 
rural development enterprise from those of the borrower's electric 
utility business. This should reduce credit risks to the borrower's 
primary business, and minimize the possibility of undisclosed cross 
subsidization of the rural development enterprise by electric rate 
payers.
    (b) Lien subordination. RUS will consider subordinating or releasing 
its lien on the stock held by a borrower in a subsidiary whose primary 
business directly contributes to or supports economic development and 
employment in rural areas, as defined in section 13 of the RE Act, when 
requested by a lender to the subsidiary, other than the borrower. To be 
eligible for said lien subordination or release:
    (1) The borrower must be current on all of its financial obligations 
and be in compliance with all provisions of its mortgage and loan 
agreement with RUS; and
    (2) In the judgment of RUS, the borrower must be able to repay all 
of its outstanding debt, and the security forall outstanding loans made 
to the borrower by RUS, including loans guaranteed by RUS, must be 
adequate, after taking into account the proposed subordination or 
release of lien.
    (c) Application contents. Applications for a lien subordination or 
release of lien for rural development investments must include the 
following information and documents:
    (1) A resolution of the borrower's board of directors requesting the 
lien subordination or release of lien;
    (2) A certification by an authorized official of the borrower that 
the borrower is current on all of its financial obligations and is in 
compliance with all provisions of its mortgage and loan agreement with 
RUS;
    (3) A description of the facilities or other purposes to be financed 
and the projected effects on economic development and employment in 
rural areas;
    (4) The borrower's financial and statistical report, the data in 
which shall not be more than 60 days old when the complete application 
is received by RUS;
    (5) If requested by RUS, a long-range financial forecast providing 
financial projections for at least 10 years, in form and substance 
satisfactory to RUS, which demonstrates that the borrower's system is 
economically viable and that the borrower will be able to repay all of 
its outstanding debt and meet all other financial obligations;
    (6) A discussion of the borrower's compliance with RUS requirements 
on accounting, financial reporting, record keeping, and irregularities 
(see Sec. 1717.854(c)(5)). RUS will review the case and determine the 
effect of any noncompliance on the feasibility and security of RUS's 
loans, and whether the requested lien subordination or release of lien 
can be approved;
    (7) If any buildings are to be constructed with the proceeds of the 
loan to be made to the subsidiary:
    (i) A certification by the project architect that the buildings will 
be designed and constructed in compliance with Section 504 of the 
Rehabilitation Act of 1973 as amended (29 U.S.C. 794), as applicable 
under that Act, and that the facilities will be readily accessible to 
and usable by persons with handicaps in accordance with the Uniform 
Federal Accessibility Standards; and
    (ii) A written acknowledgement from a registered engineer or 
architect regarding compliance with seismic provisions of applicable 
model codes, as required by 7 CFR 1792.104;
    (8) A certification by an authorized official of the borrower that 
flood hazard insurance will be obtained for the full value of any 
buildings, or other facilities susceptible to damage if flooded, that 
will be located in a flood hazard area;
    (9) Form AD-1047, Certification Regarding Debarment, Suspension, and 
Other Responsibility Matters--Primary Covered Transactions, as required 
by 7 CFR part 3017;
    (10) A report by the borrower stating whether or not it is 
delinquent on any Federal debt, and if delinquent, the amount and age of 
the delinquency and the reasons therefor; and a certification, if not 
previously provided, that the borrower has been informed of the 
Government's collection options; and
    (11) Other information that RUS may require to determine whether all 
of the

[[Page 160]]

applicable provisions of this subpart have been met.



Sec. 1717.859  Application process and timeframes.

    (a) General. (1) Borrowers are responsible for ensuring that their 
applications for a lien accommodation or subordination are complete and 
sound as to substance and form before they are submitted to RUS. RUS 
will not accept any application that, on its face, is incomplete or 
inadequate as to the substantive information required by this subpart. 
RUS will notify borrowers in writing when their applications are 
complete and in form and substance satisfactory to RUS. A copy of all 
notifications of borrowers cited in this section will also be sent to 
the private lender.
    (2) It is recommended that borrowers consult with RUS staff before 
submitting their applications to determine whether they will likely 
qualify for advance approval or normal review, and to obtain answers to 
any questions about the information and documents required for the 
application.
    (3) A borrower shall, after submitting an application, promptly 
notify RUS of any changes that materially affect the information 
contained in its application.
    (4) After submitting an application and having been notified by RUS 
of additional information and documents and other changes needed to 
complete the application, if the required information and documents are 
not supplied to RUS within 30 calendar days of the borrower's receipt of 
the notice, RUS may return the application to the borrower. The borrower 
may resubmit the application when the required additional information 
and documents are available.
    (5) Timeframes. The timeframes for review of applications set forth 
in this section are based on the following conditions:
    (i) The types of lien accommodations or subordinations requested are 
of the ``standard'' types that RUS has approved previously, i.e., the 
so-called Type I, II and III lien accommodations. Future revisions of 
the RUS mortgage may result in other ``standard'' types of lien 
accommodations and lien subordinations acceptable to RUS. Requests for 
lien accommodations or subordinations that are substantially different 
than the ``standard'' types previously approved by RUS may require 
additional time for review and action;
    (ii) The requested lien accommodation or subordination does not 
require the preparation of an environmental assessment or an 
Environmental Impact Statement. Preparation of these documents often 
will require additional time beyond the timeframes cited in this 
section; and
    (iii) The timeframes set forth in this section, except for paragraph 
(b)(4) of this section, which deals only with approval of a new mortgage 
or mortgage amendment, include RUS review and/or approval of a loan 
contract, if required as part of the application, and required 
supporting documents, such as a CWP.
    (b) Advance approval--100 percent private financing of distribution, 
subtransmission, and headquarters facilities. (1) Applications that 
qualify under Sec. 1717.854 for advance approval of a lien 
accommodation or subordination for 100 percent private financing of 
distribution, subtransmission, and headquarters facilities are submitted 
to the general field representative (GFR). The GFR will work with the 
borrower to ensure that all components of the application are assembled. 
Once the application is satisfactory to the GFR, it will be sent 
promptly to the Washington office for further review and action. If a 
new mortgage or mortgage amendment is required, a draft of these 
documents must be included in the application, unless the borrower has 
been notified that RUS wishes to prepare the documents itself.
    (2) If no additional or amended information is needed for RUS to 
complete its review of the application once it is received in the 
Washington Office, RUS will, within 45 calendar days of receiving the 
application in the Washington Office, either:
    (i) Approve the lien accommodation or subordination if the borrower 
has demonstrated satisfactorily to RUS that all requirements of this 
subpart applicable to advance approval have been met, and send written 
notice to the borrower. RUS's approval, in this

[[Page 161]]

case and all other cases, will be conditioned upon execution and 
delivery by the borrower of a satisfactory security instrument, if 
required, and such additional information, documents, and opinions of 
counsel as RUS may require;
    (ii) If all requirements have not been met, so notify the borrower 
in writing. The application will be returned to the borrower unless the 
borrower requests that it be reconsidered under the requirements and 
procedures for normal review set forth in paragraph (c) of this section 
and in Sec. 1717.856; or
    (iii) Send written notice to the borrower explaining why a decision 
cannot be made at that time and giving the estimated date when a 
decision is expected.
    (3) If additional or amended information is needed after the 
application is received in the Washington Office, RUS will so notify the 
borrower in writing within 15 calendar days of receiving the application 
in the Washington Office. If RUS subsequently becomes aware of other 
deficiencies in the application, additional written notice will be sent 
to the borrower. Within 30 calendar days of receiving all of the 
information required by RUS to complete its review, RUS will act on the 
application as described in paragraphs (b)(2)(i) through (b)(2)(iii) of 
this section.
    (4) If a new mortgage or mortgage amendment is required, within 30 
days of receiving such documents satisfactory to RUS, including required 
execution counterparts, RUS will execute the documents and send them to 
the borrower, along with instructions pertaining to recording of the 
mortgage, an opinion of borrower's counsel, and other matters. RUS will 
promptly notify the borrower upon receiving satisfactory evidence that 
the borrower has complied with said instructions.
    (c) Normal review--100 percent private financing of distribution, 
transmission, and/or generation facilities--(1) Distribution borrowers. 
(i) Applications from distribution borrowers for a lien accommodation or 
subordination for 100 percent private financing of distribution, 
transmission, and/or generation facilities (including other eligible 
electric utility purposes) that do not meet the criteria for advance 
approval, are also submitted to the GFR. Procedures at this stage are 
the same as in paragraph (b)(1) of this section.
    (ii) If no additional or amended information is needed for RUS to 
complete its review of the application once it is received in the 
Washington office, RUS will, within 90 calendar days of receiving the 
application in the Washington office, send written notice to the 
borrower either approving the request, disapproving the request, or 
explaining why a decision cannot be made at that time and giving the 
estimated date when a decision is expected.
    (iii) If additional or amended information is needed after the 
application is received in the Washington Office, RUS will so notify the 
borrower in writing within 15 calendar days of receiving the application 
in the Washington Office. If RUS subsequently becomes aware of other 
deficiencies in the application, additional written notice will be sent 
to the borrower. Within 90 calendar days of receiving all of the 
information required by RUS to complete its review, RUS will act on the 
application as described in paragraph (c)(1)(ii) of this section.
    (iv) If a new mortgage or mortgage amendment is required, the 
procedures and timeframes of paragraph (b)(4) of this section will 
apply.
    (2) Power supply borrowers. (i) Applications from power supply 
borrowers for a lien accommodation or subordination for 100 percent 
private financing of distribution, transmission, and/or generation 
facilities, and other eligible electric utility purposes, are submitted 
to the RUS Power Supply Division, or its successor, in Washington, DC.
    (ii) Within 30 calendar days of receiving the borrower's application 
containing the information and documents required by Sec. 1717.856, RUS 
will send written notice to the borrower of any deficiencies in its 
application as to completeness and acceptable form and substance. 
Additional written notices may be sent to the borrower if RUS 
subsequently becomes aware of other deficiencies in the borrower's 
application.
    (iii) Within 90 calendar days of receiving all of the information 
required by RUS to complete its review, RUS

[[Page 162]]

will act on the application as described in paragraph (c)(1)(ii) of this 
section.
    (iv) If a new mortgage or mortgage amendment is required, these 
documents will be reviewed and executed pursuant to the procedures and 
timeframes of paragraph (b)(4) of this section.
    (d) Refinancing of existing debt. All requests for a lien 
accommodation or subordination for refinancing are sent directly to the 
Washington office.
    (1) Advance approval. (i) Within 15 calendar days of receiving the 
borrower's application containing the information and documents required 
by Sec. 1717.857(c), RUS will send written notice to the borrower of 
any deficiencies in its application as to completeness and acceptable 
form and substance. Additional written notices may be sent to the 
borrower if RUS subsequently becomes aware of other deficiencies in the 
borrower's application.
    (ii) Within 15 calendar days of receiving all of the required 
information and documents, in form and substance satisfactory to RUS, 
RUS will either:
    (A) Approve the lien accommodation or subordination if the borrower 
has demonstrated satisfactorily to RUS that all requirements of Sec. 
1717.857(a) and (c) have been met, and send written notice to the 
borrower;
    (B) If all requirements have not been met, so notify the borrower in 
writing. The application will be returned to the borrower unless the 
borrower requests that it be reconsidered under the requirements and 
procedures for normal review set forth in paragraph (d)(2) of this 
section and in Sec. 1717.857; or
    (C) Send written notice to the borrower explaining why a decision 
cannot be made at that time and giving the estimated date when a 
decision is expected.
    (iii) If a new mortgage or mortgage amendment is required, these 
documents will be reviewed and executed pursuant to the procedures and 
timeframes of paragraph (b)(4) of this section.
    (2) Normal review. (i) Within 20 calendar days of receiving the 
borrower's application containing the information and documents required 
by Sec. 1717.857(d), RUS will send written notice to the borrower of 
any deficiencies in its application as to completeness and acceptable 
form and substance. Additional written notices may be sent to the 
borrower if RUS subsequently becomes aware of other deficiencies in the 
borrower's application.
    (ii) Within 30 calendar days of receiving all of the required 
information and documents, in form and substance satisfactory to RUS, 
RUS will notify the borrower in writing either approving the request, 
disapproving the request, or explaining why a decision cannot be made at 
that time and giving the estimated date when a decision is expected. If 
the proposed refinancing involves complicated transactions such as 
interest rate swaps or forward delivery contracts, additional time may 
be required for RUS review and final action.
    (iii) If a new mortgage or mortgage amendment is required, these 
documents will be reviewed and executed pursuant to the procedures and 
timeframes of paragraph (b)(4) of this section.
    (e) Rural development investments. (1) Applications for a lien 
subordination for rural development investments are submitted by 
distribution borrowers to the GFR and by power supply borrowers to the 
RUS Power Supply Division, or its successor, in Washington, DC.
    (2) The GFR will work with the borrower to ensure that all 
components of the application are assembled. Once the application is 
satisfactory to the GFR, it will be sent promptly to the Washington 
Office for further review and action. After the application is received 
in the Washington Office, if additional or amended information is needed 
for RUS to complete its review, RUS will so notify the borrower in 
writing within 15 calendar days of receiving the application.
    (3) Applications from power supply borrowers containing the 
information and documents required by Sec. 1717.858(c) will be reviewed 
in the Washington office and the borrower given written notice within 30 
calendar days of receiving the application of any deficiencies as to 
completeness and acceptable form and substance. Additional written 
notices may be sent to the borrower if RUS subsequently becomes aware of

[[Page 163]]

other deficiencies in the borrower's application.
    (4) Within 60 calendar days of receiving in the Washington office 
all of the required information and documents, in form and substance 
satisfactory to RUS, RUS will give written notice to the borrower either 
approving the request, disapproving the request, or explaining why a 
decision cannot be made at that time and giving the estimated date when 
a decision is expected.
    (5) If a new mortgage or mortgage amendment is required, these 
documents will be reviewed and executed pursuant to the procedures and 
timeframes of paragraph (b)(4) of this section.



Sec. 1717.860  Lien accommodations and subordinations under section 306E of 

the RE Act.

    (a) General. Under section 306E of the RE Act, when requested by a 
private lender providing financing for capital investments by a borrower 
whose net worth exceeds 110 percent of the outstanding principal balance 
of all loans made or guaranteed to the borrower by RUS, the 
Administrator will, without delay, offer to share the government's lien 
on the borrower's system or subordinate the government's lien on the 
property financed by the private lender, provided that the security, 
including the assurance of repayment, for loans made or guaranteed by 
RUS will remain reasonably adequate. To qualify for a lien accommodation 
or subordination under this section, the investment must be an original 
capital investment, i.e., not a refinancing or refunding. (See Sec. 
1717.851 for the definition of capital investment.)
    (b) Determination of net worth to RUS debt ratio. (1) In the case of 
applications for a lien accommodation, a borrower's net worth will be 
based on the borrower's most recent financial and statistical report, 
the data in which shall not be more than 60 days old at the time the 
application is received by RUS, and the outstanding debt owed to or 
guaranteed by RUS will be based on latest RUS records available. 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 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 shall be calculated by taking total margins and 
equities (Line 33 of Part C of RUS Form 7 for distribution borrowers, or 
Line 34 of 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.
    (c) Application requirements and process. (1) If a borrower's net 
worth to RUS debt ratio exceeds 110 percent, as determined by RUS, and 
the borrower is in compliance with all requirements of its mortgage, 
loan agreement with RUS, and any other agreement with RUS that have not 
been exempted in writing by RUS, if requested RUS will expeditiously 
approve a lien accommodation or subordination for 100 percent private 
financing of capital investments, provided that the security, including 
the assurance of repayment, for loans made or guaranteed by RUS will 
remain reasonably adequate. RUS's approval will be conditioned upon 
execution and delivery by the borrower of a security instrument 
satisfactory to RUS, if required, and such additional information, 
documents, and opinions of counsel as RUS may require.
    (2) The application must include the following:
    (i) A resolution of the borrower's board of directors requesting the 
lien accommodation and including the amount and maturity of the proposed 
loan, a general description of the facilities or other purposes to be 
financed, the name and address of the lender, and an attached term sheet 
summarizing the terms and conditions of the proposed loan;

[[Page 164]]

    (ii) A certification by an authorized official of the borrower that 
the borrower is in compliance with all requirements of its mortgage, 
loan agreement with RUS, and any other agreement with RUS that have not 
been exempted in writing by RUS;
    (iii) The borrower's financial and statistical report, the data in 
which shall not be more than 60 days old when the complete application 
is received by RUS;
    (iv) Draft copy of any new mortgage or mortgage amendment 
(supplement) required by RUS or the lender, unless RUS has notified the 
borrower that it wishes to prepare these documents itself;
    (v) A copy of the loan agreement, loan note, bond or other financing 
instrument, unless RUS has notified the borrower that these documents 
need not be submitted. These documents will not be subject to RUS 
approval, but may be reviewed to determine whether they contain any 
provisions that would result in the security, including assurance of 
repayment, for loans made or guaranteed by RUS no longer being 
reasonably adequate;
    (vi) The following certifications and reports required by law:
    (A) The certification by the project architect for any buildings to 
be constructed, as required by 7 CFR 1717.850(i);
    (B) A certification by an authorized official of the borrower that 
flood hazard insurance will be obtained for the full value of any 
buildings, or other facilities susceptible to damage if flooded, that 
will be located in a flood hazard area;
    (C) Form AD-1047, Certification Regarding Debarment, Suspension, and 
Other Responsibility Matters--Primary Covered Transactions, as required 
by 7 CFR part 3017;
    (D) A report by the borrower stating whether or not it is delinquent 
on any Federal debt, and if delinquent, the amount and age of the 
delinquency and the reasons therefor; and a certification, if not 
previously provided, that the borrower has been informed of the 
Government's collection options; and
    (E) The written acknowledgement from a registered engineer or 
architect regarding compliance with seismic provisions of applicable 
model codes for any buildings to be constructed, as required by 7 CFR 
1792.104. All other elements of an application listed in Sec. 1717.855, 
Sec. 1717.856, and Sec. 1717.858(c) not listed in this paragraph (c) 
are exempted.
    (3) Applications from distribution borrowers are submitted to the 
general field representative (GFR), while applications from power supply 
borrowers are submitted to the RUS Power Supply Division, or its 
successor, in Washington, DC. When an application is satisfactory to the 
GFR, it will be sent promptly to the Washington office. If Washington 
office staff determine that an application is incomplete, the borrower 
will be promptly notified in writing about the deficiencies. When the 
application is complete, and if the security, including assurance of 
repayment, of loans made or guaranteed by RUS will remain reasonably 
adequate after granting the lien accommodation or subordination, the 
borrower and the lender will be promptly notified in writing that the 
lien accommodation or subornation has been approved, subject to the 
conditions cited in paragraph (c)(1) of this section.
    (d) Rural development and other non-electric utility investments. 
Although RUS recommends the use of separate subsidiaries as set forth in 
Sec. 1717.858, if requested by a borrower that meets the 110 percent 
equity test and all other applicable requirements of this section, RUS 
will provide a lien subordination on the specific assets financed in the 
case of loans made directly to the borrower for rural development and 
other non-electric utility purposes, provided that the outstanding 
balance of all such loans lien subordinated under this paragraph (d), 
after taking into consideration the effect of the new loan, does not 
exceed 15 percent of the borrower's net worth and the security, 
including assurance of repayment, of loans made or guaranteed by RUS 
will remain reasonably adequate after granting the lien subordination. 
Investments lien subordinated under this paragraph shall be included 
among those investments subject to the 15 percent of total utility plant 
limitation set forth in 7 CFR 1717.654(b)(1), and granting of the lien 
subordination will not constitute

[[Page 165]]

approval of the investment under 7 CFR part 1717, subpart N.
    (e) Requirements and controls not exempted. All requirements and 
limitations imposed with respect to lien accommodations and 
subordinations by this subpart R that are not specifically exempted by 
this section are not exempted and shall continue to apply according to 
their terms.

[59 FR 3986, Jan. 28, 1994, as amended at 60 FR 3735, Jan. 19, 1995; 60 
FR 67410, Dec. 29, 1995]



Sec. Sec. 1717.861-1717.899  [Reserved]



 Subpart S_Lien Accommodations for Supplemental Financing Required by 7 

                              CFR 1710.110

    Source: 58 FR 53851, Oct. 19, 1993, unless otherwise noted.



Sec. 1717.900  Qualification requirements.

    Applications for a lien accommodation for supplemental financing 
required by 7 CFR 1710.110 must meet the same requirements as an RUS 
insured loan. The justification and documentation materials submitted as 
part of the borrower's application for an insured loan also serve as the 
justification and documentation of the request for a lien accommodation 
for the required supplemental loan. Unless early approval under Sec. 
1717.901 is requested by a borrower, these applications will be 
processed during the same time as RUS's review of the borrower's 
application for the concurrent insured loan.



Sec. 1717.901  Early approval.

    (a) Conditions. If requested by a borrower in writing, RUS will 
review the application for a lien accommodation for required 
supplemental financing early in the process, before funding is available 
for the concurrent RUS insured loan, and approve the lien accommodation 
if the following conditions are met:
    (1) The required supplemental loan meets the requirements for an 
insured loan, as set forth in 7 CFR part 1710, subparts A through G, and 
other RUS regulations pertaining to required supplemental loans;
    (2) The borrower has demonstrated the ability to obtain the funds 
that would be needed to complete other portions of the project, if the 
portion to be constructed with private loan funds could not be used 
productively without completion of such other portions, in the event 
concurrent RUS insured loan funds are not forthcoming. Such evidence may 
include financial records demonstrating the availability of general 
funds, and/or a written commitment from the private lender to provide a 
loan for the remaining amount of financing required, with such 
commitment being conditioned upon the availability of a lien 
accommodation from RUS; and
    (3) An authorized official of the borrower has requested early 
approval of the lien accommodation and explained the reasons therefor, 
and has certified that the funds are needed and will be drawn down 
before funds from the concurrent insured loan are expected to be 
available, assuming that the insured loan is approved.
    (b) Timeframe for RUS action. (1) RUS will either approve or 
disapprove the lien accommodation within 90 days of receiving the 
borrower's request for early approval and the complete application for 
the concurrent RUS loan and required supplemental financing, in form and 
substance satisfactory to RUS, or notify the borrower in writing of the 
estimated date when a decision is expected. If an environmental 
assessment or an Environmental Impact Statement is required, additional 
time beyond the 90 days may be required to prepare these documents. 
RUS's approval of the lien accommodation will be conditioned upon 
execution and delivery by the borrower of a satisfactory security 
instrument, if required, and such additional information, documents, and 
opinions of counsel as RUS may require.
    (2) If a mortgage or mortgage amendment is required, RUS will 
consult with the other mortgagees as to who will prepare the documents. 
Within 30 days of obtaining the documents satisfactory to RUS, including 
required execution counterparts, RUS will execute the documents and send 
them to the borrower, along with instructions pertaining to recording of 
the mortgage,

[[Page 166]]

an opinion of borrower's counsel, and other matters. RUS will promptly 
notify the borrower upon receiving satisfactory evidence that the 
borrower has complied with said instructions.
    (c) Approval of concurrent insured loan. Early approval of a lien 
accommodation for a required supplemental loan does not ensure that the 
concurrent RUS insured loan will be approved. The request for the 
concurrent insured loan will be reviewed when funds are available to 
make the loan. The borrower may be requested to update certain 
supporting information in the loan application if substantial time has 
elapsed since the lien accommodation or subordination was approved.



Sec. 1717.902  Other RUS requirements.

    Supplemental loans required by 7 CFR 1710.110 are subject to the 
same post-loan requirements as insured RUS loans regarding accepted 
materials, construction standards, contracting and procurement 
procedures, standard forms of contracts, RUS approval of the advance of 
loan funds, and other matters.



Sec. 1717.903  Liability.

    It is the intent of this subpart that any failure on the part of RUS 
to comply with any provisions of this subpart, including without 
limitation, those provisions setting forth specified timeframes for 
action by RUS on applications for lien accommodations or lien 
subordinations, shall not give rise to liability of any kind on the part 
of the Government or any employees of the Government including, without 
limitation, liability for damages, fees, expenses or costs incurred by 
or on behalf of a borrower, private lender or any other party.



Sec. 1717.904  Exemptions pursuant to section 306E of the RE Act.

    (a) General policy. If a borrower's net worth to RUS debt ratio 
exceeds 110 percent, as determined by RUS, and the borrower is in 
compliance with all requirements of its mortgage, loan agreement with 
RUS, and any other agreement with RUS that have not been exempted in 
writing by RUS, RUS will expeditiously approve a lien accommodation for 
a concurrent supplemental loan if requested in writing by the borrower, 
provided that the security, including assurance of repayment, of loans 
made or guaranteed by RUS will remain reasonably adequate. RUS's 
approval will be conditioned upon execution and delivery by the borrower 
of a security instrument satisfactory to RUS, if required, and such 
additional information, documents, and opinions of counsel as RUS may 
require.
    (b) Determination of net worth to RUS debt ratio. A borrower's ratio 
of net worth to RUS debt will be determined as set forth in Sec. 
1717.860(b).
    (c) Procedures. If a borrower meets the requirements of this 
section, upon receipt of a complete application RUS will promptly notify 
the borrower and lender in writing that the lien accommodation has been 
approved subject to the conditions set forth in paragraph (a) of this 
section.

[59 FR 3987, Jan. 28, 1994, as amended at 67 FR 70153, Nov. 21, 2002]



Sec. Sec. 1717.905-1717.949  [Reserved]

Subpart T [Reserved]



Sec. Sec. 1717.950-1717.999  [Reserved]

Subpart U [Reserved]



Sec. Sec. 1717.1000-1717.1049  [Reserved]

Subpart V [Reserved]



Sec. Sec. 1717.1050-1717.1099  [Reserved]

Subpart W [Reserved]



Sec. Sec. 1717.1100-1717.1149  [Reserved]

Subpart X [Reserved]



Sec. Sec. 1717.1150-1717.1199  [Reserved]



                      Subpart Y_Settlement of Debt

    Source: 62 FR 50491, Sept. 26, 1997, unless otherwise noted.



Sec. 1717.1200  Purpose and scope.

    (a) Section 331(b) of the Consolidated Farm and Rural Development 
Act (Con Act), as amended on April 4, 1996 by Public Law 104-127, 110 
Stat. 888 (7

[[Page 167]]

U.S.C. 1981), grants authority to the Secretary of Agriculture to 
compromise, adjust, reduce, or charge-off debts or claims arising from 
loans made or guaranteed under the Rural Electrification Act of 1936, as 
amended (RE Act). Section 331(b) of the Con Act also authorizes the 
Secretary of Agriculture to adjust, modify, subordinate, or release the 
terms of security instruments, leases, contracts, and agreements entered 
into or administered by the Rural Utilities Service (RUS). The 
Secretary, in 7 CFR 2.47, has delegated authority under section 331(b) 
of the Con Act to the Administrator of the RUS, with respect to loans 
made or guaranteed by RUS.
    (b) This subpart sets forth the policy and standards of the 
Administrator of RUS with respect to the settlement of debts and claims 
arising from loans made or guaranteed to rural electric borrowers under 
the RE Act. Nothing in this subpart limits the Administrator's authority 
under section 12 of the RE Act.



Sec. 1717.1201  Definitions.

    Terms used in this subpart that are not defined in this section have 
the meanings set forth in 7 CFR part 1710. In addition, for the purposes 
of this subpart:
    Application for debt settlement means a written application 
containing all of the information required by Sec. 1717.1204(b)(2), in 
form and substance satisfactory to RUS.
    Attorney General means the Attorney General of the United States of 
America.
    Claim means any claim of the government arising from loans made or 
guaranteed under the RE Act to a rural electric borrower.
    Con Act means the Consolidated Farm and Rural Development Act (7 
U.S.C. 1921 et seq.).
    Debt means outstanding debt of a rural electric borrower (including, 
but not necessarily limited to, principal, accrued interest, penalties, 
and the government's costs of debt collection) arising from loans made 
or guaranteed under the RE Act.
    Enforced collection procedures means any procedures available to the 
Administrator for the collection of debt that are authorized by law, in 
equity, or under the borrower's loan documents or other agreements with 
RUS.
    Loan documents means the mortgage (or other security instrument 
acceptable to RUS), the loan contract, and the promissory note entered 
into between the borrower and RUS.
    RE Act means the Rural Electrification Act of 1936, as amended (7 
U.S.C. 901-950b).
    Restructure means to settle a debt or claim.
    Settle means to reamortize, adjust, compromise, reduce, or charge-
off a debt or claim.



Sec. 1717.1202  General policy.

    (a) It is the policy of the Administrator that, wherever possible, 
all debt owed to the government, including but not limited to principal 
and interest, shall be collected in full in accordance with the terms of 
the borrower's loan documents.
    (b) Nothing in this subpart by itself modifies, reduces, waives, or 
eliminates any obligation of a borrower under its loan documents. Any 
such modifications regarding the debt owed by a borrower may be granted 
under the authority of the Administrator only by means of the explicit 
written approval of the Administrator in each case.
    (c) The Administrator's authority to settle debts and claims will 
apply to cases where a borrower is unable to pay its debts and claims in 
accordance with their terms, as further defined in Sec. 
1717.1204(b)(1), and where settlement will maximize, on a present value 
basis, the recovery of debts and claims owed to the government.
    (d) In structuring settlements and determining the capability of the 
borrower to repay debt and the amount of debt recovery that is possible, 
the Administrator will consider, among other factors, the RE Act, the 
National Energy Policy Act of 1992 (Pub. L. 102-486, 106 Stat. 2776), 
the policies and regulations of the Federal Energy Regulatory 
Commission, state legislative and regulatory actions, and other market 
and nonmarket forces as to their effects on competition in the electric 
utility industry and on rural electric systems in

[[Page 168]]

particular. Other factors the Administrator will consider are set forth 
in more detail in Sec. 1717.1204.



Sec. 1717.1203  Relationship between RUS and Department of Justice.

    (a) The Attorney General will be notified by the Administrator 
whenever the Administrator intends to use his or her authority under 
section 331(b)of the Con Act to settle a debt or claim.
    (b) If an outstanding claim has been referred in writing to the 
Attorney General, the Administrator will not use his or her own 
authority to settle the claim without the approval of the Attorney 
General.
    (c) If an application for additional debt relief is received from a 
borrower whose debt has been settled in the past under the authority of 
the Attorney General, the Administrator will promptly notify the 
Attorney General before proceeding to consider the application.



Sec. 1717.1204  Policies and conditions applicable to settlements.

    (a) General. Settlement of debts and claims shall be subject to the 
policies, requirements, and conditions set forth in this section and in 
Sec. 1717.1202.
    (b) Need for debt settlement. (1) The Administrator will not settle 
any debt or claim unless the Administrator has determined that the 
borrower is unable to meet its financial obligations under its loan 
documents according to the terms of those documents, or that the 
borrower will not be able to meet said obligations sometime within the 
period of 24 months following the month the borrower submits its 
application for debt settlement to RUS, and, in either case, such 
default is likely to continue indefinitely. The determination of a 
borrower's ability to meet its financial obligations will be based on 
analyses and documentation by RUS of the borrower's historical, current, 
and projected costs, revenues, cash flows, assets, opportunities to 
reduce costs and/or increase revenues, and other factors that may be 
relevant on a case by case basis.
    (2) In its application to RUS for debt settlement, the borrower must 
provide, in form and substance satisfactory to RUS, an in-depth analysis 
supporting the borrower's contention that it is unable or will not be 
able to meet its financial obligations as described in paragraph (b)(1) 
of this section. The analysis must include:
    (i) An explanation and analysis of the causes of the borrower's 
inability to meet its financial obligations;
    (ii) A thorough review and analysis of the opportunities available 
or potentially available to the borrower to reduce administrative 
overhead and other costs, improve efficiency and effectiveness, and 
expand markets and revenues, including but not limited to opportunities 
for sharing services, merging, and/or consolidating, raising rates when 
appropriate, and renegotiating supplier and service contracts. In the 
case of a power supply borrower, the study shall include such 
opportunities among the members of the borrower, unless the 
Administrator waives this requirement;
    (iii) Documentation of the actions taken, in progress, or planned by 
the borrower (and its member systems, if applicable) to take advantage 
of the opportunities cited in paragraph (b)(2)(ii) of this section; and
    (iv) Other analyses and documentation prescribed by RUS on a case by 
case basis.
    (3) RUS may require that an independent consultant provide an 
analysis of the efficiency and effectiveness of the borrower's 
organization and operations, and those of its member systems in the case 
of a power supply borrower. The following conditions will apply:
    (i) RUS will select the independent consultant taking into account, 
among other matters, the consultant's experience and expertise in 
matters relating to electric utility operations, finance, and 
restructuring;
    (ii) The contract with the consultant shall be to provide services 
to RUS on such terms and conditions as RUS deems appropriate. The 
consultant's scope of work may include, but shall not be limited to, an 
analysis of the following:
    (A) How to maximize the value of the government's collateral, such 
as through mergers, consolidations, or sales of all or part of the 
collateral;

[[Page 169]]

    (B) The viability of the borrower's system, taking into account such 
matters as system size, service territory and markets, asset base, 
physical condition of the plant, operating efficiency, competitive 
pressures, industry trends, and opportunities to expand markets and 
improve efficiency and effectiveness;
    (C) The feasibility and the potential benefits and risks to the 
borrower and the government of corporate restructuring, including 
aggregation and disaggregation;
    (D) In the case of a power supply borrower, the retail rate mark-up 
by member systems and the potential benefits to be achieved by member 
restructuring through mergers, consolidations, shared services, and 
other alliances;
    (E) The quality of the borrower's management, management advisors, 
consultants, and staff;
    (F) Opportunities for reducing overhead and other costs, for 
expanding markets and revenues, and for improving the borrower's 
existing and prospective contractual arrangements for the purchase and 
sale of power, procurement of supplies and services, and the operation 
of plant and facilities;
    (G) Opportunities to achieve efficiency gains and increased revenues 
based on comparisons with benchmark electric utilities; and
    (H) The accuracy and completeness of the borrower's analysis 
provided under paragraph (b)(2) of this section;
    (iii) RUS and, as appropriate, other creditors, will determine the 
extent to which the borrower and third parties (including the members of 
a power supply borrower) will be required to participate in funding the 
costs of the independent consultant;
    (iv) The borrower will be required to make available to the 
consultant all corporate documents, files, and records, and to provide 
the consultant with access to key employees. The borrower will also 
normally be required to provide the consultant with office space 
convenient to the borrower's operations and records; and
    (v) All analyses, studies, opinions, memoranda, and other documents 
and information produced by the independent consultant shall be provided 
to RUS on a confidential basis for consideration in evaluating the 
borrower's application for debt settlement. Such documents and 
information may be made available to the borrower and other appropriate 
parties if authorized in writing by RUS.
    (4) The borrower may be required to employ a temporary or permanent 
manager acceptable to the Administrator, to manage the borrower's 
operations to ensure that all actions are taken to avoid or minimize the 
need for debt settlement. The employment could be on a temporary basis 
to manage the system during the time the debt settlement is being 
considered, and possibly for some time after any debt settlement, or it 
could be on a permanent basis.
    (5) The borrower must submit, at a time determined by RUS, a 
resolution of its board of directors requesting debt settlement and 
stating that the borrower is either currently unable to meet its 
financial obligations to the government or will not be able to meet said 
obligations sometime within the next 24 months, and that, in either 
case, the default is likely to continue indefinitely.
    (c) Debt settlement measures. (1) If the Administrator determines 
that debt settlement is appropriate, the debt settlement measures the 
Administrator will consider under this subpart with respect to direct, 
insured, or guaranteed loans include, but are not limited to, the 
following:
    (i) Reamortization of debt;
    (ii) Extension of debt maturity, provided that the maturity of the 
borrower's outstanding debt after settlement shall not extend more than 
10 years beyond the latest maturity date prior to settlement;
    (iii) Reduction of the interest rate charged on the borrower's debt, 
provided that the interest rate on any portion of the restructured debt 
shall not be reduced to less than 5 percent, unless the Administrator 
determines that reducing the rate below 5 percent would maximize debt 
recovery by the government;
    (iv) Forgiveness of interest accrued, penalties, and costs incurred 
by the government to collect the debt; and

[[Page 170]]

    (v) With the concurrence of the Under Secretary for Rural 
Development, forgiveness of loan principal.
    (2) In the event that RUS has, under section 306 of the RE Act, 
guaranteed loans made by the Federal Financing Bank or other third 
parties, the Administrator may restructure the borrower's obligations 
by: acquiring and restructuring the guaranteed loan; restructuring the 
loan guarantee obligation; restructuring the borrower's reimbursement 
obligations; or by such means as the Administrator deems appropriate, 
subject to such consents and approvals, if any, that may be required by 
the third party lender.
    (d) Borrower's obligations to other creditors. The Administrator 
will not grant relief on debt owed to the government unless similar 
relief, on a pro rata basis, is granted with respect to other secured 
obligations of the borrower, or the other secured creditors provide 
other benefits or value to the debt restructuring. Unsecured creditors 
will also be expected to contribute to the restructuring. If it is not 
possible to obtain the expected contributions from other creditors, the 
Administrator may proceed to settle a borrower's debt if that will 
maximize recovery by the government and will not result in material 
benefits accruing to other creditors at the expense of the government.
    (e) Competitive bids for system assets. If requested by RUS, the 
borrower or the independent consultant provided for in paragraph (b)(3) 
of this section shall solicit competitive bids from potential buyers of 
the borrower's system or parts thereof. The bidding process must be 
conducted in consultation with RUS and use standards and procedures 
acceptable to RUS. The Administrator may use the competitive bids 
received as a basis for requiring the sale of all or part of the 
borrower's system as a condition of settlement of the borrower's debt. 
The Administrator may also consider the bids in evaluating alternative 
settlement measures.
    (f) Valuation of system. (1) The Administrator will consider the 
value of the borrower's system, including, in the case of a power supply 
borrower, the wholesale power contracts between the borrower and its 
member systems. The valuation of the wholesale power contracts shall 
take into account, among other matters, the rights of the government 
and/or third parties, to assume the rights and obligations of the 
borrower under such contracts, to charge reasonable rates for service 
provided under the contracts, and to otherwise enforce the contracts in 
accordance with their terms. In no case will the Administrator settle a 
debt or claim for less than the value (after considering the 
government's collection costs) of the borrower's system and other 
collateral securing the debt or claim.
    (2) RUS may use such methods, analyses, and assessments as the 
Administrator deems appropriate to determine the value of the borrower's 
system.
    (g) Rates. The Administrator will consider the rates charged for 
electric service by the borrower and, in the case of a power supply 
borrower, by its members, taking into account, among other factors, the 
practices of the Federal Energy Regulatory Commission (FERC), as adapted 
to the cooperative structure of borrowers, and, where applicable, FERC 
treatment of any investments by co-owners in projects jointly owned by 
the borrower.
    (h) Collection action. The Administrator will consider whether a 
settlement is favorable to the government in comparison with the amount 
that can be recovered by enforced collection procedures.
    (i) Regulatory approvals. Before the Administrator will approve a 
settlement, the borrower must provide satisfactory evidence that it has 
obtained all approvals required of regulatory bodies that the 
Administrator determines are needed to implement rates or other 
provisions of the settlement, or that are needed in any other way for 
the borrower to fulfill its obligations under the settlement.
    (j) Conditions regarding management and operations. As a condition 
of debt settlement, the borrower, and in the case of a power supply 
borrower, its members, will be required to implement those changes in 
structure, management, operations, and performance deemed necessary by 
the Administrator. Those changes may include, but are not limited to, 
the following:

[[Page 171]]

    (1) The borrower may be required to undertake a corporate 
restructuring and/or sell a portion of its plant, facilities, or other 
assets
    (2) The borrower may be required to replace senior management and/or 
hire outside experts acceptable to the Administrator. Such changes may 
include a commitment by the borrower's board of directors to restructure 
and/or obtain new membership to improve board oversight and leadership;
    (3) The borrower may be required to agree to:
    (i) Controls by RUS on the general funds of the borrower, as well as 
on any investments, loans or guarantees by the borrower, notwithstanding 
any limitations on RUS' control rights in the borrower's loan documents 
or RUS regulations; and
    (ii) Requirements deemed necessary by RUS to perfect and protect its 
lien on cash deposits, securities, equipment, vehicles, and other items 
of real or non-real property; and
    (4) In the case of a power supply borrower, the borrower may be 
required to obtain credit support from its member systems, as well as 
pledges and action plans by the members to change their operations, 
management, and organizational structure (e.g., shared services, 
mergers, or consolidations) in order to reduce operating costs, improve 
efficiency, and/or expand markets and revenues.
    (k) Conveyance of assets. As a condition of a settlement, a borrower 
may be required to convey some or all its assets to the government.
    (l) Additional conditions. The borrower will be required to warrant 
and agree that no bonuses or similar extraordinary compensation has been 
or will be provided, for reasons related to the settlement of government 
debt, to any officer or employee of the borrower or to other persons or 
entities identified by RUS. The Administrator may impose such other 
terms and conditions of debt settlement as the Administrator determines 
to be in the government's interests.
    (m) Certification of accuracy. Before the Administrator will approve 
a debt settlement, the manager or other appropriate official of the 
borrower must certify that all information provided to the government by 
the borrower or by any agent of the borrower, in connection with the 
debt settlement, is true, correct, and complete in all material 
respects.



Sec. 1717.1205  Waiver of existing conditions on borrowers.

    Pursuant to section 331(b) of the Con Act, the Administrator, at his 
or her sole discretion, may waive or otherwise reduce conditions and 
requirements imposed on a borrower by its loan documents if the 
Administrator determines that such action will contribute to enhancement 
of the government's recovery of debt. Such waivers or reductions in 
conditions and requirements under this section shall not include the 
exercise of any of the debt settlement measures set forth in Sec. 
1717.1204(c), which are subject to all of the requirements of said Sec. 
1717.1204.



Sec. 1717.1206  Loans subsequent to settlement.

    In considering any future loan requests from a borrower whose debt 
has been settled in whole or in part (including the surviving entity of 
merged or consolidated borrowers, where at least one of said borrowers 
had its debts settled), it will be presumed that credit support for the 
full amount of the requested loan will be required. Such support may be 
in a number of forms, provided that they are acceptable to the 
Administrator on a case by case basis. They may include, but need not be 
limited to, equity infusions and guarantees of debt repayment, either 
from the applicant's members (in the case of a power supply borrower), 
or from a third party.



Sec. 1717.1207  RUS obligations under loan guarantees.

    Nothing in this subpart affects the obligations of RUS under loan 
guarantee commitments it has made to the Federal Financing Bank or other 
lenders.



Sec. 1717.1208  Government's rights under loan documents.

    Nothing in this subpart limits, modifies, or otherwise affects the 
rights of the government under loan documents

[[Page 172]]

executed with borrowers, or under law or equity.



PART 1718_LOAN SECURITY DOCUMENTS FOR ELECTRIC BORROWERS--Table of Contents



                            Subpart A_General

Sec.
1718.1-1718.49 [Reserved]

              Subpart B_Mortgage for Distribution Borrowers

1718.50 Definitions.
1718.51 Policy.
1718.52 Existing mortgages.
1718.53 Rights of other mortgagees.
1718.54 Availability of model mortgage.

Appendix A to Subpart B--Model Form of Mortgage for Electric 
          Distribution Borrowers

          Subpart C_Loan Contracts With Distribution Borrowers

1718.100 General.
1718.101 Applicability.
1718.102 Definitions.
1718.103 Loan contract provisions.
1718.104 Availability of model loan contract.

Appendix A to Subpart C--Model Form of Loan Contract for Electric 
          Distribution Borrowers

    Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.



                            Subpart A_General



Sec. Sec. 1718.1-1718.49  [Reserved]



              Subpart B_Mortgage for Distribution Borrowers

    Source: 60 FR 36888, July 18, 1995, unless otherwise noted.



Sec. 1718.50  Definitions.

    Unless otherwise indicated, terms used in this subpart are defined 
as set forth in 7 CFR 1710.2.



Sec. 1718.51  Policy.

    (a) Adequate loan security must be provided for loans made or 
guaranteed by RUS. The loans are required to be secured by a first 
mortgage lien on most of the borrower's assets substantially in the form 
set forth in appendix A of this subpart. At the discretion of RUS, this 
model form of mortgage may be adapted to satisfy different legal 
requirements among the states and individual differences in lending 
circumstances, provided that such adaptations are consistent with the 
policies set forth in this subpart.
    (b) Some borrowers, such as certain public power districts, may not 
be able to provide security in the form of a first mortgage lien on 
their assets. In these cases RUS will consider accepting other forms of 
security, such as resolutions and pledges of revenues.
    (c) RUS may require supplemental and amending mortgages to protect 
its security, or in connection with additional loans.
    (d) RUS may also require such other security instruments (such as 
loan contracts, security agreements, financing statements, guarantees, 
and pledges) as it deems appropriate.
    (e) All distribution borrowers that receive a loan or loan guarantee 
from RUS on or after August 17, 1995 will be required to enter into a 
mortgage with RUS that meets the requirements of this subpart. The 
concurrence of any other lenders secured under the borrower's existing 
mortgage may be required before the borrower can enter into a new 
mortgage.



Sec. 1718.52  Existing mortgages.

    Nothing contained in this subpart amends, invalidates, terminates or 
rescinds any existing mortgage entered into between the borrower and RUS 
and any other mortgagees.



Sec. 1718.53  Rights of other mortgagees.

    Nothing contained in this subpart is intended to alter or affect any 
other mortgagee's rights under an existing mortgage.



Sec. 1718.54  Availability of model mortgage.

    Single copies of the model mortgage (RUS Informational Publication 
1718 B) are available from the Administrative Services Division, Rural 
Utilities Service, United States Department of Agriculture, Washington, 
DC 20250-1500. This document may be reproduced.

[[Page 173]]



 Sec. Appendix A to Subpart B of Part 1718--Model Form of Mortgage for 

                     Electric Distribution Borrowers

      RESTATED MORTGAGE AND SECURITY AGREEMENT Made By And Between

________________________________________________________________________
Mortgagor

                    and UNITED STATES OF AMERICA and

________________________________________________________________________
MORTGAGEE

Dated as of_____________________________________________________________

  THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A TRANSMITTING UTILITY

           THIS INSTRUMENT CONTAINS FUTURE ADVANCE PROVISIONS

       THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS

                            TABLE OF CONTENTS

                            GRANTING CLAUSES

FIRST
SECOND
THIRD
FOURTH
EXCEPTED PROPERTY

                                HABENDUM

    ARTICLE I--DEFINITIONS & OTHER PROVISIONS OF GENERAL APPLICATION

SECTION 1.01 Definitions
SECTION 1.02 General Rules of Construction
SECTION 1.03 Special Rules of Construction if RUS is a Mortgagee
SECTION 1.04 Governing Law
SECTION 1.05 Notices

                      ARTICLE II--ADDITIONAL NOTES

SECTION 2.01 Additional Notes
SECTION 2.02 Refunding or Refinancing Notes
SECTION 2.03 Other Additional Notes
SECTION 2.04 Additional Lenders Entitled to the Benefits of This 
          Mortgage
SECTION 2.05 Form of Supplemental Mortgage

           ARTICLE III--PARTICULAR COVENANTS OF THE MORTGAGOR

SECTION 3.01 Payment of Debt Service on Notes
SECTION 3.02 Warranty of Title
SECTION 3.03 After-Acquired Property; Further Assurances: Recording
SECTION 3.04 Environmental Requirements and Indemnity
SECTION 3.05 Payment of Taxes
SECTION 3.06 Authority to Execute and Deliver Notes, Loan Agreements and 
          Mortgage; All Action Taken; Enforceable Obligations
SECTION 3.07 Restrictions on Further Encumbrances on Property
SECTION 3.08 Restrictions on Additional Permitted Debt
SECTION 3.09 Preservation of Corporate Existence and Franchises
SECTION 3.10 Limitations on Consolidations and Mergers
SECTION 3.11 Limitations on Transfers of Property
SECTION 3.12 Maintenance of Mortgaged Property
SECTION 3.13 Insurance; Restoration of Damaged Mortgaged Property
SECTION 3.14 Mortgagee Right to Expend Money to Protect Mortgaged 
          Property
SECTION 3.15 Time Extensions for Payment of Notes
SECTION 3.16 Application of Proceeds from Condemnation
SECTION 3.17 Compliance with Loan Agreements; Notice of Amendments to 
          and Defaults under Loan Agreements
SECTION 3.18 Rights of Way, etc., Necessary in Business
SECTION 3.19 Limitations on Providing Free Electric Services
SECTION 3.20 Keeping Books; Inspection by Mortgagee

               ARTICLE IV--EVENTS OF DEFAULT AND REMEDIES

SECTION 4.01 Events of Default
SECTION 4.02 Acceleration of Maturity; Rescission and Annulment
SECTION 4.03 Remedies of Mortgagees
SECTION 4.04 Application of Proceeds from Remedial Actions
SECTION 4.05 Remedies Cumulative; No Election
SECTION 4.06 Waiver of Appraisement Rights, Marshaling of Assets Not 
          Required
SECTION 4.07 Notice of Default

         ARTICLE V--POSSESSION UNTIL DEFAULT--DEFEASANCE CLAUSE

SECTION 5.01 Possession Until Default
SECTION 5.02 Defeasance
SECTION 5.03 Special Defeasance

                        ARTICLE VI--MISCELLANEOUS

SECTION 6.01 Property Deemed Real Property
SECTION 6.02 Mortgage to Bind and Benefit Successors and Assigns
SECTION 6.03 Headings
SECTION 6.04 Severability Clause
SECTION 6.05 Mortgage Deemed Security Agreement
SECTION 6.06 Indemnification by Mortgagor of Mortgagees

[[Page 174]]

Schedule A
Schedule B
Schedule C
Exhibit A--Manager's Certificate
Exhibit B--Form of Supplemental Mortgage
Supplemental Mortgage Schedule A--Maximum Debt Limit and Other 
          Information
Supplemental Mortgage Schedule B--Property Schedule
Supplemental Mortgage Schedule C--Excepted Property

    RESTATED MORTGAGE AND SECURITY AGREEMENT, dated as of -------------- 
19----, hereinafter sometimes called this ``Mortgage'') is made by and 
between
________________________________________________________________________
(hereinafter called the ``Mortgagor''), a corporation existing under the 
laws of the State of --------------------, and the UNITED STATES OF 
AMERICA acting by and through the Administrator of the Rural Utilities 
Service (hereinafter called the ``Government''), ---------------- { 
Supplemental Lender{time} , (hereinafter called ``----------------'') a 
---------------- existing under the laws of ----------------, and is 
intended to confer rights and benefits on both the Government and ------
------------ as well as any and all other lenders pursuant to Article II 
of this Mortgage that enter into a supplemental mortgage in accordance 
with Section [2.04] of Article II hereof (the Government and any such 
other lenders being herein sometimes collectively referred to as the 
``Mortgagees'').

                                RECITALS

    WHEREAS, the Mortgagor, the Government and ---------------- are 
parties to that certain ---------------- Mortgage and Security Agreement 
dated as of ------------------, 19----, as supplemented, amended or 
restated (the ``Original Mortgage'' identified in Schedule ``A'' of this 
Mortgage) originally entered into between the Mortgagor, the Government 
acting by and through the Administrator of the Rural Electrification 
Administration, the predecessor of RUS, and ----------------;
    WHEREAS, the Mortgagor deems it necessary to borrow money for its 
corporate purposes and to issue its promissory notes and other debt 
obligations therefor from time to time in one or more series, and to 
mortgage and pledge its property hereinafter described or mentioned to 
secure the payment of the same;
    WHEREAS, the Mortgagor desires to enter into this Mortgage pursuant 
to which all secured debt of the Mortgagor hereunder shall be secured on 
parity;
    WHEREAS, this Mortgage restates and consolidates the Original 
Mortgage while preserving the priority of the Lien under the Original 
Mortgage securing the payment of Mortgagor's outstanding obligations 
secured under the Original Mortgage, which indebtedness is described 
more particularly by listing the Original Notes in Schedule ``A'' 
hereto; and
    WHEREAS, all acts necessary to make this Mortgage a valid and 
binding legal instrument for the security of such notes and obligations, 
subject to the terms of this Mortgage, have been in all respects duly 
authorized;
    NOW, THEREFORE, THIS MORTGAGE WITNESSETH: That to secure the payment 
of the principal of (and premium, if any) and interest on the Original 
Notes and all Notes issued hereunder according to their tenor and 
effect, and the performance of all provisions therein and herein 
contained, and in consideration of the covenants herein contained and 
the purchase or guarantee of Notes by the guarantors or holders thereof, 
the Mortgagor has mortgaged, pledged and granted a continuing security 
interest in, and by these presents does hereby grant, bargain, sell, 
alienate, remise, release, convey, assign, transfer, hypothecate, 
pledge, set over and confirm, pledge, and grant a continuing security 
interest and lien in for the purposes hereinafter expressed [other 
language may be required under various state laws], unto the Mortgagees 
all property, rights, privileges and franchises of the Mortgagor of 
every kind and description, real, personal or mixed, tangible and 
intangible, of the kind or nature specifically mentioned herein OR ANY 
OTHER KIND OR NATURE, except any Excepted Property, now owned or 
hereafter acquired by the Mortgagor (by purchase, consolidation, merger, 
donation, construction, erection or in any other way) wherever located, 
including (without limitation) all and singular the following:

                          GRANTING CLAUSE FIRST

    A. all of those fee and leasehold interests in real property set 
forth in Schedule ``B'' hereto, subject in each case to those matters 
set forth in such Schedule;
    B. all of the Mortgagor's interest in fixtures, easements, permits, 
licenses and rights-of-way comprising real property, and all other 
interests in real property, comprising any portion of the Utility System 
(as herein defined) located in the Counties listed in Schedule ``B'' 
hereto;
    C. all right, title and interest of the Mortgagor in and to those 
contracts of the Mortgagor (i) relating to the ownership, operation or 
maintenance of any generation, transmission or distribution facility 
owned, whether solely or jointly, by the Mortgagor, (ii) for the 
purchase of electric power and energy by the Mortgagor and having an 
original term in excess of 3 years, (iii) for the sale of electric power 
and energy by the Mortgagor and having an original term in excess of 3 
years, and (iv) for the transmission of electric power and energy by or 
on behalf of

[[Page 175]]

the Mortgagor and having an original term in excess of 3 years, 
including in respect of any of the foregoing, any amendments, 
supplements and replacements thereto;
    D. all the property, rights, privileges, allowances and franchises 
particularly described in the annexed Schedule ``B'' are hereby made a 
part of, and deemed to be described in, this Granting Clause as fully as 
if set forth in this Granting Clause at length; and
    ALSO ALL OTHER PROPERTY, real estate, lands, easements, servitudes, 
licenses, permits, allowances, consents, franchises, privileges, rights 
of way and other rights in or relating to real estate or the occupancy 
of the same; all power sites, storage rights, water rights, water 
locations, water appropriations, ditches, flumes, reservoirs, reservoir 
sites, canals, raceways, waterways, dams, dam sites, aqueducts, and all 
other rights or means for appropriating, conveying, storing and 
supplying water; all rights of way and roads; all plants for the 
generation of electric and other forms of energy (whether now known or 
hereafter developed) by steam, water, sunlight, chemical processes and/
or (without limitation) all other sources of power (whether now known or 
hereafter developed); all power houses, gas plants, street lighting 
systems, standards and other equipment incidental thereto; all 
telephone, radio, television and other communications, image and data 
transmission systems, air conditioning systems and equipment incidental 
thereto, water wheels, waterworks, water systems, steam and hot water 
plants, substations, lines, service and supply systems, bridges, 
culverts, tracks, ice or refrigeration plants and equipment, offices, 
buildings and other structures and the equipment thereto all machinery, 
engines, boilers, dynamos, turbines, electric, gas and other machines, 
prime movers, regulators, meters, transformers, generators (including, 
but not limited to, engine-driven generators and turbogenerator units), 
motors, electrical, gas and mechanical appliances, conduits, cables, 
water, steam, gas or other pipes, gas mains and pipes, service pipes, 
fittings, valves and connections, pole and transmission lines, towers, 
overhead conductors and devices, underground conduits, underground 
conductors and devices, wires, cables, tools, implements, apparatus, 
storage battery equipment, and all other fixtures and personalty; all 
municipal and other franchises, consents, certificates or permits; all 
emissions allowances; all lines for the transmission and distribution of 
electric current and other forms of energy, gas, steam, water or 
communications, images and data for any purpose including towers, poles, 
wires, cables, pipes, conduits, ducts and all apparatus for use in 
connection therewith, and (except as hereinbefore or hereinafter 
expressly excepted) all the right, title and interest of the Mortgagor 
in and to all other property of any kind or nature appertaining to and/
or used and/or occupied and/or employed in connection with any property 
hereinbefore described, but in all circumstances excluding Excepted 
Property;

                         GRANTING CLAUSE SECOND

    All other property, real, personal or mixed, of whatever kind and 
description and wheresoever situated, including without limitation 
goods, accounts, money held in a trust account pursuant hereto or to a 
Loan Agreement, and general intangibles now owned or which may be 
hereafter acquired by the Mortgagor, but excluding Excepted Property, 
now owned or which may be hereafter acquired by the Mortgagor, it being 
the intention hereof that all property, rights, privileges, allowances 
and franchisees now owned by the Mortgagor or acquired by the Mortgagor 
after the date hereof (other than Excepted Property) shall be as fully 
embraced within and subjected to the lien hereof as if such property 
were specifically described herein.

                          GRANTING CLAUSE THIRD

    Also any Excepted Property that may, from time to time hereafter, by 
delivery or by writing of any kind, be subjected to the lien hereof by 
the Mortgagor or by anyone in its behalf; and any Mortgagee is hereby 
authorized to receive the same at any time as additional security 
hereunder for the benefit of all the Mortgagees. Such subjection to the 
lien hereof of any Excepted Property as additional security may be made 
subject to any reservations, limitations or conditions which shall be 
set forth in a written instrument executed by the Mortgagor or the 
person so acting in its behalf or by such Mortgagee respecting the use 
and disposition of such property or the proceeds thereof.

                         GRANTING CLAUSE FOURTH

    Together with (subject to the rights of the Mortgagor set forth on 
Section [5.01]) all and singular the tenements, hereditaments and 
appurtenances belonging or in anywise appertaining to the aforesaid 
property or any part thereof, with the reversion and reversions, 
remainder and remainders and all the tolls, earnings, rents, issues, 
profits, revenues and other income, products and proceeds of the 
property subjected or required to be subjected to the lien of this 
Mortgage, and all other property of any nature appertaining to any of 
the plants, systems, business or operations of the Mortgagor, whether or 
not affixed to the realty, used in the operation of any of the premises 
or plants or the System, or otherwise, which are now owned or acquired 
by the Mortgagor, and all the estate, right, title and interest of every 
nature whatsoever, at law as well as in equity, of

[[Page 176]]

the Mortgagor in and to the same and every part thereof (other than 
Excepted Property with respect to any of the foregoing).

                            EXCEPTED PROPERTY

    There is, however, expressly excepted and excluded from the lien and 
operation of this Mortgage the following described property of the 
Mortgagor, now owned or hereafter acquired (herein sometimes referred to 
as ``Excepted Property''):
    A. all shares of stock, securities or other interests of the 
Mortgagor in the National Rural Utilities Cooperative Finance 
Corporation, the National Bank for Cooperatives and the St. Paul Bank 
for Cooperatives other than any stock, securities or other interests 
that are specifically described in Subclause D of Granting Clause First 
as being subjected to the lien hereof;
    B. all rolling stock (except mobile substations), automobiles, 
buses, trucks, truck cranes, tractors, trailers and similar vehicles and 
movable equipment, and all tools, accessories and supplies used in 
connection with any of the foregoing;
    C. all vessels, boats, ships, barges and other marine equipment, all 
airplanes, airplane engines and other flight equipment, and all tools, 
accessories and supplies used in connection with any of the foregoing;
    D. all office furniture, equipment and supplies that is not data 
processing, accounting or other computer equipment or software;
    E. all leasehold interests for office purposes;
    F. all leasehold interests of the Mortgagor under leases for an 
original term (including any period for which the Mortgagor shall have a 
right of renewal) of less than five (5) years;
    G. all timber and crops (both growing and harvested) and all coal, 
ore, gas, oil and other minerals (both in place or severed);
    H. the last day of the term of each leasehold estate (oral or 
written) and any agreement therefor, now or hereafter enjoyed by the 
Mortgagor and whether falling within a general or specific description 
of property herein: PROVIDED, HOWEVER, that the Mortgagor covenants and 
agrees that it will hold each such last day in trust for the use and 
benefit of all of the Mortgagees and Noteholders and that it will 
dispose of each such last day from time to time in accordance with such 
written order as the Mortgagee in its discretion may give;
    I. all permits, licenses, franchises, contracts, agreements, 
contract rights and other rights not specifically subjected or required 
to be subjected to the lien hereof by the express provisions of this 
Mortgage, whether now owned or hereafter acquired by the Mortgagor, 
which by their terms or by reason of applicable law would become void or 
voidable if mortgaged or pledged hereunder by the Mortgagor, or which 
cannot be granted, conveyed, mortgaged, transferred or assigned by this 
Mortgage without the consent of other parties whose consent has been 
withheld, or without subjecting any Mortgagee to a liability not 
otherwise contemplated by the provisions of this Mortgage, or which 
otherwise may not be, hereby lawfully and effectively granted, conveyed, 
mortgaged, transferred and assigned by the Mortgagor; and
    J. the property identified in Schedule ``C'' hereto.
    PROVIDED, HOWEVER, that (i) if, upon the occurrence of an Event of 
Default, any Mortgagee, or any receiver appointed pursuant to statutory 
provision or order of court, shall have entered into possession of all 
or substantially all of the Mortgaged Property, all the Excepted 
Property described or referred to in the foregoing Subdivisions A 
through H, inclusive, then owned or thereafter acquired by the Mortgagor 
shall immediately, and, in the case of any Excepted Property described 
or referred to in Subdivisions I through J, inclusive, upon demand of 
any Mortgagee or such receiver, become subject to the lien hereof to the 
extent permitted by law, and any Mortgagee or such receiver may, to the 
extent permitted by law, at the same time likewise take possession 
thereof, and (ii) whenever all Events of Default shall have been cured 
and the possession of all or substantially all of the Mortgaged Property 
shall have been restored to the Mortgagor, such Excepted Property shall 
again be excepted and excluded from the lien hereof to the extent and 
otherwise as hereinabove set forth.
    However, pursuant to Granting Clause Third, the Mortgagor may 
subject to the lien of this Mortgage any Excepted Property, whereupon 
the same shall cease to be Excepted Property.

                                HABENDUM

    TO HAVE AND TO HOLD all said property, rights, privileges and 
franchises of every kind and description, real, personal or mixed, 
hereby and hereafter (by supplemental mortgage or otherwise) granted, 
bargained, sold, aliened, remised, released, conveyed, assigned, 
transferred, mortgaged, encumbered, hypothecated, pledged, setover, 
confirmed, or subjected to a continuing security interest and lien as 
aforesaid, together with all the appurtenances thereto appertaining 
(said properties, rights, privileges and franchises, including any cash 
and securities hereafter deposited with any Mortgagee ((other than any 
such cash, if any, which is specifically stated herein not to be deemed 
part of the Mortgaged Property)), being herein collectively called the 
``Mortgaged Property'') unto the Mortgagees and the respective assigns 
of the Mortgagees forever, to secure equally and ratably the payment of 
the principal of (and premium, if

[[Page 177]]

any) and interest on the Notes, according to their terms, without 
preference, priority or distinction as to interest or principal (except 
as otherwise specifically provided herein) or as to lien or otherwise of 
any Note over any other Note by reason of the priority in time of the 
execution, delivery or maturity thereof or of the assignment or 
negotiation thereof, or otherwise, and to secure the due performance of 
all of the covenants, agreements and provisions herein and in the Loan 
Agreements contained, and for the uses and purposes and upon the terms, 
conditions, provisos and agreements hereinafter expressed and declared.
    SUBJECT, HOWEVER, to Permitted Encumbrances (as defined in Section 
1.01).

                                ARTICLE I

          DEFINITIONS & OTHER PROVISIONS OF GENERAL APPLICATION

    Section 1.01. Definitions. In addition to the terms defined 
elsewhere in this Mortgage, the terms defined in this Article I shall 
have the meanings specified herein and under the UCC, unless the context 
clearly requires otherwise. The terms defined herein include the plural 
as well as the singular and the singular as well as the plural.
    Accounting Requirements shall mean the requirements of any system of 
accounts prescribed by RUS so long as the Government is the holder, 
insurer or guarantor of any Notes, or, in the absence thereof, the 
requirements of generally accepted accounting principles applicable to 
businesses similar to that of the Mortgagor.
    Additional Notes shall mean any Notes issued by the Mortgagor to the 
Government or any other lender pursuant to Article II of this Mortgage 
including any refunding, renewal, or substitute Notes which may from 
time to time be executed and delivered by the Mortgagor pursuant to the 
terms of Article II.
    Board shall mean either the Board of Directors or the Board of 
Trustees, as the case may be, of the Mortgagor.
    Business Day shall mean any day that the Government is open for 
business.
    Debt Service Coverage Ratio (``DSC'') shall mean the ratio 
determined as follows: for each calendar year add (i) Patronage Capital 
or Margins of the Mortgagor, (ii) Interest Expense on Total Long Term 
Debt of the Mortgagor (as computed in accordance with the principles set 
forth in the definition of TIER) and (iii) Depreciation and Amortization 
Expense of the Mortgagor, and divide the total so obtained by an amount 
equal to the sum of all payments of principal and interest required to 
be made on account of Total Long-Term Debt during such calendar year 
increasing said sum by any addition to interest expense on account of 
Restricted Rentals as computed with respect to the Times Interest Earned 
Ratio herein.
    Depreciation and Amortization Expense shall mean an amount 
constituting the depreciation and amortization of the Mortgagor as 
computed pursuant to Accounting Requirements.
    Electric System shall mean, and shall be broadly construed to 
encompass and include, all of the Mortgagor'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 of any kind 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 Mortgagor's generating plants, now 
existing or hereafter acquired by lease, contract, purchase or otherwise 
or constructed by the Mortgagor, including any interest or participation 
of the Mortgagor in any such facilities or any rights to the output or 
capacity thereof, together with all additions, betterments, extensions 
and improvements to such Electric System or any part thereof hereafter 
made and together with all lands, easements and rights-of-way of the 
Mortgagor and all other works, property or structures of the Mortgagor 
and contract rights and other tangible and intangible assets of the 
Mortgagor used or useful in connection with or related to such Electric 
System, including without limitation a contract right or other 
contractual arrangement referred to in Granting Clause First, Subclause 
[(C)] but excluding any excepted property.
    Environmental Law and Environmental Laws shall mean all federal, 
state, and local laws, regulations, and requirements related to 
protection of human health or the environment, including but not limited 
to the Comprehensive Environmental Response, Compensation and Liability 
Act of 1980 (42 U.S.C. 9601 et seq.), the Resource Conservation and 
Recovery Act (42 U.S.C. 6901 et seq.), the Clean Water Act (33 U.S.C. 
1251 et seq.) and the Clean Air Act (42 U.S.C. 7401 et seq.), and any 
amendments and implementing regulations of such acts.
    Equity shall mean the total margins and equities and margins 
computed pursuant to Accounting Requirements, but excluding any 
Regulatory Created Assets.
    Event of Default shall have the meaning specified in Section [4.01] 
hereof.
    Excepted Property shall have the meaning stated in the Granting 
Clauses.
    Government shall mean the United States of America acting by and 
through the Administrator of RUS and shall include its successors and 
assigns.

[[Page 178]]

    Government Notes shall mean the Original Notes, and any Additional 
Notes, issued by the Mortgagor to the Government, or guaranteed or 
insured as to payment by the Government.
    Independent shall mean when used with respect to any specified 
person or entity means such a person or entity who (1) is in fact 
independent, (2) does not have any direct financial interest or any 
material indirect financial interest in the Mortgagor or in any 
affiliate of the Mortgagor and (3) is not connected with the Mortgagor 
as an officer, employee, promoter, underwriter, trustee, partner, 
director or person performing similar functions.
    Interest Expense shall mean an amount constituting the interest 
expense of the Mortgagor as computed pursuant to Accounting 
Requirements.
    Lien shall mean any statutory or common law consensual or non-
consensual mortgage, pledge, security interest, encumbrance, lien, right 
of set off, claim or charge of any kind, including, without limitation, 
any conditional sale or other title retention transaction, any lease 
transaction in the nature thereof and any secured transaction under the 
UCC.
    Loan Agreement shall mean any agreement executed by and between the 
Mortgagor and the Government or any other lender in connection with the 
execution and delivery of any Notes secured hereby.
    Long-Term Debt shall mean any amount included in Total Long-Term 
Debt pursuant to Accounting Requirements.
    Long-Term Lease shall mean a lease having an unexpired term (taking 
into account terms of renewal at the option of the lessor, whether or 
not such lease has previously been renewed) of more than 12 months.
    Margins shall mean the sum of amounts recorded as operating margins 
and non-operating margins as computed in accordance with Accounting 
Requirements.
    Maximum Debt Limit, if any, shall mean the amount more particularly 
described in Schedule ``A'' hereof.
    Mortgage shall mean this Restated Mortgage and Security Agreement, 
including any amendments or supplements thereto from time to time.
    Mortgaged Property shall have the meaning specified as stated in the 
Habendum to the Granting Clauses.
    MORTGAGEE or MORTGAGEES shall mean the Government, ---------- {the 
supplemental lender{time} , ---------- their successors and assigns as 
well as any and all other lenders pursuant to Article II of this 
Mortgage that enter into a supplemental mortgage in accordance with 
Section [2.04] of Article II hereof, their successors and assigns.
    Net Utility Plant shall mean the amount constituting the total 
utility plant of the Mortgagor less depreciation computed in accordance 
with Accounting Requirements.
    Note or Notes shall mean one or more of the Government Notes, and 
any other Notes which may, from time to time, be secured under this 
Mortgage.
    Noteholder or Noteholders shall mean one or more of the holders of 
Notes secured by this Mortgage; PROVIDED, however, that in the case of 
any Notes that have been guaranteed or insured as to payment by RUS, as 
to such Notes Noteholder or Noteholders shall mean RUS, exclusively, 
regardless of whether such notes are in the possession of RUS.
    Original Mortgage means the instrument(s) identified as such in 
Schedule ``A'' hereof.
    Original Notes shall mean the Notes listed on Schedule ``A'' hereto 
as such, such Notes being instruments evidencing outstanding 
indebtedness of the Mortgagor (i) to the Government (including 
indebtedness which has been issued by the Mortgagor to a third party and 
guaranteed or insured as to payment by the Government) and (ii) to each 
other Mortgagee on the date of this Mortgage.
    Outstanding Notes shall mean as of the date of determination, (i) 
all Notes theretofore issued, executed and delivered to any Mortgagee 
and (ii) any Notes guaranteed or insured as to payment by the 
Government, except (a) Notes referred to in clause (i) or (ii) for which 
the principal and interest have been fully paid and which have been 
canceled by the Noteholder, and (b) Notes the payment for which has been 
provided for pursuant to Section [5.03].
    Permitted Debt shall have the meaning specified in Section [3.08].
    Permitted Encumbrances shall mean:
    (1) as to the property specifically described in Granting Clause 
First, the restrictions, exceptions, reservations, conditions, 
limitations, interests and other matters which are set forth or referred 
to in such descriptions and each of which fits one or more of the 
clauses of this definition, PROVIDED, such matters do not in the 
aggregate materially detract from the value of the Mortgaged Property 
taken as a whole and do not materially impair the use of such property 
for the purposes for which it is held by the Mortgagor;
    (2) liens for taxes, assessments and other governmental charges 
which are not delinquent;
    (3) liens for taxes, assessments and other governmental charges 
already delinquent which are currently being contested in good faith by 
appropriate proceedings; PROVIDED the Mortgagor shall have set aside on 
its books adequate reserves with respect thereto;
    (4) mechanics', workmen's, repairmen's, materialmen's, 
warehousemen's and carriers' liens and other similar liens arising in 
the ordinary course of business for charges

[[Page 179]]

which are not delinquent, or which are being contested in good faith and 
have not proceeded to judgment; PROVIDED the Mortgagor shall have set 
aside on its books adequate reserves with respect thereto;
    (5) liens in respect of judgments or awards with respect to which 
the Mortgagor shall in good faith currently be prosecuting an appeal or 
proceedings for review and with respect to which the Mortgagor shall 
have secured a stay of execution pending such appeal or proceedings for 
review; PROVIDED the Mortgagor shall have set aside on its books 
adequate reserves with respect thereto;
    (6) easements and similar rights granted by the Mortgagor over or in 
respect of any Mortgaged Property, PROVIDED that in the opinion of the 
Board or a duly authorized officer of the Mortgagor such grant will not 
impair the usefulness of such property in the conduct of the Mortgagor's 
business and will not be prejudicial to the interests of the Mortgagees, 
and similar rights granted by any predecessor in title of the Mortgagor;
    (7) easements, leases, reservations or other rights of others in any 
property of the Mortgagor for streets, roads, bridges, pipes, pipe 
lines, railroads, electric transmission and distribution lines, 
telegraph and telephone lines, the removal of oil, gas, coal or other 
minerals and other similar purposes, flood rights, river control and 
development rights, sewage and drainage rights, restrictions against 
pollution and zoning laws and minor defects and irregularities in the 
record evidence of title, PROVIDED that such easements, leases, 
reservations, rights, restrictions, laws, defects and irregularities do 
not materially affect the marketability of title to such property and do 
not in the aggregate materially impair the use of the Mortgaged Property 
taken as a whole for the purposes for which it is held by the Mortgagor;
    (8) liens upon lands over which easements or rights of way are 
acquired by the Mortgagor for any of the purposes specified in Clause 
[(7)] of this definition, securing indebtedness neither created, assumed 
nor guaranteed by the Mortgagor nor on account of which it customarily 
pays interest, which liens do not materially impair the use of such 
easements or rights of way for the purposes for which they are held by 
the Mortgagor;
    (9) leases existing at the date of this instrument affecting 
property owned by the Mortgagor at said date which have been previously 
disclosed to the Mortgagees in writing and leases for a term of not more 
than two years (including any extensions or renewals) affecting property 
acquired by the Mortgagor after said date;
    (10) terminable or short term leases or permits for occupancy, which 
leases or permits expressly grant to the Mortgagor the right to 
terminate them at any time on not more than six months' notice and which 
occupancy does not interfere with the operation of the business of the 
Mortgagor;
    (11) any lien or privilege vested in any lessor, licensor or 
permittor for rent to become due or for other obligations or acts to be 
performed, the payment of which rent or performance of which other 
obligations or acts is required under leases, subleases, licenses or 
permits, so long as the payment of such rent or the performance of such 
other obligations or acts is not delinquent;
    (12) liens or privileges of any employees of the Mortgagor for 
salary or wages earned but not yet payable;
    (13) the burdens of any law or governmental regulation or permit 
requiring the Mortgagor to maintain certain facilities or perform 
certain acts as a condition of its occupancy of or interference with any 
public lands or any river or stream or navigable waters;
    (14) any irregularities in or deficiencies of title to any rights-
of-way for pipe lines, telephone lines, telegraph lines, power lines or 
appurtenances thereto, or other improvements thereon, and to any real 
estate used or to be used primarily for right-of-way purposes, PROVIDED 
that in the opinion of counsel for the Mortgagor, the Mortgagor shall 
have obtained from the apparent owner of the lands or estates therein 
covered by any such right-of-way a sufficient right, by the terms of the 
instrument granting such right-of-way, to the use thereof for the 
construction, operation or maintenance of the lines, appurtenances or 
improvements for which the same are used or are to be used, or PROVIDED 
that in the opinion of counsel for the Mortgagor, the Mortgagor has 
power under eminent domain, or similar statutes, to remove such 
irregularities or deficiencies;
    (15) rights reserved to, or vested in, any municipality or 
governmental or other public authority to control or regulate any 
property of the Mortgagor, or to use such property in any manner, which 
rights do not materially impair the use of such property, for the 
purposes for which it is held by the Mortgagor;
    (16) any obligations or duties, affecting the property of the 
Mortgagor, to any municipality or governmental or other public authority 
with respect to any franchise, grant, license or permit;
    (17) any right which any municipal or governmental authority may 
have by virtue of any franchise, license, contract or statute to 
purchase, or designate a purchaser of or order the sale of, any property 
of the Mortgagor upon payment of cash or reasonable compensation 
therefor or to terminate any franchise, license or other rights or to 
regulate the property and business of the Mortgagor; PROVIDED, HOWEVER, 
that nothing in this clause 17 is intended to waive any

[[Page 180]]

claim or rights that the Government may otherwise have under Federal 
laws;
    (18) as to properties of other operating electric companies acquired 
after the date of this Mortgage by the Mortgagor as permitted by Section 
[3.10] hereof, reservations and other matters as to which such 
properties may be subject as more fully set forth in such Section;
    (19) any lien required by law or governmental regulations as a 
condition to the transaction of any business or the exercise of any 
privilege or license, or to enable the Mortgagor to maintain self-
insurance or to participate in any fund established to cover any 
insurance risks or in connection with workmen's compensation, 
unemployment insurance, old age pensions or other social security, or to 
share in the privileges or benefits required for companies participating 
in such arrangements; PROVIDED, HOWEVER, that nothing in this clause 19 
is intended to waive any claim or rights that the Government may 
otherwise have under Federal laws;
    (20) liens arising out of any defeased mortgage or indenture of the 
Mortgagor;
    (21) the undivided interest of other owners, and liens on such 
undivided interests, in property owned jointly with the Mortgagor as 
well as the rights of such owners to such property pursuant to the 
ownership contracts;
    (22) any lien or privilege vested in any lessor, licensor or 
permittor for rent to become due or for other obligations or acts to be 
performed, the payment of which rent or the performance of which other 
obligations or acts is required under leases, subleases, licenses or 
permits, so long as the payment of such rent or the performance of such 
other obligations or acts is not delinquent;
    (23) purchase money mortgages permitted by Section [3.08]; and
    (24) the Original Mortgage.
    Property Additions shall mean Utility System property as to which 
the Mortgagor shall provide Title Evidence and which shall be (or, if 
retired, shall have been) subject to the lien of this Mortgage, which 
shall be properly chargeable to the Mortgagor's utility plant accounts 
under Accounting Requirements (including property constructed or 
acquired to replace retired property credited to such accounts) and 
which shall be:
    (1) acquired (including acquisition by merger, consolidation, 
conveyance or transfer) or constructed by the Mortgagor after the date 
hereof, including property in the process of construction, insofar as 
not reflected on the books of the Mortgagor with respect to periods on 
or prior to the date hereof, and
    (2) used or useful in the utility business of the Mortgagor 
conducted with the properties described in the Granting Clauses of this 
Mortgage, even though separate from and not physically connected with 
such properties.
    ``Property Additions'' shall also include:
    (3) easements and rights-of-way that are useful for the conduct of 
the utility business of the Mortgagor, and
    (4) property located or constructed on, over or under public 
highways, rivers or other public property if the Mortgagor has the 
lawful right under permits, licenses or franchises granted by a 
governmental body having jurisdiction in the premises or by the law of 
the State in which such property is located to maintain and operate such 
property for an unlimited, indeterminate or indefinite period or for the 
period, if any, specified in such permit, license or franchise or law 
and to remove such property at the expiration of the period covered by 
such permit, license or franchise or law, or if the terms of such 
permit, license, franchise or law require any public authority having 
the right to take over such property to pay fair consideration therefor.
    ``Property Additions'' shall NOT include:
    (a) good will, going concern value, contracts, agreements, 
franchises, licenses or permits, whether acquired as such, separate and 
distinct from the property operated in connection therewith, or acquired 
as an incident thereto, or
    (b) any shares of stock or indebtedness or certificates or evidences 
of interest therein or other securities, or
    (c) any plant or system or other property in which the Mortgagor 
shall acquire only a leasehold interest, or any betterments, extensions, 
improvements or additions (other than movable physical personal property 
which the Mortgagor has the right to remove), of, upon or to any plant 
or system or other property in which the Mortgagor shall own only a 
leasehold interest unless (i) the term of the leasehold interest in the 
property to which such betterment, extension, improvement or addition 
relates shall extend for at least 75% of the useful life of such 
betterment, extension, improvement or addition and (ii) the lessor shall 
have agreed to give the Mortgagee reasonable notice and opportunity to 
cure any default by the Mortgagor under such lease and not to disturb 
any Mortgagee's possession of such leasehold estate in the event any 
Mortgagee succeeds to the Mortgagor's interest in such lease upon any 
Mortgagee's exercise of any remedies under this Mortgage so long as 
there is no default in the performance of the tenant's covenants 
contained therein, or
    (d) any property of the Mortgagor subject to the Permitted 
Encumbrance described in clause [(23)] of the definition thereof.
    Prudent Utility Practice shall mean any of the practices, methods 
and acts which, in the exercise of reasonable judgment, in light of the 
facts, including, but not limited to, the practices, methods and acts 
engaged in or

[[Page 181]]

approved by a significant portion of the electric utility industry prior 
thereto, known at the time the decision was made, would have been 
expected to accomplish the desired result consistent with cost-
effectiveness, reliability, safety and expedition. It is recognized that 
Prudent Utility Practice is not intended to be limited to optimum 
practice, method or act to the exclusion of all others, but rather is a 
spectrum of possible practices, methods or acts which could have been 
expected to accomplish the desired result at the lowest reasonable cost 
consistent with cost-effectiveness, reliability, safety and expedition.
    REA shall mean the Rural Electrification Administration of the 
United States Department of Agriculture, the predecessor of RUS.
    Regulatory Created Assets shall mean the sum of any amounts properly 
recordable as unrecovered plant and regulatory study costs or as other 
regulatory assets, pursuant to Accounting Requirements.
    Restricted Rentals shall mean all rentals required to be paid under 
finance leases and charged to income, exclusive of any amounts paid 
under any such lease (whether or not designated therein as rental or 
additional rental) for maintenance or repairs, insurance, taxes, 
assessments, water rates or similar charges. For the purpose of this 
definition the term ``finance lease'' shall mean any lease having a 
rental term (including the term for which such lease may be renewed or 
extended at the option of the lessee) in excess of 3 years and covering 
property having an initial cost in excess of $250,000 other than 
aircraft, ships, barges, automobiles, trucks, trailers, rolling stock 
and vehicles; office, garage and warehouse space; office equipment and 
computers.
    RUS shall mean the Rural Utilities Service, an agency of the United 
States Department of Agriculture, or if at any time after the execution 
of this Mortgage RUS is not existing and performing the duties of 
administering a program of rural electrification as currently assigned 
to it, then the entity performing such duties at such time.
    Security Interest shall mean any assignment, transfer, mortgage, 
hypothecation or pledge.
    Subordinated Indebtedness shall mean secured indebtedness of the 
Mortgagor, payment of which shall be subordinated to the prior payment 
of the Notes in accordance with the provisions of Section [3.08] hereof 
by subordination agreement in form and substance satisfactory to each 
Mortgagee which approval will not be unreasonably withheld.
    Supplemental Mortgage shall mean an instrument of the type described 
in Section [2.04].
    Times Interest Earned Ratio (``TIER'') shall mean the ratio 
determined as follows: for each calendar year: add (i) patronage capital 
or margins of the Mortgagor and (ii) Interest Expense on Total Long-Term 
Debt of the Mortgagor and divide the total so obtained by Interest 
Expense on Total Long-Term Debt of the Mortgagor, provided, however, 
that in computing Interest Expense on Total Long-Term Debt, there shall 
be added, to the extent not otherwise included, an amount equal to 33-1/
3% of the excess of Restricted Rentals paid by the Mortgagor over 2% of 
the Mortgagor's Equity.
    Title Evidence shall mean with respect to any real property:
    (1) an opinion of counsel to the effect that the Mortgagor has 
title, whether fairly deducible of record or based upon prescriptive 
rights (or, as to personal property, based on such evidence as counsel 
shall determine to be sufficient), as in the opinion of counsel is 
satisfactory for the use thereof in connection with the operations of 
the Mortgagor, and counsel in giving such opinion may disregard any 
irregularity or deficiency in the record evidence of title which, in the 
opinion of such counsel, can be cured by proceedings within the power of 
the Mortgagor or does not substantially impair the usefulness of such 
property for the purpose of the Mortgagor and may base such opinion upon 
counsel's own investigation or upon affidavits, certificates, abstracts 
of title, statements or investigations made by persons in whom such 
counsel has confidence or upon examination of a certificate or guaranty 
of title or policy of title insurance in which counsel has confidence; 
or
    (2) a mortgagee's policy of title insurance in the amount of the 
cost to the Mortgagor of the land included in Property Additions, as 
such cost is determined by the Mortgagor in accordance with the 
Accounting Requirements, issued in favor of the Mortgagees by an entity 
authorized to insure title in the states where the subject property is 
located, showing the Mortgagor as the owner of the subject property and 
insuring the lien of this Mortgage; and with respect to any personal 
property a certificate of the general manage or other duly authorized 
officer that the Mortgagor lawfully owns and is possessed of such 
property.
    Total Assets shall mean an amount constituting total assets of the 
Mortgagor as computed pursuant to Accounting Requirements, but excluding 
any Regulatory Created Assets.
    Total Long-Term Debt shall mean the total outstanding long-term debt 
of the Mortgagor as computed pursuant to Accounting Requirements.
    Total Utility Plant shall mean the total of all property properly 
recorded in the utility plant accounts of the Mortgagor, pursuant to 
Accounting Requirements.
    Uniform Commercial Code or UCC shall mean the UCC of the state 
referred to in Section [1.04], and if Mortgaged Property is located in a 
state other than that state, then as to

[[Page 182]]

such Mortgaged Property UCC refers to the UCC in effect in the state 
where such property is located.
    Utility System shall mean the Electric System and all of the 
Mortgagor's interest in community infrastructure located substantially 
within its electric service territory, namely water and waste systems, 
solid waste disposal facilities, telecommunications and other electronic 
communications systems, and natural gas distribution systems.
    SECTION 1.02. General Rules of Construction:
    a. Accounting terms not referred to above are used in this Mortgage 
in their ordinary sense and any computations relating to such terms 
shall be computed in accordance with the Accounting Requirements.
    b. Any reference to ``directors'' or ``board of directors'' shall be 
deemed to mean ``trustees'' or ``board of trustees,'' as the case may 
be.
    SECTION 1.03. Special Rules of Construction if RUS is a Mortgagee: 
During any period that RUS is a Mortgagee, the following additional 
provisions shall apply:
    a. In the case of any Notes that have been guaranteed or insured as 
to payment by RUS, as to such Notes RUS shall be considered to be the 
Noteholder, exclusively, regardless of whether such Notes are in the 
possession of RUS.
    b. In the case of any prior approval rights conferred upon RUS by 
Federal statutes, including (without limitation) Section 7 of the Rural 
Electrification Act of 1936, as amended, with respect to the sale or 
disposition of property, rights, or franchises of the Mortgagor, all 
such statutory rights are reserved except to the extent that they are 
expressly modified or waived in this Mortgage.
    SECTION 1.04. Governing Law: This Mortgage shall be construed in and 
governed by Federal law to the extent applicable, and otherwise by the 
laws of the State of --------.
    SECTION 1.05 Notices: All demands, notices, reports, approvals, 
designations, or directions required or permitted to be given hereunder 
shall be in writing and shall be deemed to be properly given if sent by 
registered or certified mail, postage prepaid, or delivered by hand, or 
sent by facsimile transmission, receipt confirmed, addressed to the 
proper party or parties at the following address:
    As to the Mortgagor:

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
    As to the Mortgagee:

    Rural Utilities Service,
    United States Department of Agriculture,
    Washington, DC 20250-1500

________________________________________________________________________
________________________________________________________________________
________________________________________________________________________

and as to any other person, firm, corporation or governmental body or 
agency having an interest herein by reason of being a Mortgagee, at the 
last address designated by such person, firm, corporation, governmental 
body or agency to the Mortgagor and the other Mortgagees. Any such party 
may from time to time designate to each other a new address to which 
demands, notices, reports, approvals, designations or directions may be 
addressed, and from and after any such designation the address 
designated shall be deemed to be the address of such party in lieu of 
the address given above.

                               ARTICLE II

                            ADDITIONAL NOTES

    SECTION 2.01. Additional Notes: (a) Without the prior consent of any 
Mortgagee or any Noteholder, the Mortgagor may issue Additional Notes to 
the Government or to another lender or lenders for the purpose of 
acquiring, procuring or constructing new or replacement Eligible 
Property Additions which Notes will thereupon be secured equally and 
ratably with the Notes if each of the following requirements are 
satisfied:
    (1) As evidenced by a certificate of an Independent certified public 
accountant sent to each Mortgagee on or before the first advance of 
proceeds from such Additional Notes:
    (i) The Mortgagor shall have achieved for each of the two calendar 
years immediately preceding the issuance of such Additional Notes, a 
TIER of not less than 1.25 and a DSC of not less than 1.25;
    (ii) After taking into account the effect of such Additional Notes 
on the Total Long Term Debt of the Mortgagor, the ratio of the 
Mortgagor's Net Utility Plant to its Total Long Term Debt shall be 
greater than or equal to 1.0 on a pro forma basis;
    (iii) After taking into account the effect of such Additional Notes 
on the Total Assets of such Mortgagor, the Mortgagor shall have Equity 
greater than or equal to 27 percent of Total Assets on a pro forma 
basis; and
    (iv) The sum of the aggregate principal amount of such Additional 
Notes (if any) that are not related to the Electric System if added to 
the aggregate outstanding principal amount of all the existing Notes (if 
any) that are not related to the Electric System will not exceed 30% of 
the Mortgagor's Equity on a pro forma basis.
    (2) No Event of Default has occurred and is continuing hereunder, or 
any event which with the giving of notice or lapse of time or both would 
become an Event of Default has occurred and is continuing.
    (3) The Eligible Property Additions being constructed, acquired, 
procured or replaced are part of the Mortgagor's Utility System.

[[Page 183]]

    (4) The Borrower's general manager or other duly authorized officer 
shall send to each of the Mortgagees a certificate in substantially the 
form attached hereto as [Exhibit A] on or before the date of the first 
advance of proceeds from such Additional Notes.
    (b) For purposes of this section:
    (1) ``Eligible Property Additions'' shall mean Property Additions 
acquired or whose construction was completed not more than 5 years prior 
to the issuance of the Additional Notes and Property Additions acquired 
or whose construction is started and/or completed not more than 4 years 
after issuance of the Additional Notes, but shall exclude any Property 
Additions financed by any other debt secured under the Mortgage at the 
time additional Notes are issued;
    (2) Notes are considered to be ``issued'' on, and the date of 
``issuance'' shall be, the date on which they are executed by the 
Mortgagor; and
    (3) For purposes of calculating the pro forma ratios in 
subparagraphs (a)(1)(ii) and (iii), the values for Total Long Term Debt 
and Total Assets before debt issuance and the values for Equity and Net 
Utility Plant shall be the most recently available end-of-month figures 
preceding the issuance of the Additional Notes, but in no case for a 
month ending more than 180 days preceding such issuance.
    SECTION 2.02. Refunding or Refinancing Notes: The Mortgagor shall 
also have the right without the consent of any Mortgagee or any 
Noteholder to issue Additional Notes for the purpose of refunding or 
refinancing any Notes so long as the total amount of outstanding 
indebtedness evidenced by such Additional Note or Notes is not greater 
than 105% of the then outstanding principal balance of the Note or Notes 
being refunded or refinanced. PROVIDED, HOWEVER, that the Mortgagor may 
not exercise its rights under this Section if an Event of Default has 
occurred and is continuing, or any event which with the giving of notice 
or lapse of time or both would become an Event of Default has occurred 
and is continuing. On or before the first advance of proceeds from Notes 
issued under this section, the Mortgagor shall notify each Mortgagee of 
the refunding or refinancing. Additional Notes issued pursuant to this 
Section [2.02] will thereupon be secured equally and ratably with the 
Notes.
    SECTION 2.03. Other Additional Notes.With the prior written consent 
of each Mortgagee, the Mortgagor may issue Additional Notes to the 
Government or any lender or lenders, which Notes will thereupon be 
secured equally and ratably with Notes without regard to whether any of 
the requirements of Sections [2.01] or [2.02] are satisfied.
    SECTION 2.04. Additional Lenders Entitled to the Benefits of This 
Mortgage: Without the prior consent of any Mortgagee or any Noteholder, 
each new lender designated as a payee in any Additional Notes issued by 
the Mortgagor pursuant to Section [2.01] or [2.02] of this Mortgage 
shall become a Mortgagee hereunder upon the execution and delivery by 
the Mortgagor and such lender of a supplemental mortgage hereto 
designating such lender as a Mortgagee hereunder. Such new lender shall 
be entitled to the benefits of this Mortgage without further act or 
deed. Each Mortgagee and each person or entity that becomes a lender 
pursuant to Section [2.01] or [2.02] of this Mortgage shall, upon the 
request of the Mortgagor to do so, execute and deliver a supplement to 
this Mortgage in substantially the form set forth in Section [2.05] to 
evidence the addition of such new lender as an additional Mortgagee 
entitled to the benefits of this Mortgage. The failure of any existing 
Mortgagee to enter into such supplemental mortgage shall not deprive the 
new lender of its rights under this Mortgage; provided that such 
additional indebtedness otherwise conforms in all respects with the 
requirements for issuing Additional Notes under this Mortgage.
    SECTION 2.05. Form of Supplemental Mortgage: (a) The form of 
supplemental mortgage referred to in Section [2.04] is attached to this 
Mortgage as Exhibit B and hereby incorporated by reference as if set 
forth in full at this point.
    (b) In the event that the Mortgagor subsequently issues Additional 
Notes pursuant to Sections [2.01] or [2.02] to any existing Mortgagee 
and that Mortgagee desires further assurance that such Additional Notes 
will be secured by the lien of the Mortgage, an instrument substantially 
in the form of the supplemental mortgage attached as Exhibit B may be 
used.
    (c) In the event that the Mortgagor issues Additional Notes pursuant 
to Section [2.03] to either an existing Mortgagee or a new lender, in 
either case with the prior written consent of each Mortgagee, then an 
instrument substantially in the form of the supplemental mortgage 
attached as Exhibit B may also be used.

           ARTICLE III--PARTICULAR COVENANTS OF THE MORTGAGOR

    SECTION 3.01. Payment of Debt Service on Notes: The Mortgagor will 
duly and punctually pay the principal, premium, if any, and interest on 
the Notes in accordance with the terms of the Notes, the Loan Contracts, 
this Mortgage and any Supplemental Mortgage authorizing such Notes.
    SECTION 3.02. Warranty of Title: (a) At the time of the execution 
and delivery of this instrument, the Mortgagor has good and marketable 
title in fee simple to the real property specifically described in 
Granting Clause First as owned in fee and good and marketable title to 
the interests in real property specifically described in Granting

[[Page 184]]

Clause [First], subject to no mortgage, lien, charge or encumbrance 
except as stated therein, and has full power and lawful authority to 
grant, bargain, sell, alien, remise, release, convey, assign, transfer, 
encumber, mortgage, pledge, set over and confirm said real property and 
interests in real property in the manner and form aforesaid.
    (b) At the time of the execution and delivery of this instrument, 
the Mortgagor lawfully owns and is possessed of the personal property 
specifically described in Granting Clauses [First and Second], subject 
to no mortgage, lien, charge or encumbrance except as stated therein, 
and has full power and lawful authority to mortgage, assign, transfer, 
deliver, pledge and grant a continuing security interest in said 
property and, including any proceeds thereof, in the manner and form 
aforesaid.
    (c) The Mortgagor hereby does and will forever warrant and defend 
the title to the property specifically described in Granting Clause 
First against the claims and demands of all persons whomsoever, except 
Permitted Encumbrances.
    SECTION 3.03. After-Acquired Property; Further Assurances; 
Recording: (a) All property of every kind, other than Excepted Property, 
acquired by the Mortgagor after the date hereof, shall, immediately upon 
the acquisition thereof by the Mortgagor, and without any further 
mortgage, conveyance or assignment, become subject to the lien of this 
Mortgage; SUBJECT, HOWEVER, to Permitted Encumbrances and the 
exceptions, if any, to which all of the Mortgagees consent. 
Nevertheless, the Mortgagor will do, execute, acknowledge and deliver 
all and every such further acts, conveyances, mortgages, financing 
statements and assurances as any Mortgagee shall require for 
accomplishing the purposes of this Mortgage.
    (b) The Mortgagor will cause this Mortgage and all Supplemental 
Mortgages and other instruments of further assurance, including all 
financing statements covering security interests in personal property, 
to be promptly recorded, registered and filed, and will execute and file 
such financing statements and cause to be issued and filed such 
continuation statements, all in such manner and in such places as may be 
required by law fully to preserve and protect the rights of all of the 
Mortgagees and Noteholders hereunder to all property comprising the 
Mortgaged Property. The Mortgagor will furnish to each Mortgagee:
    (1) promptly after the execution and delivery of this instrument and 
of each Supplemental Mortgage or other instrument of further assurance, 
an Opinion of Counsel stating that, in the opinion of such Counsel, this 
instrument and all such Supplemental Mortgages and other instruments of 
further assurance have been properly recorded, registered and filed to 
the extent necessary to make effective the lien intended to be created 
by this Mortgage, and reciting the details of such action or referring 
to prior Opinions of Counsel in which such details are given, and 
stating that all financing statements and continuation statements have 
been executed and filed that are necessary fully to preserve and protect 
the rights of all of the Mortgagees and Noteholders hereunder, or 
stating that, in the opinion of such Counsel, no such action is 
necessary to make the lien effective; and
    (2) within 30 days after ---------- in each year beginning with the 
year ----, an Opinion of Counsel, dated as of such date, either stating 
that, in the opinion of such Counsel, such action has been taken with 
respect to the recording, registering, filing, re-recording, re-
registering and re-filing of this instrument and of all Supplemental 
Mortgages, financing statements, continuation statements or other 
instruments of further assurances as is necessary to maintain the lien 
of this Mortgage (including the lien on any property acquired by the 
Mortgagor after the execution and delivery of this instrument and owned 
by the Mortgagor at the end of preceding calendar year) and reciting the 
details of such action or referring to prior Opinions of Counsel in 
which such details are given, and stating that all financing statements 
and continuation statements have been executed and filed that are 
necessary to fully preserve and protect the rights of all of the 
Mortgagees and Noteholders hereunder, or stating that, in the opinion of 
such Counsel, no such action is necessary to maintain such lien.
    SECTION 3.04. Environmental Requirements and Indemnity: (a) The 
Mortgagor shall, with respect to all facilities which may be part of the 
Mortgaged Property, comply with all Environmental Laws.
    (b) The Mortgagor shall defend, indemnify, and hold harmless each 
Mortgagee, its successors and assigns, from and against any and all 
liabilities, losses, damages, costs, expenses (including but not limited 
to reasonable attorneys' fees and expenses), causes of actions, 
administrative proceedings, suits, claims, demands, or judgments of any 
nature arising out of or in connection with any matter related to the 
Mortgage Property and any Environmental Law, including but not limited 
to:
    (1) the past, present, or future presence of any hazardous 
substance, contaminant, pollutant, or hazardous waste on or related to 
the Mortgaged Property;
    (2) any failure at any time by the undersigned to comply with the 
terms of any order related to the Mortgaged Property and issued by any 
federal, state, or municipal department or agency (other than RUS) 
exercising its authority to enforce any Environmental Law; and

[[Page 185]]

    (3) any lien or claim imposed under any Environmental Law related to 
clause (1).
    (c) Within 10 (ten) business days after receiving knowledge of any 
liability, losses, damages, costs, expenses (including but not limited 
to reasonable attorneys' fees and expenses), cause of action, 
administrative proceeding, suit, claim, demand, judgment, lien, 
reportable event including but not limited to the release of a hazardous 
substance, or potential or actual violation or non-compliance arising 
out of or in connection with the Mortgaged Property and any 
Environmental Law, the Mortgagor shall provide each Mortgagee with 
written notice of such matter. With respect to any matter upon which it 
has provided such notice, the Mortgagor shall immediately take any and 
all appropriate actions to remedy, cure, defend, or otherwise 
affirmatively respond to the matter.
    SECTION 3.05. Payment of Taxes: The Mortgagor will pay or cause to 
be paid as they become due and payable all taxes, assessments and other 
governmental charges lawfully levied or assessed or imposed upon the 
Mortgaged Property or any part thereof or upon any income therefrom, and 
also (to the extent that such payment will not be contrary to any 
applicable laws) all taxes, assessments and other governmental charges 
lawfully levied, assessed or imposed upon the lien or interest of the 
Noteholders or of the Mortgagees in the Mortgaged Property, so that (to 
the extent aforesaid) the lien of this Mortgage shall at all times be 
wholly preserved at the cost of the Mortgagor and without expense to the 
Mortgagees or the Noteholders; PROVIDED, HOWEVER, that the Mortgagor 
shall not be required to pay and discharge or cause to be paid and 
discharged any such tax, assessment or governmental charge to the extent 
that the amount, applicability or validity thereof shall currently be 
contested in good faith by appropriate proceedings and the Mortgagor 
shall have established and shall maintain adequate reserves on its books 
for the payment of the same.
    SECTION 3.06. Authority to Execute and Deliver Notes, Loan 
Agreements and Mortgage; All Action Taken; Enforceable Obligations: The 
Mortgagor is authorized under its articles of incorporation and bylaws 
[or code of regulations] and all applicable laws and by corporate action 
to execute and deliver the Notes, any Additional Notes, the Loan 
Agreements and this Mortgage. The Notes, the Loan Agreements and this 
Mortgage are, and any Additional Notes and Loan Agreements when executed 
and delivered will be, the valid and enforceable obligations of the 
Mortgagor in accordance with their respective terms.
    SECTION 3.07. Restrictions on Further Encumbrances on Property: 
Except to secure Additional Notes, the Mortgagor will not, without the 
prior written consent of each Mortgagee, create or incur or suffer or 
permit to be created or incurred or to exist any Lien, charge, 
assignment, pledge, mortgage on any of the Mortgaged Property inferior 
to, prior to, or on a parity with the Lien of this Mortgage except for 
the Permitted Encumbrances. Subject to the provisions of Section [3.08], 
or unless approved by each of the Mortgagees, the Mortgagor will 
purchase all materials, equipment and replacements to be incorporated in 
or used in connection with the Mortgaged Property outright and not 
subject to any conditional sales agreement, chattel mortgage, bailment, 
lease or other agreement reserving to the seller any right, title or 
Lien.
    SECTION 3.08. Restrictions On Additional Permitted Debt: The 
Mortgagor shall not incur, assume, guarantee or otherwise become liable 
in respect of any debt for borrowed money and Restricted Rentals 
(including Subordinated Debt) other than the following: (``Permitted 
Debt'')
    (1) Additional Notes issued in compliance with Article II hereof;
    (2) Purchase money indebtedness in non-Utility System property, in 
an amount not exceeding 10% of Net Utility Plant;
    (3) Restricted Rentals in an amount not to exceed 5% of Equity 
during any 12 consecutive calendar month period;
    (4) Unsecured lease obligations incurred in the ordinary course of 
business except Restricted Rentals;
    (5) Debt represented by dividends declared but not paid; and
    (6) Subordinated Indebtedness approved by each Mortgagee.
    PROVIDED, However, that the Mortgagor may incur Permitted Debt 
without the consent of the Mortgagee only so long as there exists no 
Event of Default hereunder and there has been no continuing occurrence 
which with the passage of time and giving of notice could become an 
Event of Default hereunder.
    PROVIDED, FURTHER, by executing this Mortgage any consent of RUS 
that the Mortgagor would otherwise be required to obtain under this 
Section is hereby deemed to be given or waived by RUS by operation of 
law to the extent, but only to the extent, that to impose such a 
requirement of RUS consent would clearly violate existing federal laws 
or government regulations.
    SECTION 3.09. Preservation of Corporate Existence and Franchises: 
The Mortgagor will, so long as any Outstanding Notes exist, take or 
cause to be taken all such action as from time to time may be necessary 
to preserve its corporate existence and to preserve and renew all 
franchises, rights of way, easements, permits, and licenses now or 
hereafter to be granted or upon it conferred the loss of which would 
have a material adverse affect on the Mortgagor's financial condition

[[Page 186]]

or business. The Mortgagor will comply with all laws, ordinances, 
regulations, orders, decrees and other legal requirements applicable to 
it or its property the violation of which could have a material adverse 
affect on the Mortgagor's financial condition or business.
    SECTION 3.10. Limitations on Consolidations and Mergers: The 
Mortgagor shall not, without the prior written approval of each 
Mortgagee, consolidate or merge with any other corporation or convey or 
transfer the Mortgaged Property substantially as an entirety unless: (1) 
such consolidation, merger, conveyance or transfer shall be on such 
terms as shall fully preserve the lien and security hereof and the 
rights and powers of the Mortgagees hereunder; (2) the entity formed by 
such consolidation or with which the Mortgagor 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 hereto 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 this Mortgage; (3) immediately after giving effect to 
such transaction, no default hereunder shall have occurred and be 
continuing; (4) the Mortgagor 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, conveyance or transfer and such supplemental 
mortgage comply with this subsection and that all conditions precedent 
herein provided for relating to such transaction have been complied 
with; (5) the Mortgagor shall have delivered to the Mortgagees an 
opinion of counsel in form and substance satisfactory to each of the 
Mortgagees; and (6) the entity formed by such consolidation or with 
which the Mortgagor 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 1.25 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. Upon any 
consolidation or merger or any conveyance or transfer of the Mortgaged 
Property substantially as an entirety in accordance with this 
subsection, the successor entity formed by such consolidation or with 
which the Mortgagor is merged or to which such conveyance or transfer is 
made shall succeed to, and be substituted for, and may exercise every 
right and power of, the Mortgagor under this Mortgage with the same 
effect as if such successor entity had been named as the Mortgagor 
herein.
    SECTION 3.11. Limitations on Transfers of Property: The Mortgagor 
may not, except as provided in [Section 3.10] above, without the prior 
written approval of each Mortgagee, sell, lease or transfer any 
Mortgaged Property to any other person or entity (including any 
subsidiary or affiliate of the Mortgagor), unless (1) there exists no 
Event of Default or occurrence which with the passing of time and the 
giving of notice would be an Event of Default, (2) fair market value is 
obtained for such property, (3) the aggregate value of assets so sold, 
leased or transferred in any 12-month period is less than 10% of Net 
Utility Plant, and (4) the proceeds of such sale, lease or transfer, 
less ordinary and reasonable expenses incident to such transaction, are 
immediately (i) applied as a prepayment of all Notes equally and 
ratably, (ii) in the case of dispositions of equipment, materials or 
scrap, applied to the purchase of other property useful in the 
Mortgagor's utility business, not necessarily of the same kind as the 
property disposed of, which shall forthwith become subject to the Lien 
of the Mortgage, or (iii) applied to the acquisition or construction of 
utility plant.
    SECTION 3.12. Maintenance of Mortgaged Property: (a) So long as the 
Mortgagor holds title to the Mortgaged Property, the Mortgagor will at 
all times maintain and preserve the Mortgaged Property which is used or 
useful in the Mortgagor's business and each and every part and parcel 
thereof in good repair, working order and condition, ordinary wear and 
tear and acts of God excepted, and in compliance with Prudent Utility 
Practice and in compliance with all applicable laws, regulations and 
orders, and will from time to time make all needed and proper repairs, 
renewals and replacements, and useful and proper alterations, additions, 
betterments and improvements, and will, subject to contingencies beyond 
its reasonable control, at all times use all reasonable diligence to 
furnish the consumers served by it through the Mortgaged Property, or 
any part thereof, with an adequate supply of electric power and energy. 
If any substantial part of the Mortgaged Property is leased by the 
Mortgagor to any other party, the lease agreement between the Mortgagor 
and the lessee shall obligate the lessee to comply with the provisions 
of subsections (a) and (b) of this Section in respect of the leased 
facilities and to permit the Mortgagor to operate the leased facilities 
in the event of any failure by the lessee to so comply.
    (b) If in the sole judgement of any Mortgagee, the Mortgaged 
Property is not being maintained and repaired in accordance with 
paragraph (a) of this section, such Mortgagee may send to the Mortgagor 
a written report

[[Page 187]]

of needed improvements and the Mortgagor will upon receipt of such 
written report promptly undertake to accomplish such improvements.
    (c) The Mortgagor further agrees that upon reasonable written 
request of any Mortgagee, which request together with the requests of 
any other Mortgagees shall be made no more frequently than once every 
three years, the Mortgagor will supply promptly to each Mortgagee a 
certification (hereinafter called the ``Engineer's Certification''), in 
form satisfactory to the requestor, prepared by a professional engineer, 
who shall be satisfactory to the Mortgagees, as to the condition of the 
Mortgaged Property. If in the sole judgment of any Mortgagee the 
Engineer's Certification discloses the need for improvements to the 
condition of the Mortgaged Property or any other operations of the 
Mortgagor, such Mortgagee may send to the Mortgagor a written report of 
such improvements and the Mortgagor will upon receipt of such written 
report promptly undertake to accomplish such of these improvements as 
are required by such Mortgagee.
    SECTION 3.13. Insurance; Restoration of Damaged Mortgaged Property: 
(a) The Mortgagor will take out, as the respective risks are incurred, 
and maintain the classes and amounts of insurance in conformance with 
generally accepted utility industry standards for such classes and 
amounts of coverages of utilities of the size and character of the 
Mortgagor and consistent with Prudent Utility Practice.
    (b) The foregoing insurance coverage shall be obtained by means of 
bond and policy forms approved by regulatory authorities having 
jurisdiction, and, with respect to insurance upon any part of the 
Mortgaged Property, shall provide that the insurance shall be payable to 
the Mortgagees as their interests may appear by means of the standard 
mortgagee clause without contribution. Each policy or other contract for 
such insurance shall contain an agreement by the insurer that, 
notwithstanding any right of cancellation reserved to such insurer, such 
policy or contract shall continue in force for at least 30 days after 
written notice to each Mortgagee of cancellation.
    (c) In the event of damage to or the destruction or loss of any 
portion of the Mortgaged Property which is used or useful in the 
Mortgagor's business and which shall be covered by insurance, unless 
each Mortgagee shall otherwise agree, the Mortgagor shall replace or 
restore such damaged, destroyed or lost portion so that such Mortgaged 
Property shall be in substantially the same condition as it was in prior 
to such damage, destruction or loss, and shall apply the proceeds of the 
insurance for that purpose. The Mortgagor shall replace the lost portion 
of such Mortgaged Property or shall commence such restoration promptly 
after such damage, destruction or loss shall have occurred and shall 
complete such replacement or restoration as expeditiously as 
practicable, and shall pay or cause to be paid out of the proceeds of 
such insurance all costs and expenses in connection therewith.
    (d) Sums recovered under any policy or fidelity bond by the 
Mortgagor for a loss of funds advanced under the Notes or recovered by 
any Mortgagee or any Noteholder for any loss under such policy or bond 
shall, unless applied as provided in the preceding paragraph, be used to 
finance construction of utility plant secured or to be secured by this 
Mortgage, or unless otherwise directed by the Mortgagees, be applied to 
the prepayment of the Notes pro rata according to the unpaid principal 
amounts thereof (such prepayments to be applied to such Notes and 
installments thereof as may be designated by the respective Mortgagee at 
the time of any such prepayment), or be used to construct or acquire 
utility plant which will become part of the Mortgaged Property. At the 
request of any Mortgagee, the Mortgagor shall exercise such rights and 
remedies which they may have under such policy or fidelity bond and 
which may be designated by such Mortgagee, and the Mortgagor hereby 
irrevocably appoints each Mortgagee as its agent to exercise such rights 
and remedies under such policy or bond as such Mortgagee may choose, and 
the Mortgagor shall pay all costs and reasonable expenses incurred by 
the Mortgagee in connection with such exercise.
    SECTION 3.14. Mortgagee Right to Expend Money to Protect Mortgaged 
Property: The Mortgagor agrees that any Mortgagee from time to time 
hereunder may, in its sole discretion, after having given 5 Business 
days prior written notice to Mortgagor, but shall not be obligated to, 
advance funds on behalf of Mortgagor, in order to insure the Mortgagor's 
compliance with any covenant, warranty, representation or agreement of 
the Mortgagor made in or pursuant to this Mortgage or any of the Loan 
Agreements, to preserve or protect any right or interest of the 
Mortgagees in the Mortgaged Property or under or pursuant to this 
Mortgage or any of the Loan Agreements, including without limitation, 
the payment of any insurance premiums or taxes and the satisfaction or 
discharge of any judgment or any Lien upon the Mortgaged Property or 
other property or assets of Mortgagor; provided, however, that the 
making of any such advance by or through any Mortgagee shall not 
constitute a waiver by any Mortgagee of any Event of Default with 
respect to which such advance is made nor relieve the Mortgagor of any 
such Event of Default. The Mortgagor shall pay to a Mortgagee upon 
demand all such advances made by such Mortgagee with interest thereon at 
a rate equal to that on the Note having the highest interest rate but in

[[Page 188]]

no event shall such rate be in excess of the maximum rate permitted by 
applicable law. All such advances shall be included in the obligations 
and secured by the security interest granted hereunder.
    SECTION 3.15. Time Extensions for Payment of Notes: Any Mortgagee 
may, at any time or times in succession without notice to or the consent 
of the Mortgagor, or any other Mortgagee, and upon such terms as such 
Mortgagee may prescribe, grant to any person, firm or corporation who 
shall have become obligated to pay all or any part of the principal of 
(and premium, if any) or interest on any Note held by or indebtedness 
owed to such Mortgagee or who may be affected by the lien hereby 
created, an extension of the time for the payment of such principal, 
(and premium, if any) or interest, and after any such extension the 
Mortgagor will remain liable for the payment of such Note or 
indebtedness to the same extent as though it had at the time of such 
extension consented thereto in writing.
    SECTION 3.16. Application of Proceeds from Condemnation: (a) In the 
event that the Mortgaged Property or any part thereof, shall be taken 
under the power of eminent domain, all proceeds and avails therefrom may 
be used to finance construction of utility plant secured or to be 
secured by this Mortgage. Any proceeds not so used shall forthwith be 
applied by the Mortgagor: first, to the ratable payment of any 
indebtedness secured by this Mortgage other than principal of or 
interest on the Notes; second, to the ratable payment of interest which 
shall have accrued on the Notes and be unpaid; third, to the ratable 
payment of or on account of the unpaid principal of the Notes, to such 
installments thereof as may be designated by the respective Mortgagee at 
the time of any such payment; and fourth, the balance shall be paid to 
whomsoever shall be entitled thereto.
    (b) If any part of the Mortgaged Property shall be taken by eminent 
domain, each Mortgagee shall release the property so taken from the 
Mortgaged Property and shall be fully protected in so doing upon being 
furnished with:
    (1) A certificate of a duly authorized officer of the Mortgagor 
requesting such release, describing the property to be released and 
stating that such property has been taken by eminent domain and that all 
conditions precedent herein provided or relating to such release have 
been complied with; and
    (2) an opinion of counsel to the effect that such property has been 
lawfully taken by exercise of the right of eminent domain, that the 
award for such property so taken has become final and that all 
conditions precedent herein provided for relating to such release have 
been complied with.
    SECTION 3.17. Compliance with Loan Agreements; Notice of Amendments 
to and Defaults under Loan Agreements: The Mortgagor will observe and 
perform all of the material covenants, agreements, terms and conditions 
contained in any Loan Agreement entered into in connection with the 
issuance of any of the Notes, as from time to time amended. The 
Mortgagor will send promptly to each Mortgagee notice of any default by 
the Mortgagor under any Loan Agreement and notice of any amendment to 
any Loan Agreement. Upon request of any Mortgagee, the Mortgagor will 
furnish to such Mortgagee single copies of such Loan Agreements and 
amendments thereto as such Mortgagee may request.
    SECTION 3.18. Rights of Way, etc., Necessary in Business: The 
Mortgagor will use its best efforts to obtain all such rights of way, 
easements from landowners and releases from lienors as shall be 
necessary or advisable in the conduct of its business, and, if requested 
by any Mortgagee, deliver to such Mortgagee evidence satisfactory to 
such Mortgagee of the obtaining of such rights of way, easements or 
releases.
    SECTION 3.19. Limitations on Providing Free Electric Services. The 
Mortgagor will not furnish or supply or cause to be furnished or 
supplied any electric power, energy or capacity free of charge to any 
person, firm or corporation, public or private, and the Mortgagor will 
enforce the payment of any and all amounts owning to the Mortgagor by 
reason of the ownership and operation of the Utility System by 
discontinuing such use, output, capacity, or service, or by filing suit 
therefor within 90 days after any such accounts are due, or by both such 
discontinuance and by filing suit.
    SECTION 3.20. Keeping Books; Inspection by Mortgagee: The Mortgagor 
will keep proper books, records and accounts, in which full and correct 
entries shall be made of all dealings or transactions of or in relation 
to the Notes and the Utility Systems, properties, business and affairs 
of the Mortgagor in accordance with the Accounting Requirements. The 
Mortgagor will at any and all times, upon the written request of any 
Mortgagee and at the expense of the Mortgagor, permit such Mortgagee by 
its representatives to inspect the Utility Systems and properties and 
properties, books of account, records, reports and other papers of the 
Mortgagor and to take copies and extracts therefrom, and will afford and 
procure a reasonable opportunity to make any such inspection, and the 
Mortgagor will furnish to each Mortgagee any and all such information as 
such Mortgagee may request, with respect to the performance by the 
Mortgagor of its covenants under this Mortgage, the Notes and the Loan 
Agreements.

[[Page 189]]

                               ARTICLE IV

                     EVENTS OF DEFAULT AND REMEDIES

    SECTION 4.01. Events of Default: Each of the following shall be an 
``Event of Default'' under this Mortgage:
    (a) default shall be made in the payment of any installment of or on 
account of interest on or principal of (or premium, if any associated 
with) any Note or Notes for more than five (5) Business Days after the 
same shall be required to be made;
    (b) default shall be made in the due observance or performance of 
any other of the covenants, conditions or agreements on the part of the 
Mortgagor, in any of the Notes, Loan Agreements or in this Mortgage, and 
such default shall continue for a period of thirty (30) days after 
written notice specifying such default and requiring the same to be 
remedied and stating that such notice is a ``Notice of Default'' 
hereunder shall have been given to the Mortgagor by any Mortgagee; 
PROVIDED, HOWEVER that in the case of a default on the terms of a Note 
or Loan Agreement of a particular Mortgagee, the ``Notice of Default'' 
required under this paragraph may only be given by that Mortgagee;
    (c) the Mortgagor shall file a petition in bankruptcy or be 
adjudicated a bankrupt or insolvent, or shall make an assignment for the 
benefit of its creditors, or shall consent to the appointment of a 
receiver of itself or of its property, or shall institute proceedings 
for its reorganization or proceedings instituted by others for its 
reorganization shall not be dismissed within sixty (60) days after the 
institution thereof;
    (d) a receiver or liquidator of the Mortgagor or of any substantial 
portion of its property shall be appointed and the order appointing such 
receiver or liquidator shall not be vacated within sixty (60) days after 
the entry thereof;
    (e) the Mortgagor shall forfeit or otherwise be deprived of its 
corporate charter or franchises, permits, easements, or licenses 
required to carry on any material portion of its business;
    (f) a final judgment for an amount of more than $---------- shall be 
entered against the Mortgagor and shall remain unsatisfied or without a 
stay in respect thereof for a period of sixty (60) days; or,
    (g) any material representation or warranty made by the Mortgagor 
herein, in the Loan Agreements or in any certificate or financial 
statement delivered hereunder or thereunder shall prove to be false or 
misleading in any material respect at the time made.
    SECTION 4.02. Acceleration of Maturity; Rescission and Annulment:
    (a) If an Event of Default described in Section [4.01(a)] has 
occurred and is continuing, any Mortgagee upon which such default has 
occurred may declare the principal of all its Notes secured hereunder to 
be due and payable immediately by a notice in writing to the Mortgagor 
and to the other Mortgagees (failure to provide said notice to any other 
Mortgagee shall not affect the validity of any acceleration of the Note 
or Notes by such Mortgagee), and upon such declaration, all unpaid 
principal (and premium, if any) and accrued interest so declared shall 
become due and payable immediately, anything contained herein or in any 
Note or Notes to the contrary notwithstanding.
    (b) If any other Event of Default shall have occurred and be 
continuing, any Mortgagee may declare the principal of all its Notes 
secured hereunder to be due and payable immediately by a notice in 
writing to the Mortgagor and to the other Mortgagees (failure to provide 
said notice to any other Mortgagee shall not affect the validity of any 
acceleration of the Note or Notes by such Mortgagee), and upon such 
declaration, all unpaid principal (and premium, if any) and accrued 
interest so declared shall become due and payable immediately, anything 
contained herein or in any Note or Notes to the contrary 
notwithstanding.
    (c) Upon receipt of actual knowledge of or any notice of 
acceleration by any Mortgagee, any other Mortgagee may declare the 
principal of all of its Notes to be due and payable immediately by a 
notice in writing to the Mortgagor and upon such declaration, all unpaid 
principal (and premium, if any) and accrued interest so declared shall 
become due and payable immediately, anything contained herein or in any 
Note or Notes or Loan Agreements to the contrary notwithstanding.
    (d) If after the unpaid principal of (and premium, if any) and 
accrued interest on any of the Notes shall have been so declared to be 
due and payable, all payments in respect of principal and interest which 
shall have become due and payable by the terms of such Note or Notes 
(other than amounts due as a result of the acceleration of the Notes) 
shall be paid to the respective Mortgagees, and (i) all other defaults 
under the Loan Agreements, the Notes and this Mortgage shall have been 
made good or cured to the satisfaction of the Mortgagees representing at 
least 80% of the aggregate unpaid principal balance of all of the Notes 
then Outstanding, (ii) proceedings to foreclose the lien of this 
Mortgage have not been commenced, and (iii) all reasonable expenses paid 
or incurred by the Mortgagees in connection with the acceleration shall 
have been paid to the respective Mortgagees, then in every such case 
such Mortgagees representing at least 80% of the aggregate unpaid 
principal balance of all of the Notes then Outstanding may by written 
notice to the Mortgagor, for purposes of this Mortgage, annul such 
declaration and waive such default and the consequences thereof, but no 
such waiver shall extend to

[[Page 190]]

or affect any subsequent default or impair any right consequent thereon.
    SECTION 4.03. Remedies of Mortgagees: If one or more of the Events 
of Default shall occur and be continuing, any Mortgagee personally or by 
attorney, in its or their discretion, may, in so far as not prohibited 
by law:
    (a) take immediate possession of the Mortgaged Property, collect and 
receive all credits, outstanding accounts and bills receivable of the 
Mortgagor and all rents, income, revenues, proceeds and profits 
pertaining to or arising from the Mortgaged Property, or any part 
thereof, whether then past due or accruing thereafter, and issue binding 
receipts therefor; and manage, control and operate the Mortgaged 
Property as fully as the Mortgagor might do if in possession thereof, 
including, without limitation, the making of all repairs or replacements 
deemed necessary or advisable by such Mortgagee in possession;
    (b) proceed to protect and enforce the rights of all of the 
Mortgagees by suits or actions in equity or at law in any court or 
courts of competent jurisdiction, whether for specific performance of 
any covenant or any agreement contained herein or in aid of the 
execution of any power herein granted or for the foreclosure hereof or 
hereunder or for the sale of the Mortgaged Property, or any part 
thereof, or to collect the debts hereby secured or for the enforcement 
of such other or additional appropriate legal or equitable remedies as 
may be deemed necessary or advisable to protect and enforce the rights 
and remedies herein granted or conferred, and in the event of the 
institution of any such action or suit the Mortgagee instituting such 
action or suit shall have the right to have appointed a receiver of the 
Mortgaged Property and of all proceeds, rents, income, revenues and 
profits pertaining thereto or arising therefrom, whether then past due 
or accruing after the appointment of such receiver, derived, received or 
had from the time of the commencement of such suit or action, and such 
receiver shall have all the usual powers and duties of receivers in like 
and similar cases, to the fullest extent permitted by law, and if 
application shall be made for the appointment of a receiver the 
Mortgagor hereby expressly consents that the court to which such 
application shall be made may make said appointment; and
    (c) sell or cause to be sold all and singular the Mortgaged Property 
or any part thereof, and all right, title, interest, claim and demand of 
the Mortgagor therein or thereto, at public auction at such place in any 
county (or its equivalent locality) in which the property to be sold, or 
any part thereof, is located, at such time and upon such terms as may be 
specified in a notice of sale, which shall state the time when and the 
place where the sale is to be held, shall contain a brief general 
description of the property to be sold, and shall be given by mailing a 
copy thereof to the Mortgagor at least fifteen (15) days prior to the 
date fixed for such sale and by publishing the same once in each week 
for two successive calendar weeks prior to the date of such sale in a 
newspaper of general circulation published in said locality or, if no 
such newspaper is published in such locality, in a newspaper of general 
circulation in such locality, the first such publication to be not less 
than fifteen (15) days nor more than thirty (30) days prior to the date 
fixed for such sale. Any sale to be made under this subparagraph (c) of 
this Section [4.03] may be adjourned from time to time by announcement 
at the time and place appointed for such sale or for such adjourned sale 
or sales, and without further notice or publication the sale may be had 
at the time and place to which the same shall be adjourned; provided, 
however, that in the event another or different notice of sale or 
another or different manner of conducting the same shall be required by 
law the notice of sale shall be given or the sale be conducted, as the 
case may be, in accordance with the applicable provisions of law. The 
expense incurred by any Mortgagee (including, but not limited to, 
receiver's fees, counsel fees, cost of advertisement and agents' 
compensation) in the exercise of any of the remedies provided in this 
Mortgage shall be secured by this Mortgage.
    (d) In the event that a Mortgagee proceeds to enforce remedies under 
this Section, any other Mortgagee may join in such proceedings. In the 
event that the Mortgagees are not in agreement with the method or manner 
of enforcement chosen by any other Mortgagee, the Mortgagees 
representing a majority of the aggregate unpaid principal balance on the 
then Outstanding Notes may direct the method and manner in which 
remedial action will proceed.
    SECTION 4.04. Application of Proceeds from Remedial Actions: Any 
proceeds or funds arising from the exercise of any rights or the 
enforcement of any remedies herein provided after the payment or 
provision for the payment of any and all costs and expenses in 
connection with the exercise of such rights or the enforcement of such 
remedies shall be applied first, to the ratable payment of indebtedness 
hereby secured other than the principal of or interest on the Notes; 
second, to the ratable payment of interest which shall have accrued on 
the Notes and which shall be unpaid; third, to the ratable payment of or 
on account of the unpaid principal of the Notes; and the balance, if 
any, shall be paid to whomsoever shall be entitled thereto.
    SECTION 4.05. Remedies Cumulative; No Election: Every right or 
remedy herein conferred upon or reserved to the Mortgagees or to the 
Noteholders shall be cumulative and shall be in addition to every other 
right and

[[Page 191]]

remedy given hereunder or now or hereafter existing at law, or in 
equity, or by statute. The pursuit of any right or remedy shall not be 
construed as an election.
    SECTION 4.06. Waiver of Appraisement Rights; Marshaling of Assets 
Not Required: The Mortgagor, for itself and all who may claim through or 
under it, covenants that it will not at any time insist upon or plead, 
or in any manner whatever claim, or take the benefit or advantage of, 
any appraisement, valuation, stay, extension or redemption laws now or 
hereafter in force in any locality where any of the Mortgaged Property 
may be situated, in order to prevent, delay or hinder the enforcement or 
foreclosure of this Mortgage, or the absolute sale of the Mortgaged 
Property, or any part thereof, or the final and absolute putting into 
possession thereof, immediately after such sale, of the purchaser or 
purchasers thereat, and the Mortgagor, for itself and all who may claim 
through or under it, hereby waives the benefit of all such laws unless 
such waiver shall be forbidden by law. Under no circumstances shall 
there be any marshalling of assets upon any foreclosure or to other 
enforcement of this Mortgage.
    SECTION 4.07. Notice of Default: The Mortgagor covenants that it 
will give immediate written notice to each Mortgagee of the occurrence 
of any Event of Default or in the event that any right or remedy 
described in Sections [4.02] and [4.03] hereof is exercised or enforced 
or any action is taken to exercise or enforce any such right or remedy.

          ARTICLE V--POSSESSION UNTIL DEFAULT-DEFEASANCE CLAUSE

    SECTION 5.01. Possession Until Default: Until some one or more of 
the Events of Default shall have happened, the Mortgagor shall be 
suffered and permitted to retain actual possession of the Mortgaged 
Property, and to manage, operate and use the same and any part thereof, 
with the rights and franchises appertaining thereto, and to collect, 
receive, take, use and enjoy the rents, revenues, issues, earnings, 
income, proceeds, products and profits thereof or therefrom, subject to 
the provisions of this Mortgage.
    SECTION 5.02. Defeasance: If the Mortgagor shall pay or cause to be 
paid the whole amount of the principal of (and premium, if any) and 
interest on the Notes at the times and in the manner therein provided, 
and shall also pay or cause to be paid all other sums payable by the 
Mortgagor hereunder or under any Loan Agreement and shall keep and 
perform, all covenants herein required to be kept and performed by it, 
then and in that case, all property, rights and interest hereby conveyed 
or assigned or pledged shall revert to the Mortgagor and the estate, 
right, title and interest of the Mortgagee so paid shall thereupon 
cease, determine and become void and such Mortgagee, in such case, on 
written demand of the Mortgagor but at the Mortgagor's cost and expense, 
shall enter satisfaction of the Mortgage upon the record. In any event, 
each Mortgagee, upon payment in full to such Mortgagee by the Mortgagor 
of all principal of (and premium, if any) and interest on any Note held 
by such Mortgagee and the payment and discharge by the Mortgagor of all 
charges due to such Mortgagee hereunder or under any Loan Agreement, 
shall execute and deliver to the Mortgagor such instrument of 
satisfaction, discharge or release as shall be required by law in the 
circumstances.
    SECTION 5.03. Special Defeasance: Other than any Notes excluded by 
the foregoing Sections 5.01 and 5.02 and Notes which have become due and 
payable, the Mortgagor may cause the Lien of this Mortgage to be 
defeased with respect to any Note for which it has deposited or caused 
to be deposited in trust solely for the purpose an amount sufficient to 
pay and discharge the entire indebtedness on such Note for principal 
(and premium, if any) and interest to the date of maturity thereof; 
PROVIDED, HOWEVER, that depository serving as trustee for such trust 
must first be accepted as such by the Mortgagee whose Notes are being 
defeased under this section. In such event, such a Note will no longer 
be considered to be an Outstanding Note for purposes of this Mortgage 
and the Mortgagee shall execute and deliver to the Mortgagor such 
instrument of satisfaction, discharge or release as shall be required by 
law in the circumstances.

                               ARTICLE VI

                              MISCELLANEOUS

    SECTION 6.01. Property Deemed Real Property: It is hereby declared 
to be the intention of the Mortgagor that any electric generating plant 
or plants and facilities and all electric transmission and distribution 
lines, or other Electric System or Utility System facilities, embraced 
in the Mortgaged Property, including (without limitation) all rights of 
way and easements granted or given to the Mortgagor or obtained by it to 
use real property in connection with the construction, operation or 
maintenance of such plant, lines, facilities or systems, and all other 
property physically attached to any of the foregoing, shall be deemed to 
be real property.
    SECTION 6.02. Mortgage to Bind and Benefit Successors and Assigns: 
All of the covenants, stipulations, promises, undertakings and 
agreements herein contained by or on behalf of the Mortgagor shall bind 
its successors and assigns, whether so specified or not, and all titles, 
rights and remedies hereby granted to or conferred upon the Mortgagees 
shall pass to and inure to the benefit of the successors and assigns of 
the Mortgagees and shall be deemed to be granted or conferred

[[Page 192]]

for the ratable benefit and security of all who shall from time to time 
be a Mortgagee. The Mortgagor hereby agrees to execute such consents, 
acknowledgements and other instruments as may be reasonably requested by 
any Mortgagee in connection with the assignment, transfer, mortgage, 
hypothecation or pledge of the rights or interests of such Mortgagee 
hereunder or under the Notes or in and to any of the Mortgaged Property.
    SECTION 6.03. Headings: The descriptive headings of the various 
articles and sections of this Mortgage and also the table of contents 
were formulated and inserted for convenience only and shall not be 
deemed to affect the meaning or construction of any of the provisions 
hereof.
    SECTION 6.04. Severability Clause: In case any provision of this 
Mortgage or in the Notes or in the Loan Agreements shall be invalid or 
unenforceable, the validity, legality and enforceability of the 
remaining provisions thereof shall not in any way be affected or 
impaired, nor shall any invalidity or unenforceability as to any 
Mortgagee hereunder affect or impair the rights hereunder of any other 
Mortgagee.
    SECTION 6.05. Mortgage Deemed Security Agreement: To the extent that 
any of the property described or referred to in this Mortgage is 
governed by the provisions of the UCC this Mortgage is hereby deemed a 
``security agreement'' under the UCC, and, if so elected by any 
Mortgagee, a ``financing statement'' under the UCC for said security 
agreement. The mailing addresses of the Mortgagor as debtor, and the 
Mortgagees as secured parties are as set forth in Section [1.05] hereof. 
If any Mortgagee so directs the Mortgagor to do so, the Mortgagor shall 
file as a financing statement under the UCC for said security agreement 
and for the benefit of all of the Mortgagees, an instrument other than 
this Mortgage. In such case, the instrument to be filed shall be in a 
form customarily accepted by the filing office as a financing statement. 
PROCEEDS OF COLLATERAL ARE COVERED HEREBY.
    SECTION 6.06. Indemnification by Mortgagor of Mortgagees: The 
Mortgagor agrees to indemnify and save harmless each Mortgagee against 
any liability or damages which any of them may incur or sustain in the 
exercise and performance of their rightful powers and duties hereunder. 
For such reimbursement and indemnity, each Mortgagee shall be secured 
under this Mortgage in the same manner as the Notes and all such 
reimbursements for expense or damage shall be paid to the Mortgagee 
incurring or suffering the same with interest at the rate specified in 
Section [3.14] hereof. The Mortgagor's obligation to indemnify the 
Mortgagees under this section and under Section [3.04] shall survive the 
satisfaction of the Notes, the reconveyance or foreclosure of this 
Mortgage, the acceptance of a deed in lieu of foreclosure, or any 
transfer or abandonment of the Mortgaged Property.
    IN WITNESS WHEREOF, ---------- as Mortgagor, has caused this 
Restated Mortgage and Security Agreement to be signed in its name and 
its corporate seal to be hereunto affixed and attested by its officers 
thereunto duly authorized, and UNITED STATES OF AMERICA, as Mortgagee, 
and as Mortgagee, has caused this Restated Mortgage and Security 
Agreement to be signed in its name by duly authorized persons, all as of 
the day and year first above written.
________________________________________________________________________

(SEAL)

By:_____________________________________________________________________
President

Attest:_________________________________________________________________
Title:__________________________________________________________________

    Executed by the Mortgagor in the presence of:

________________________________________________________________________
________________________________________________________________________

Witnesses

                        UNITED STATES OF AMERICA

By: Director, of the ---------- Rural Utilities Service

    Executed by the United States of America, Mortgagee, in the presence 
of:

________________________________________________________________________
________________________________________________________________________

Witnesses

By:

(SEAL)

Attest:_________________________________________________________________
Title:__________________________________________________________________
    Executed by the above-named Mortgagee in the presence of:

________________________________________________________________________
________________________________________________________________________

Witnesses

                               Schedule A

    1. The Maximum Debt Limit is ----------.
    2. The Original Mortgage as described in the [first] WHEREAS clause 
above is ----------.
    3. The outstanding secured indebtedness described in the [fourth] 
WHEREAS clause above as evidenced by the Original Notes is as follows:

    [Note this requires computation of principal balances, not merely a 
toting up of the original face amounts of the notes. Alternative 
approaches may be used by the parties where legally effective and 
mutually agreeable.]

[[Page 193]]

                      Schedule B--Property Schedule

    The fee and leasehold interests in real property referred to in 
Section Subclause (a) of Granting Clause One are ----------.
    The counties referred to in Subclause (B) of Granting Clause One are 
----------.

                      Schedule C--Excepted Property

STATE OF ----------
COUNTY OF ----------

    On this ------ day of ----------, 19 ----, before me appeared ------
---- and ---------- personally known, by me and having been duly sworn 
by me, did say that they are the President and Secretary, respectively, 
of ----------------, a ---------- corporation, and that the seal affixed 
to the foregoing instrument is the corporate seal of said corporation, 
and that said instrument was signed and sealed in behalf of said 
corporation by authority of its Board, and said ---------- and --------
-- acknowledged that the execution of said instrument was a free act and 
deed of said corporation.
    IN WITNESS whereof, I have hereunto set my hand and official seal 
the day and year last above written.
________________________________________________________________________
Notary Public

(Notarial Seal)

    My commission expires:

DISTRICT OF COLUMBIA ) SS
    The foregoing instrument was acknowledged before me this ----------
---- day of 19----, by ------------------ Director, ---------------- 
Regional Division of the Rural Utilities Service, acknowledging an 
agency of the United States of America, on behalf of the Rural Utilities 
Service, United States of America.
________________________________________________________________________

Notary Public

(Notarial Seal)

    My Commission expires:

COMMONWEALTH OF VIRGINIA ) SS
    BEFORE ME, a Notary Public, in and for the Commonwealth of Virginia, 
appeared in person ----------------------, signing for the Governor of 
the National Rural Utilities cooperative Finance Corporation, to me 
personally known, and known to be the identical person who subscribed 
the name of said corporation to the foregoing instrument, being by me 
duly sworn, and who stated that she/he is duly authorized to execute the 
foregoing instrument on behalf of said corporation, and further stated 
and acknowledged that she/he executed the foregoing instrument as a free 
and voluntary act and deed of said corporation for the consideration 
therein mentioned and set forth.
    IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal 
this ---------- day of ----------, 19----.
________________________________________________________________________

Notary Public

(Notarial Seal)
    My commission expires:

                    Exhibit A--Manager's Certificate

     Manager's Certificate Required Under Mortgage Section 2.01 for 
                            Additional Notes

    On behalf on ---------------------- [Name of Borrower] (the 
``Borrower''), I ------------------------ hereby certify as follows:
    1. I am the Manager of the Borrower and have been duly authorized to 
deliver this certificate in connection with the Additional Note or Notes 
to be issued on or about ---------------------- [Date Note or Notes are 
to be Signed] pursuant to Section [2.01] of the Mortgage dated --------
--------------.
    2. No Event of Default has occurred and is continuing under the 
Mortgage, or any event which with the giving of notice or lapse of time 
or both would become an Event of Default has occurred and is continuing.
    3. The Additional Notes described in paragraph 1 are for the purpose 
of funding Property Additions being constructed, acquired, procured or 
replaced that are or will become part of the Borrower's Utility System.
    4. The Property Additions referred to in paragraph 3 are Eligible 
Property Additions, i.e. Property Additions acquired or whose 
construction was completed not more than 5 years prior to the issuance 
of additional Notes and Property Additions acquired or whose 
construction is started and/or completed not more than 4 years after 
issuance of the additional Notes, but shall exclude any Property 
Additions financed by any other debt secured under the Mortgage at the 
time additional Notes are issued.
    5. I have reviewed the certificate of the Independent certified 
public accountant also being delivered to each of the Mortgagees 
pursuant to Section [2.01] in connection with the aforesaid Additional 
Note or Notes and concur with the conclusions expressed therein.
    6. Capitalized terms that are used in this certificate but are not 
defined herein have the meanings defined in the Mortgage.
[Signed]________________________________________________________________
[Dated]_________________________________________________________________
[Name]__________________________________________________________________
[Title]_________________________________________________________________
[Name and Address of Borrower]__________________________________________
________________________________________________________________________
________________________________________________________________________

                Exhibit B--Form of Supplemental Mortgage

________________________________________________________________________
    Supplemental Mortgage and Security Agreement, dated as of ----------
, ------,

[[Page 194]]

--------, (hereinafter sometimes called this ``Supplemental Mortgage'') 
is made by and between ---------- (hereinafter called the 
``Mortgagor''), a corporation existing under the laws of the State of --
--------, and the UNITED STATES OF AMERICA acting by and through the 
Administrator of the Rural Utilities Service (hereinafter called the 
``Government''), ---------- (Supplemental Lender) (hereinafter called --
--------), a ---------- existing under the laws of ----------, and 
intended to confer rights and benefits on both the Government and ------
---- and ---------- in accordance with this Supplemental Mortgage and 
the Original Mortgage (hereinafter defined) (the Government and the 
Supplemental Lenders being herein sometimes collectively referred to as 
the ``Mortgagees'').

                                Recitals

    Whereas, the Mortgagor, the Government and ---------- are parties to 
that certain Restated Mortgage and Security Agreement, as supplemented, 
amended or restated (the ``Original Mortgage'' identified in Schedule 
``A'' of this Mortgage) originally entered into between the Mortgagor, 
the Government acting by and through the Administrator of the Rural 
Utilities Service (hereinafter called ``RUS''), and ----------; and
    Whereas, the Mortgagor deems it necessary to borrow money for its 
corporate purposes and to issue its promissory notes and other debt 
obligations therefor, and to mortgage and pledge its property 
hereinafter described or mentioned to secure the payment of the same, 
and to enter into this Supplemental Mortgage pursuant to which all 
secured debt of the Mortgagor hereunder shall be secured on parity, and 
to add ---------- as a secured party hereunder and under the Original 
Mortgage (the Supplemental Mortgage and the Original Mortgage, as it may 
have been previously amended or supplemented, hereinafter may be called 
collectively the ``RUS Mortgage''); and
    Whereas, the RUS Mortgage, as supplemented hereby, preserves the 
priority of the Original Mortgage for the pro rata benefit of all the 
Mortgagees and secures the payment of all of the Mortgagor's outstanding 
indebtedness as listed in the Instruments Recital of Schedule ``A''; and
    Whereas, all acts necessary to make this Supplemental Mortgage a 
valid and binding legal instrument for the security of such notes and 
obligations, subject to the terms of the RUS Mortgage, have been in all 
respects duly authorized:
    Now, Therefore, This Supplemental Mortgage Witnesseth: That to 
secure the payment of the principal of (and premium, if any) and 
interest on all Notes issued hereunder according to their tenor and 
effect, and the performance of all provisions therein and herein 
contained, and in consideration of the covenants herein contained and 
the purchase or guarantee of Notes by the guarantors or holders thereof, 
the Mortgagor has mortgaged, pledged and granted a continuing security 
interest in, and by these presents does hereby grant, bargain, sell, 
alienate, remise, release, convey, assign, transfer, hypothecate, 
pledge, set over and confirm, pledge and grant a continuing security 
interest in for the purposes hereinafter expressed [other language may 
be required under various state laws], unto the Mortgagees all property, 
rights, privileges and franchises of the Mortgagor of every kind and 
description, real, personal or mixed, tangible and intangible, of the 
kind or nature specifically mentioned herein or any other kind or 
nature, except any Excepted Property set forth on Schedule ``C'' hereof 
owned or hereafter acquired by the Mortgagor (by purchase, 
consolidation, merger, donation, construction, erection or in any other 
way) wherever located, including (without limitation) all and singular 
the following:
    A. All of those fee and leasehold interests in real property set 
forth in Schedule ``B'' hereto, subject in each case to those matters 
set forth in such Schedule; and
    B. All of those fee and leasehold interests in real property set 
forth in Schedule ``B'' of the Original Mortgage or in any restatement, 
amendment or supplement thereto, subject in each case to those matters 
set forth in such Schedule; and
    C. All of the kinds, types or items of property, now owned or 
hereafter acquired, described as Mortgaged Property in the Original 
Mortgage or in any restatement, amendment to supplement thereto as 
Mortgaged Property.
    It is Further Agreed and Covenanted That the Original Mortgage, as 
previously restated, amended or supplemented, and this Supplement shall 
constitute one agreement and the parties hereto shall be bound by all of 
the terms thereof and, without limiting the foregoing.
    1. All capitalized terms not defined herein shall have the meaning 
given in Article I of the Original Mortgage.
    2. This Supplemental Mortgage is one of the Supplemental Mortgages 
contemplated by Article II of the Original Mortgage.
    In Witness Whereof, ---------- as Mortgagor.

[ACKNOWLEDGEMENTS]

     Supplemental Mortgage Schedule A--Maximum Debt Limit and Other 
                               Information

    1. The Maximum Debt Limit is ----------.
    2. The Original Mortgage as described in the first WHEREAS clause 
above is ----------.

[[Page 195]]

    3. The outstanding secured indebtedness described in the third 
WHEREAS clause above is ----------.

           Supplemental Mortgage Schedule B--Property Schedule

    The fee and leasehold interests in real property referred to in 
clause A of the granting clause are ----------.

           Supplemental Mortgage Schedule C--Excepted Property

[60 FR 36888, July 18, 1995, as amended at 60 FR 67410, Dec. 29, 1995; 
65 FR 51749, Aug. 25, 2000]



          Subpart C_Loan Contracts With Distribution Borrowers

    Source: 60 FR 67410, Dec. 29, 1995, unless otherwise noted.



Sec. 1718.100  General.

    (a) Purpose.The purpose of this subpart is to set forth the 
policies, requirements, and procedures governing loan contracts entered 
into between the Rural Utilities Service (RUS) and distribution 
borrowers or, in some cases, other electric borrowers.
    (b) Flexibility for individual circumstances.The intent of this 
subpart is to provide the flexibility to address the different needs and 
different credit risks of individual borrowers, and other special 
circumstances of individual lending situations. The model loan contract 
contained in appendix A of this subpart provides an example of what a 
loan contract with an ``average'' or ``typical'' distribution borrower 
may look like under ``average'' or ``typical'' circumstances. Depending 
on the credit risks and other circumstances of individual loans, RUS may 
execute loan contracts with provisions that are substantially different 
than those set forth in the model. RUS may develop alternative model 
loan contract provisions. If it does, such provisions will be made 
available to the public.
    (c) Resolution of any differences in contractual provisions.If any 
provision of the loan contract appears to be in conflict with provisions 
of the mortgage, the loan contract shall have precedence with respect to 
the contractual relationship between the borrower and RUS with respect 
to such provision. If either document is silent on a matter addressed in 
the other document, the other document shall have precedence with 
respect to the contractual relationship between the borrower and RUS 
with respect to such matter.
    (d) Certain loan contract provisions subject to subsequent 
rulemaking.If a loan contract provision imposes an obligation or 
limitation on the borrower whose interpretation or specification is 
subject to RUS regulations or the discretion of the Administrator or 
RUS, such interpretation or specification shall be subject to subsequent 
rulemaking. Such interpretation or specification of the borrower's 
obligations or limitations may not exceed the authority granted to the 
Administrator or RUS in the loan contract provision.



Sec. 1718.101  Applicability.

    (a) Distribution borrowers.The provisions of this subpart apply to 
all distribution borrowers that obtain a loan or loan guarantee from RUS 
approved on or after January 29, 1996. Distribution borrowers that 
obtain a lien accommodation or any other form of financial assistance 
from RUS after January 29, 1996, may be required to execute a new loan 
contract and new mortgage. Moreover, any distribution borrower may 
submit a request to RUS that a new loan contract and new mortgage be 
executed. Within the constraints of time and staff resources, RUS will 
attempt to honor such requests. Borrowers must first obtain the 
concurrence of any other mortgagees on their existing mortgage before a 
new mortgage can be executed.
    (b) Other borrowers.Borrowers other than distribution borrowers may 
also submit requests for execution of a new loan contract pursuant to 
this subpart and a new mortgage pursuant to subpart B of this part. RUS 
may approve such requests if it determines that such approval is in the 
government's financial interest. If other mortgagees are on the 
borrower's existing mortgage, their concurrence would be required before 
a new mortgage could be executed.



Sec. 1718.102  Definitions.

    For the purposes of this subpart:

[[Page 196]]

    Borrower means any organization that has an outstanding loan made or 
guaranteed by the Rural Utilities Service (RUS) or its predecessor, the 
Rural Electrification Administration, for rural electrification, or that 
is seeking such financing.
    Distribution borrower means a borrower that sells or intends to sell 
electric power and energy at retail in rural areas, the latter being 
defined in 7 CFR 1710.2.
    Loan documents means the mortgage (or other security instrument 
acceptable to RUS), the loan contract, and the promissory note entered 
into between the borrower and RUS.



Sec. 1718.103  Loan contract provisions.

    Loan contracts executed pursuant to this subpart shall contain such 
provisions as RUS determines are appropriate to further the purposes of 
the RE Act and to ensure that the security for the loan will be 
reasonably adequate and that the loan will be repaid according to the 
terms of the promissory note. Such loan contracts will contain 
provisions addressing, but not necessarily limited to, the following 
matters:
    (a) Description of the purpose of the loan;
    (b) Specification of the interest to be charged on the loan, 
including the method for determining the interest rate if it is not 
fixed for the entire term of the loan;
    (c) Specification of the method for repaying the loan principal, 
including the final maturity of the loan;
    (d) The conditions under which the loan may be prepaid before its 
maturity date, including but not limited to requirements regarding the 
prepayment of loans made concurrently by RUS and another secured lender;
    (e) The method for making scheduled payments on the loan;
    (f) Accounting principles and system of accounts, and RUS authority 
to approve the accountant used by the borrower;
    (g) The method and time period for advancing loan funds and the 
conditions precedent to the advance of funds;
    (h) Representations and warranties by the borrower as a condition of 
obtaining the loan, including but not limited to: the legal authority of 
the borrower to enter into the loan contract and operate its system; 
that the loan documents will be a legal, valid and binding obligation of 
the borrower enforceable according to their terms; compliance of the 
borrower in all material respects with all federal, state, and local 
laws, regulations, codes, and orders; existence of any pending or 
threatened legal actions that could have a material adverse effect on 
the borrower's ability to perform its obligations under the loan 
documents; the accuracy and completeness of all information provided by 
the borrower in the loan application and with respect to the loan 
contract, and the existence of any material adverse change since the 
information was provided; and the existence of any material defaults 
under other agreements of the borrower;
    (i) Representations, warranties, and covenants with respect to 
environmental matters;
    (j) Reports and notices required to be submitted to RUS, including 
but not limited to: annual financial statements; notice of defaults; 
notice of litigation; notice of orders or other directives received by 
the borrower from regulatory authorities; notice of any matter that has 
resulted in or may result in a material adverse change in the condition 
or operations of the borrower; and such other information regarding the 
condition or operations of the borrower as RUS may reasonably require;
    (k) Annual written certification that the borrower is in compliance 
with its loan contract, note, mortgage, and any other agreement with 
RUS, or if there has been a default in the fulfillment of any obligation 
under said agreements, specifying each such default and the nature and 
status thereof;
    (l) Requirement that the borrower design and implement rates for 
utility services to meet certain minimum coverage of interest expense 
and/or debt service obligations;
    (m) Requirement that the borrower maintain and preserve its 
mortgaged property in compliance with prudent utility practice and all 
applicable laws,

[[Page 197]]

which may include certain specific actions and certifications set forth 
in the borrower's loan contract or mortgage;
    (n) Requirement that the borrower plan, design and construct its 
electric system according to standards and other requirements 
established by RUS, and if directed by the Administrator, that the 
borrower follow RUS planning, design and construction standards and 
requirements for other utility systems constructed by the borrower;
    (o) Limitations on extensions and additions to the borrower's 
electric system without approval by RUS;
    (p) Limitations on contracts and contract amendments that the 
borrower may enter into without approval by RUS;
    (q) Limitations of the transfer of mortgaged property by the 
borrower;
    (r) Limitations on dividends, patronage refunds, and cash 
distributions paid by the borrower;
    (s) Limitations on investments, loans, and guarantees made by the 
borrower;
    (t) Authority of RUS to approve a new general manager and to require 
that an existing general manager be replaced if the borrower is in 
default under its mortgage, loan contract, or any other agreements with 
RUS;
    (u) Description of events of default under the loan contract and the 
remedies available to RUS;
    (v) Applicability of state and federal laws;
    (w) Severability of the individual provisions of the loan documents;
    (x) Matters relating to the assignment of the loan contract;
    (y) Requirements relating to federal laws and regulations, including 
but not limited to the following matters: area coverage for electric 
service; civil rights and equal employment opportunity; access to 
buildings and other matters relating to the handicapped; design and 
construction standards relating to earthquakes; the National 
Environmental Policy Act of 1969 and other environmental laws and 
regulations; flood hazard insurance; debarment and suspension from 
federal assistance programs; and delinquency on federal debt; and
    (z) Special requirements applicable to individual loans, and such 
other provisions as RUS may require to ensure loan repayment and 
reasonably adequate loan security.



Sec. 1718.104  Availability of model loan contract.

    Single copies of the model loan contract (RUS Informational 
Publication 1718 C) are available from the Rural Utilities Service, 
United States Department of Agriculture, Washington, DC 20250-1533. This 
document may be reproduced.



 Sec. Appendix A to Subpart C of Part 1718--Model Form of Loan Contract 

                   for Electric Distribution Borrowers

LOAN CONTRACT
TABLE OF CONTENTS
RECITALS
ARTICLE I--DEFINITIONS
ARTICLE II--REPRESENTATIONS AND WARRANTIES
    Section 2.1. Representations and Warranties.
ARTICLE III--LOAN
    Section 3.1. Advances.
    Section 3.2. Interest Rate and Payment.
    Section 3.3. Prepayment.
ARTICLE IV--CONDITIONS OF LENDING
    Section 4.1. General Conditions.
    Section 4.2. Special Conditions.
ARTICLE V--AFFIRMATIVE COVENANTS
    Section 5.1. Generally.
    Section 5.2. Annual Certificates.
    Section 5.3. Simultaneous Prepayment of Contemporaneous Loans.
    Section 5.4. Rates to Provide Revenue Sufficient to Meet Coverage 
Ratios Requirements.
    Section 5.5. Depreciation Rates.
    Section 5.6. Property Maintenance.
    Section 5.7. Financial Books.
    Section 5.8. Rights of Inspection.
    Section 5.9. Area Coverage.
    Section 5.10. Real Property Acquisition.
    Section 5.11. ``Buy American'' Requirements.
    Section 5.12. Power Requirements Studies.
    Section 5.13. Long Range Engineering Plans and Construction Work 
Plans.
    Section 5.14. Design Standards, Construction Standards, and List of 
Materials.
    Section 5.15. Plans and Specifications.
    Section 5.16. Standard Forms of Construction Contracts, and 
Engineering and Architectural Services Contracts.
    Section 5.17. Contract Bidding Requirements.
    Section 5.18. Nondiscrimination.
    Section 5.19. Financial Reports.

[[Page 198]]

    Section 5.20. Miscellaneous Reports and Notices.
    Section 5.21 Special Construction Account.
    Section 5.22. Additional Affirmative Covenants.
ARTICLE VI--NEGATIVE COVENANTS
    Section 6.1. General.
    Section 6.2. Limitations on System Extensions and Additions.
    Section 6.3. Limitations on Changing Principal Place of Business.
    Section 6.4. Limitations on Employment and Retention of Manager.
    Section 6.5. Limitations on Certain Types of Contracts.
    Section 6.6. Limitations on Mergers and Sale, Lease or Transfer of 
Capital Assets.
    Section 6.7. Limitations on Using non FDIC-insured Depositories.
    Section 6.8. Limitation on Distributions.
    Section 6.9. Limitations on Loans, Investments and Other 
Obligations.
    Section 6.10. Depreciation Rates.
    Section 6.11. Historic Preservation.
    Section 6.12. Rate Reductions.
    Section 6.13. Limitations on Additional Indebtedness.
    Section 6.14. Limitations on Issuing Additional Indebtedness Secured 
Under the Mortgage.
    Section 6.15. Impairment of Contracts Pledged to RUS.
    Section 6.16. Additional Negative Covenants.
ARTICLE VII--DEFAULT
    Section 7.1. Events of Default.
ARTICLE VIII--REMEDIES
    Section 8.1. Generally.
    Section 8.2. Suspension of Advances.
ARTICLE IX--MISCELLANEOUS
    Section 9.1. Notices.
    Section 9.2. Expenses.
    Section 9.3. Late Payments.
    Section 9.4. Filing Fees.
    Section 9.5. No Waiver.
    Section 9.6. Governing Law.
    Section 9.7. Holiday Payments.
    Section 9.8. Rescission.
    Section 9.9. Successors and Assigns.
    Section 9.10. Complete Agreement; Amendments.
    Section 9.11. Headings.
    Section 9.12. Severability.
    Section 9.13. Right of Setoff.
    Section 9.14. Schedules and Exhibits.
    Section 9.15. Prior Loan Documents.
    Section 9.16. Authority of Representatives of RUS.
    Section 9.17. Term.
Schedule 1
Schedule 2--Existing Liens
Schedule 3--Additional Contracts
Exhibit A--Form of Promissory Note
Exhibit B--Equal Opportunity Contract Provisions
Exhibit C-1--Manager's Certificate Required Under Loan Contract
    Section 6.14 for Additional Notes
Exhibit C-2--Manager's Certificate Required Under Loan Contract
    Section 6.14 for Refinancing Notes

                              Loan Contract

    AGREEMENT, dated --------------------, 199----, between ------------
-------- (``Borrower''), a corporation organized and existing under the 
laws of the State of -------------------- (the ``State'') and the UNITED 
STATES OF AMERICA acting by and through the Administrator of the Rural 
Utilities Service (``RUS'').

                                Recitals

    The Borrower has applied to RUS for a loan for the purpose(s) set 
forth in Schedule 1 hereto.
    RUS is willing to make such a loan to the Borrower pursuant to the 
Rural Electrification Act of 1936, as amended, on the terms and 
conditions stated herein.
    THEREFORE, for and in consideration of the premises and the mutual 
covenants hereinafter contained, the parties hereto agree and bind 
themselves as follows:

                         Article I--Definitions

    Capitalized terms that are not defined herein shall have the 
meanings as set forth in the Mortgage. The terms defined herein include 
the plural as well as the singular and the singular as well as the 
plural.
    ``Act'' shall mean the Rural Electrification Act of 1936, as 
amended.
    ``Advance'' or ``Advances'' shall mean advances by RUS to Borrower 
pursuant to the terms and conditions of this Agreement.
    ``Agreement'' shall mean this Loan Contract together with all 
schedules and exhibits and also any subsequent supplements or 
amendments.
    ``Business Day'' shall mean any day that RUS is open for business.
    ``Contemporaneous Loan'' shall mean any loan which the Borrower has 
used to satisfy RUS Regulations or loan conditions requiring that 
supplemental financing be obtained in order to obtain a loan from RUS. 
Any loan used to refinance or refund a Contemporaneous Loan is also 
considered to be a Contemporaneous Loan.
    ``Coverage Ratios'' shall mean, collectively, the following 
financial ratios: (i) TIER of 1.25; (ii) Operating TIER of 1.1; (iii) 
DSC of 1.25; and Operating DSC of 1.1.
    ``Debt Service Coverage Ratio'' (``DSC'') shall have the meaning 
provided in the Mortgage.
    ``Distributions'' shall mean for the Borrower to, in any calendar 
year, declare or pay any dividends, or pay or determine to pay any 
patronage refunds, or retire any patronage capital or make any other 
Cash Distributions, to its members, stockholders or

[[Page 199]]

consumers; provided, however, that for the purposes of this Agreement a 
``Cash Distribution'' shall be deemed to include any general 
cancellation or abatement of charges for electric energy or services 
furnished by the Borrower, but not the repayment of a membership fee 
upon termination of a membership or the rebate of an abatement of 
wholesale power costs previously incurred pursuant to an order of a 
state regulatory authority or a wholesale power cost adjustment clause 
or similar power pricing agreement between the Borrower and a power 
supplier.
    ``Electric System'' shall have the meaning as defined in the 
Mortgage.
    ``Equity'' shall mean the Borrower's total margins and equities 
computed pursuant to RUS Accounting Requirements but excluding any 
Regulatory Created Assets.
    ``Event of Default'' shall have the meaning as defined in Section 
[7.1].
    ``Independent'' when used with respect to any specified person or 
entity means such a person or entity who (1) is in fact independent, (2) 
does not have any direct financial interest or any material indirect 
financial interest in the Borrower or in any affiliate of the Borrower 
and (3) is not connected with the Borrower as an officer, employee, 
promoter, underwriter, trustee, partner, director or person performing 
similar functions.
    ``Interest Expense'' shall mean the interest expense of the Borrower 
computed pursuant to RUS Accounting Requirements.
    ``Loan'' shall mean the loan described in Article III which is being 
made pursuant to the RUS Commitment in furtherance of the objectives of 
the Act.
    ``Loan Documents'' shall mean, collectively, this Agreement, the 
Mortgage and the Note.
    ``Long-Term Debt'' shall mean the total of all amounts included in 
the long-term debt of the Borrower pursuant to RUS Accounting 
Requirements.
    ``Maturity Date'' shall have the meaning as defined in the Note.
    ``Monthly Payment Date'' shall have the meaning as defined in the 
Note.
    ``Mortgage'' shall have the meaning as described in Schedule 1 
hereto.
    ``Mortgaged Property'' shall have the meaning as defined in the 
Mortgage.
    ``Net Utility Plant'' shall mean the amount constituting the Total 
Utility Plant of the Borrower, less depreciation, computed in accordance 
with RUS Accounting Requirements.
    ``Note'' shall mean a promissory note executed by the Borrower in 
the form of exhibit A hereto, and any note executed and delivered to RUS 
to refund, or in substitution for such a note.
    ``Operating DSC'' or ``ODSC'' shall mean Operating Debt Service 
Coverage calculated as:
[GRAPHIC] [TIFF OMITTED] TR29DE95.004

Where:

All amounts are for the same calendar year and are computed pursuant to 
RUS Accounting Requirements and RUS form 7;
A=Depreciation and Amortization Expense of the Electric System;
B=Interest Expense on Total Long-Term Debt of the Electric System, 
except that such Interest Expense shall be increased by \1/3\ of the 
amount, if any, by which the Restricted Rentals of the Electric System 
exceed 2 percent of the Mortgagor's Equity;
C=Patronage capital & operating margins of the Electric System, (which 
equals operating revenue and patronage capital of Electric System 
operations, less total cost of electric service, including Interest 
Expense on Total Long-Term Debt of the Electric System) 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 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 exceed 2 
percent of the Mortgagor's Equity.

    ``Operating TIER'' or ``OTIER'' shall mean Operating Times Interest 
Earned Ratio calculated as:
[GRAPHIC] [TIFF OMITTED] TR29DE95.005

Where:
All amounts are for the same calendar year and are computed pursuant to 
RUS Accounting Requirements and RUS form 7;
A=Interest Expense on Total Long-Term Debt of the Electric System, 
except that such Interest Expense shall be increased by 1/3 of the 
amount, if any, by which Restricted Rentals of the Electric System 
exceed 2 percent of the Mortgagor's Equity; and
B=Patronage capital & operating margins of the Electric System, (which 
equals operating revenue and patronage capital of Electric System 
operations, less total cost of electric service, including Interest 
Expense on Total Long-Term Debt of the Electric System) plus cash 
received from the retirement of patronage capital by suppliers of 
electric power and by lenders for credit extended for the Electric 
System.


[[Page 200]]


    ``Payment Notice'' shall mean a notice furnished by RUS to Borrower 
that indicates the precise amount of each payment of principal and 
interest and the total amount of each payment.
    ``Permitted Debt'' shall have the meaning as defined in section 
[6.13].
    ``Prior Loan Contracts'' shall have the meaning as defined in 
section 9.15.
    ``Regulatory Created Assets'' shall mean the sum of any amounts 
properly recordable as unrecovered plant and regulatory study costs or 
as other regulatory assets, computed pursuant to RUS Accounting 
Requirements.
    ``RUS Accounting Requirements'' shall mean any system of accounts 
prescribed by RUS Regulations as such RUS Accounting Requirements exist 
at the date of applicability thereof.
    ``RUS Commitment'' shall have the meaning as defined in schedule 1 
hereto.
    ``RUS Regulations'' shall mean regulations of general applicability 
published by RUS from time to time as they exist at the date of 
applicability thereof, and shall also include any regulations of other 
Federal entities which RUS is required by law to implement.
    ``Special Construction Account'' shall have the meaning as defined 
in section 5.21.
    ``Subsidiary'' shall mean a corporation that is a subsidiary of the 
Borrower and subject to the Borrower's control, as defined by RUS 
Accounting Requirements.
    ``Termination Date'' shall have the meaning as defined in the Note.
    ``Times Interest Earned Ratio'' (``TIER'') shall have the meaning 
provided in the Mortgage.
    ``Total Assets'' shall mean an amount constituting the total assets 
of the Borrower as computed pursuant to RUS Accounting Requirements, but 
excluding any Regulatory Created Assets.
    ``Total Utility Plant'' shall mean the amount constituting the total 
utility plant of the Borrower computed in accordance with RUS Accounting 
Requirements.
    ``Utility System'' shall have the meaning as defined in the 
Mortgage.

               Article II--Representations and Warranties

              Section 2.1. Representations and Warranties.

    To induce RUS to make the Loan, and recognizing that RUS is relying 
hereon, the Borrower represents and warrants as follows:
    (a) Organization; Power, Etc. The Borrower: (i) is duly organized, 
validly existing, and in good standing under the laws of its state of 
incorporation; (ii) is duly qualified to do business and is in good 
standing in each jurisdiction in which the transaction of its business 
makes such qualification necessary; (iii) has all requisite corporate 
and legal power to own and operate its assets and to carry on its 
business and to enter into and perform the Loan Documents; (iv) has duly 
and lawfully obtained and maintained all licenses, certificates, 
permits, authorizations, approvals, and the like which are material to 
the conduct of its business or which may be otherwise required by law; 
and (v) is eligible to borrow from RUS.
    (b) Authority. The execution, delivery and performance by the 
Borrower of this Agreement and the other Loan Documents and the 
performance of the transactions contemplated thereby have been duly 
authorized by all necessary corporate action and shall not violate any 
provision of law or of the Articles of Incorporation or By-Laws of the 
Borrower or result in a breach of, or constitute a default under, any 
agreement, indenture or other instrument to which the Borrower is a 
party or by which it may be bound.
    (c) Consents. No consent, permission, authorization, order, or 
license of any governmental authority is necessary in connection with 
the execution, delivery, performance, or enforcement of the Loan 
Documents, except (i) such as have been obtained and are in full force 
and effect and (ii) such as have been disclosed on Schedule 1 hereto.
    (d) Binding Agreement. Each of the Loan Documents is, or when 
executed and delivered shall be, the legal, valid, and binding 
obligation of the Borrower, enforceable in accordance with its terms, 
subject only to limitations on enforceability imposed by applicable 
bankruptcy, insolvency, reorganization, moratorium, or similar laws 
affecting creditors' rights generally.
    (e) Compliance With Laws. The Borrower is in compliance in all 
material respects with all federal, state, and local laws, rules, 
regulations, ordinances, codes, and orders (collectively, ``Laws''), the 
failure to comply with which could have a material adverse effect on the 
condition, financial or otherwise, operations, properties, or business 
of the Borrower, or on the ability of the Borrower to perform its 
obligations under the Loan Documents, except as the Borrower has 
disclosed on Schedule 1 attached hereto.
    (f) Litigation. There are no pending legal, arbitration, or 
governmental actions or proceedings to which the Borrower is a party or 
to which any of its property is subject which, if adversely determined, 
could have a material adverse effect on the condition, financial or 
otherwise, operations, properties, profits or business of the Borrower, 
or on the ability of the Borrower to perform its obligations under the 
Loan Documents, and to the best of the Borrower's knowledge, no such 
actions or proceedings are threatened or contemplated, except as the 
Borrower has disclosed to RUS in writing.
    (g) Title to Property. As to property which is presently included in 
the description of

[[Page 201]]

Mortgaged Property, the Borrower holds good and marketable title to all 
of its real property and owns all of its personal property free and 
clear of any Lien except the Liens specifically identified on Schedule 2 
attached hereto (the ``Existing Liens''), and Permitted Encumbrances or 
Liens permitted under the Mortgage.
    (h) Financial Statements; No Material Adverse Change; Etc. All 
financial statements submitted to RUS in connection with the application 
for the Loan or in connection with this Agreement fairly and fully 
present the financial condition of the Borrower and the results of the 
Borrower's operations for the periods covered thereby and are prepared 
in accordance with RUS Accounting Requirements consistently applied. 
Since the dates thereof, there has been no material adverse change in 
the financial condition or operations of the Borrower. All budgets, 
projections, feasibility studies, and other documentation submitted by 
the Borrower to RUS are based upon assumptions that are reasonable and 
realistic, and as of the date hereof, no fact has come to light, and no 
event or transaction has occurred, which would cause any assumption made 
therein not to be reasonable or realistic.
    (i) Principal Place of Business; Records. The principal place of 
business and chief executive office of the Borrower is at the address of 
the Borrower shown on Schedule 1 attached hereto.
    (j) Location of Properties. All property owned by the Borrower is 
located in the counties identified in Schedule 1 hereto.
    (k) Subsidiaries. The Borrower has no subsidiary, except as the 
Borrower has disclosed to RUS in writing.
    (l) Defaults Under Other Agreements. The Borrower is not in default 
under any agreement or instrument to which it is a party or under which 
any of its properties are subject that is material to its financial 
condition, operations, properties, profits, or business.
    (m) Survival. All representations and warranties made by the 
Borrower herein or made in any certificate delivered pursuant hereto 
shall survive the making of the Advances and the execution and delivery 
to RUS of the Note.

                            Article III--Loan

                          Section 3.1. Advances

    RUS agrees to make, and the Borrower agrees to request, on the terms 
and conditions of this Agreement, Advances from time to time in an 
aggregate principal amount not to exceed the RUS Commitment. On the 
Termination Date, RUS may stop advancing funds and limit the RUS 
Commitment to the amount advanced prior to such date. The obligation of 
the Borrower to repay the Advances shall be evidenced by the Note in the 
principal amount of the unpaid principal amount of the Advances from 
time to time outstanding. The Borrower shall give RUS written notice of 
the date on which each Advance is to be made.

                 Section 3.2. Interest Rate and Payment

    The Note shall be payable and bear interest as follows:
    (a) Payments and Amortization. Principal shall be amortized in 
accordance with the method stated in Schedule 1 hereto and more fully 
described in the form of Note attached hereto as Exhibit A.
    (b) Application of Payments. All payments which the Borrower sends 
to RUS on any outstanding obligation owed to RUS shall be applied in the 
manner provided in the Borrower's loan documents to which such payments 
relate and in a manner consistent with RUS policies, practices, and 
procedures for obligations that have been similarly classified by RUS.
    (c) Electronic Funds Transfer. Except as otherwise prescribed by 
RUS, the Borrower shall make all payments on the Note utilizing 
electronic funds transfer procedures as specified by RUS.
    (d) Fixed or Variable Rate. The Note shall bear interest at either a 
fixed or variable rate in accordance with the method stated in Schedule 
1 hereto and as more particularly described in the form of Note attached 
hereto as Exhibit A.

                         Section 3.3. Prepayment

    The Borrower has no right to prepay the Note in whole or in part 
except such rights, if any, as are expressly provided for in the Note. 
However, prepayment of the Note (and any penalties) shall be mandatory 
under Section [5.3] hereof if the Borrower has used a Contemporaneous 
Loan in order to qualify for the RUS Commitment, and later prepays the 
Contemporaneous Loan.

                    Article IV--Conditions of Lending

                     Section 4.1. General Conditions

    The obligation of RUS to make any Advance hereunder is subject to 
satisfaction of each of the following conditions precedent on or before 
the date of such Advance:
    (a) Legal Matters. All legal matters incident to the consummation of 
the transactions hereby contemplated shall be satisfactory to counsel 
for RUS.
    (b) Loan Documents. That RUS receive duly executed originals of this 
Agreement and the other Loan Documents.
    (c) Authorization. That RUS receive evidence satisfactory to it that 
all corporate documents and proceedings of the Borrower necessary for 
duly authorizing the execution, delivery and performance of the Loan 
Documents have been obtained and are in full force and effect.

[[Page 202]]

    (d) Approvals. That RUS receive evidence satisfactory to it that all 
consents and approvals (including without limitation the consents 
referred to in Section [2.1(c)] of this Agreement) which are necessary 
for, or required as a condition of, the validity and enforceability of 
each of the Loan Documents have been obtained and are in full force and 
effect.
    (e) Event of Default. That no Event of Default specified in Article 
VII and no event which, with the lapse of time or the notice and lapse 
of time specified in Article VII would become such an Event of Default, 
shall have occurred and be continuing, or shall have occurred after 
giving effect to the Advance on the books of the Borrower.
    (f) Continuing Representations and Warranties. That the 
representations and warranties of the Borrower contained in this 
Agreement be true and correct on and as of the date of such Advance as 
though made on and as of such date.
    (g) Opinion of Counsel. That RUS receive an opinion of counsel for 
the Borrower (who shall be acceptable to RUS) in form and content 
acceptable to RUS.
    (h) Mortgage Filing. The Mortgage shall have been duly recorded as a 
mortgage on real property, including after-acquired real property, and 
duly filed, recorded or indexed as a security interest in personal 
property, including after acquired personal property, wherever RUS shall 
have requested, all in accordance with applicable law, and the Borrower 
shall have caused satisfactory evidence thereof to be furnished to RUS.
    (i) Wholesale Power Contract. That the Borrower shall not be in 
default under the terms of, or contesting the validity of, any contract 
for sales for resale that has been pledged by any entity to RUS as 
security for the repayment of any loan made or guaranteed by RUS under 
the Act.
    (j) Material Adverse Change. That there has occurred no material 
adverse change in the business or condition, financial or otherwise, of 
the Borrower and nothing has occurred which in the opinion of RUS 
materially and adversely affects the Borrower's ability to meet its 
obligations hereunder.
    (k) Requisitions. That the Borrower shall requisition all Advances 
by submitting its requisition to RUS in form and substance satisfactory 
to RUS. Requisitions shall be made only for the purpose(s) set forth 
herein. The Borrower agrees to apply the proceeds of the Advances in 
accordance with its loan application with such modifications as may be 
mutually agreed.
    (l) Flood Insurance. That for any Advance used in whole or in part 
to finance the construction or acquisition of any building in any area 
identified by the Secretary of Housing and Urban Development pursuant to 
the Flood Disaster Protection Act of 1973 (the ``Flood Insurance Act'') 
or any rules, regulations or orders issued to implement the Flood 
Insurance Act (``Rules'') as any area having special flood hazards, or 
to finance any facilities or materials to be located in any such 
building, or in any building owned or occupied by the Borrower and 
located in such a flood hazard area, the Borrower has submitted 
evidence, in form and substance satisfactory to RUS, or RUS has 
otherwise determined, that (i) the community in which such area is 
located is then participating in the national flood insurance program, 
as required by the Flood Insurance Act and any Rules, and (ii) the 
Borrower has obtained flood insurance coverage with respect to such 
building and contents as may then be required pursuant to the Flood 
Insurance Act and any Rules.
    (m) Compliance With Loan Contract and Mortgage. That the Borrower is 
in material compliance with all provisions of this Agreement and the 
Mortgage.

                     Section 4.2. Special Conditions

    The obligation of RUS to make any Advance hereunder is also subject 
to satisfaction, on or before the date of such Advance, of each of the 
special conditions, if any, listed in Schedule 1 hereto.

                    Article V--Affirmative Covenants

                         Section 5.1. Generally

    Unless otherwise agreed to in writing by RUS, while this Agreement 
is in effect, whether or not any Advance is outstanding, the Borrower 
agrees to duly observe each of the affirmative covenants contained in 
this Article:

                    Section 5.2. Annual Certificates

    (a) Performance Under Loan Documents. The Borrower shall duly 
observe and perform all of its obligations under each of the Loan 
Documents.
    (b) Annual Certification. Within ninety (90) days after the close of 
each calendar year, commencing with the year following the year in which 
the initial Advance hereunder shall have been made, the Borrower shall 
deliver to RUS a written statement signed by its General Manager, 
stating that during such year the Borrower has fulfilled all of its 
obligations under the Loan Documents throughout such year in all 
material respects or, if there has been a default in the fulfillment of 
any such obligations, specifying each such default known to said person 
and the nature and status thereof.

      Section 5.3. Simultaneous Prepayment of Contemporaneous Loans

    If the Borrower shall at any time prepay in whole or in part the 
Contemporaneous Loan described on Schedule 1, the Borrower shall prepay 
the RUS Note correspondingly in

[[Page 203]]

order to maintain the ratio that the Contemporaneous Loan bears to the 
RUS Commitment. If the RUS Note calls for a prepayment penalty or 
premium, such amount shall be paid but shall not be used in computing 
the amount needed to be paid to RUS under this section to maintain such 
ratio. In the case of Contemporaneous Loans and RUS Notes existing prior 
to the date of this Agreement under previous agreements, prepayments 
shall be treated as if governed by this section. Provided, however, in 
all cases prepayments associated with refinancing or refunding a 
Contemporaneous Loan pursuant to Article II of the Mortgage are not 
considered to be prepayments for purposes of this Agreement if they 
satisfy each of the following requirements:
    (a) Principal. The principal amount of such refinancing or refunding 
loan is not less than the amount of loan principal being refinanced; and
    (b) Weighted Average Life. The weighted average life of the 
refinancing or refunding loan is materially equal to the weighted 
average remaining life of the loan being refinanced.

Section 5.4 Rates To Provide Revenue Sufficient to Meet Coverage Ratios 
                              Requirements

    (a) Prospective Requirement. The Borrower shall design and implement 
rates for utility service furnished by it to provide sufficient revenue 
(along with other revenue available to the Borrower in the case of TIER 
and DSC) (i) to pay all fixed and variable expenses when and as due, 
(ii) to provide and maintain reasonable working capital, and (iii) to 
maintain, on an annual basis, the Coverage Ratios. In designing and 
implementing rates under this paragraph, such rates should be capable of 
producing at least enough revenue to meet the requirements of this 
paragraph under the assumption that average weather conditions in the 
Borrower's service territory shall prevail in the future, including 
average Utility System damage and outages due to weather and the related 
costs.
    (b) The average Coverage Ratios achieved by the Borrower in the 2 
best years out of the 3 most recent calendar years must be not less than 
any of the following:

TIER=1.25
DSC=1.25
OTIER=1.1
ODSC=1.1

    (c) Prospective Notice of Change in Rates. The Borrower shall give 
thirty (30) days prior written notice of any proposed change in its 
general rate structure to RUS if RUS has requested in writing that it be 
notified in advance of such changes.
    (d) Routine Reporting of Coverage Ratios. Promptly following the end 
of each calendar year, the Borrower shall report, in writing, to RUS the 
TIER, Operating TIER, DSC and Operating DSC levels which were achieved 
during that calendar year.
    (e) Reporting Non-achievement of Retrospective Requirement. If the 
Borrower fails to achieve the average levels required by paragraph (b) 
of this section, it must promptly notify RUS in writing to that effect.
    (f) Corrective Plans. Within 30 days of sending a notice to RUS 
under paragraph (e) of this section, or of being notified by RUS, 
whichever is earlier, the Borrower in consultation with RUS, shall 
provide a written plan satisfactory to RUS setting forth the actions 
that shall be taken to achieve the required Coverage Ratios on a timely 
basis.
    (g) Noncompliance. Failure to design and implement rates pursuant to 
paragraph (a) of this section and failure to develop and implement the 
plan called for in paragraph (f) of this section shall constitute an 
Event of Default under this Agreement in the event that REA so notifies 
the Borrower to that effect under section [7.1(d)] of this Agreement.

                     Section 5.5. Depreciation Rates

    The Borrower shall adopt as its depreciation rates only those which 
have been previously approved for the Borrower by RUS.

                    Section 5.6. Property Maintenance

    The Borrower shall maintain and preserve its Utility System in 
compliance in all material respects with the provisions of the Mortgage, 
RUS Regulations and all applicable laws.

                      Section 5.7. Financial Books

    The Borrower shall at all times keep, and safely preserve, proper 
books, records and accounts in which full and true entries shall be made 
of all of the dealings, business and affairs of the Borrower and its 
Subsidiaries, in accordance with any applicable RUS Accounting 
Requirements.

                    Section 5.8. Rights of Inspection

    The Borrower shall afford RUS, through its representatives, 
reasonable opportunity, at all times during business hours and upon 
prior notice, to have access to and the right to inspect the Utility 
System, any other property encumbered by the Mortgage, and any or all 
books, records, accounts, invoices, contracts, leases, payrolls, 
canceled checks, statements and other documents and papers of every kind 
belonging to or in the possession of the Borrower or in anyway 
pertaining to its property or business, including its Subsidiaries, if 
any, and to make copies or extracts therefrom.

                       Section 5.9. Area Coverage

    (a) The Borrower shall make diligent effort to extend electric 
service to all unserved persons within the service area of the Borrower

[[Page 204]]

who (i) desire such service and (ii) meet all reasonable requirements 
established by the Borrower as a condition of such service.
    (b) If economically feasible and reasonable considering the cost of 
providing such service and/or the effects on consumers' rates, such 
service shall be provided, to the maximum extent practicable, at the 
rates and minimum charges established in the Borrower's rate schedules, 
without the payment of 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) The Borrower may assess contributions in aid of construction 
provided such assessments are consistent with this section.

                 Section 5.10. Real Property Acquisition

    In acquiring real property, the Borrower shall comply in all 
material respects with the provisions of the Uniform Relocation 
Assistance and Real Property Acquisition Policies Act of 1970 (the 
``Uniform Act''), as amended by the Uniform Relocation Act Amendments of 
1987, and 49 CFR part 24, referenced by 7 CFR part 21, to the extent the 
Uniform Act is applicable to such acquisition.

               Section 5.11. ``Buy American'' Requirements

    The Borrower shall use or cause to be used in connection with the 
expenditures of funds advanced on account of the Loan only such 
unmanufactured articles, materials, and supplies as have been mined or 
produced in the United States or any eligible country, and only such 
manufactured articles, materials, and supplies as have been manufactured 
in the United States or any eligible country substantially all from 
articles, materials, and supplies mined, produced or manufactured, as 
the case may be, in the United States or any eligible country, except to 
the extent RUS shall determine that such use shall be impracticable or 
that the cost thereof shall be unreasonable. For purposes of this 
section, an ``eligible country'' is any country that applies with 
respect to the United States an agreement ensuring reciprocal access for 
United States products and services and United States suppliers to the 
markets of that country, as determined by the United States Trade 
Representative.

                Section 5.12. Power Requirements Studies

    The Borrower shall prepare and use power requirements studies of its 
electric loads and future energy and capacity requirements in 
conformance with RUS Regulations.

 Section 5.13. Long Range Engineering Plans and Construction Work Plans

    The Borrower shall develop, maintain and use up-to-date long-range 
engineering plans and construction work plans in conformance with RUS 
Regulations.

  Section 5.14. Design Standards, Construction Standards, and List of 
                                Materials

    The Borrower shall use design standards, construction standards, and 
lists of acceptable materials in conformance with RUS Regulations.

                 Section 5.15. Plans and Specifications

    The Borrower shall submit plans and specifications for construction 
to RUS for review and approval, in conformance with RUS Regulations, if 
the construction will be financed in whole or in part by a loan made or 
guaranteed by RUS.

Section 5.16. Standard Forms of Construction Contracts, and Engineering 
                  and Architectural Services Contracts

    The Borrower shall use the standard forms of contracts promulgated 
by RUS for construction, procurement, engineering services and 
architectural services in conformance with RUS Regulations, if the 
construction, procurement, or services are being financed in whole or in 
part by a loan being made or guaranteed by RUS.

               Section 5.17. Contract Bidding Requirements

    The Borrower shall follow RUS contract bidding procedures in 
conformance with RUS Regulations when contracting for construction or 
procurement financed in whole or in part by a loan made or guaranteed by 
RUS.

                     Section 5.18. Nondiscrimination

    (a) Equal Opportunity Provisions in Construction Contracts. The 
Borrower shall incorporate or cause to be incorporated into any 
construction contract, as defined in Executive Order 11246 of September 
24, 1965 and implementing regulations, which is paid for in whole or in 
part with funds obtained from RUS or borrowed on the credit of the 
United States pursuant to a grant, contract, loan, insurance or 
guarantee, or undertaken pursuant to any RUS program involving such 
grant, contract, loan, insurance or guarantee, the equal opportunity 
provisions set forth in Exhibit B hereto entitled Equal Opportunity 
Contract Provisions.
    (b) Equal Opportunity Contract Provisions Also Bind the Borrower. 
The Borrower further agrees that it shall be bound by such equal 
opportunity clause in any federally assisted construction work which it 
performs itself other than through the permanent work force directly 
employed by an agency of government.

[[Page 205]]

    (c) Sanctions and Penalties. The Borrower agrees that it shall 
cooperate actively with RUS and the Secretary of Labor in obtaining the 
compliance of contractors and subcontractors with the equal opportunity 
clause and the rules, regulations and relevant orders of the Secretary 
of Labor, that it shall furnish RUS and the Secretary of Labor such 
information as they may require for the supervision of such compliance, 
and that it shall otherwise assist the administering agency in the 
discharge of RUS's primary responsibility for securing compliance. The 
Borrower further agrees that it shall refrain from entering into any 
contract or contract modification subject to Executive Order 11246 with 
a contractor debarred from, or who has not demonstrated eligibility for, 
Government contracts and federally assisted construction contracts 
pursuant to Part II, Subpart D of Executive Order 11246 and shall carry 
out such sanctions and penalties for violation of the equal opportunity 
clause as may be imposed upon contractors and subcontractors by RUS or 
the Secretary of Labor pursuant to Part II, Subpart D of Executive Order 
11246. In addition, the Borrower agrees that if it fails or refuses to 
comply with these undertakings RUS may cancel, terminate or suspend in 
whole or in part this contract, may refrain from extending any further 
assistance under any of its programs subject to Executive Order 11246 
until satisfactory assurance of future compliance has been received from 
such Borrower, or may refer the case to the Department of Justice for 
appropriate legal proceedings.

                     Section 5.19. Financial Reports

    The Borrower shall cause to be prepared and furnished to RUS a full 
and complete annual report of its financial condition and of its 
operations in form and substance satisfactory to RUS, audited and 
certified by Independent certified public accountants satisfactory to 
RUS and accompanied by a report of such audit in form and substance 
satisfactory to RUS. The Borrower shall also furnish to RUS from time to 
time such other reports concerning the financial condition or operations 
of the Borrower, including its Subsidiaries, as RUS may reasonably 
request or RUS Regulations require.

             Section 5.20. Miscellaneous Reports and Notices

    The Borrower shall furnish to RUS:
    (a) Notice of Default. Promptly after becoming aware thereof, notice 
of: (i) the occurrence of any default; and (ii) the receipt of any 
notice given pursuant to the Mortgage with respect to the occurrence of 
any event which with the giving of notice or the passage of time, or 
both, could become an ``Event of Default'' under the Mortgage.
    (b) Notice of Non-Environmental Litigation. Promptly after the 
commencement thereof, notice of the commencement of all actions, suits 
or proceedings before any court, arbitrator, or governmental department, 
commission, board, bureau, agency, or instrumentality affecting the 
Borrower which, if adversely determined, could have a material adverse 
effect on the condition, financial or otherwise, operations, properties 
or business of the Borrower, or on the ability of the Borrower to 
perform its obligations under the Loan Documents.
    (c) Notice of Environmental Litigation. Without limiting the 
provisions of Section [5.20(b)] above, promptly after receipt thereof, 
notice of the receipt of all pleadings, orders, complaints, indictments, 
or other communications alleging a condition that may require the 
Borrower to undertake or to contribute to a cleanup or other response 
under laws relating to environmental protection, or which seek 
penalties, damages, injunctive relief, or criminal sanctions related to 
alleged violations of such laws, or which claim personal injury or 
property damage to any person as a result of environmental factors or 
conditions for which the Borrower is not fully covered by insurance, or 
which, if adversely determined, could have a material adverse effect on 
the condition, financial or otherwise, operations, properties or 
business of the Borrower, or on the ability of the Borrower to perform 
its obligations under the Loan Documents.
    (d) Notice of Change of Place of Business. Promptly in writing, 
notice of any change in location of its principal place of business or 
the office where its records concerning accounts and contract rights are 
kept.
    (e) Regulatory and Other Notices. Promptly after receipt thereof, 
copies of any notices or other communications received from any 
governmental authority with respect to any matter or proceeding which 
could have a material adverse effect on the condition, financial or 
otherwise, operations, properties, or business of the Borrower, or on 
the ability of the Borrower to perform its obligations under the Loan 
Documents.
    (f) Material Adverse Change. Promptly, notice of any matter which 
has resulted or may result in a material adverse change in the 
condition, financial or otherwise, operations, properties, or business 
of the Borrower, or the ability of the Borrower to perform its 
obligations under the Loan Documents.
    (g) Other Information. Such other information regarding the 
condition, financial or otherwise, or operations of the Borrower as RUS 
may, from time to time, reasonably request.

               Section 5.21. Special Construction Account

    The Borrower shall hold all moneys advanced to it by RUS hereunder 
in trust for RUS and shall deposit such moneys promptly

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after the receipt thereof in a bank or banks which meet the requirements 
of Section [6.7] of this Agreement. Any account (hereinafter called 
``Special Construction Account'') in which any such moneys shall be 
deposited shall be insured by the Federal Deposit Insurance Corporation 
or other federal agency acceptable to RUS and shall be designated by the 
corporate name of the Borrower followed by the words ``Trustee, Special 
Construction Account.'' Moneys in any Special Construction Account shall 
be used solely for the construction and operation of the Utility System 
and may be withdrawn only upon checks, drafts, or orders signed on 
behalf of the Borrower and countersigned by an executive officer 
thereof.

             Section 5.22. Additional Affirmative Covenants

    The Borrower also agrees to comply with any additional affirmative 
covenant(s) identified in Schedule 1 hereto.

                     Article VI--Negative Covenants

                          Section 6.1. General

    Unless otherwise agreed to in writing by RUS, while this Agreement 
is in effect, whether or not any Advance is outstanding hereunder, the 
Borrower shall duly observe each of the negative covenants set forth in 
this Article.

       Section 6.2. Limitations on System Extensions and Additions

    (a) The Borrower shall not extend or add to its Electric System 
either by construction or acquisition without the prior written approval 
of RUS if the construction or acquisition is financed or will be 
financed, in whole or in part, by a RUS loan or loan guarantee.
    (b) The Borrower shall not extend or add to its Electric System with 
funds from other sources without prior written approval of RUS in the 
case of:
    (1) Generating facilities if the combined capacity of the facilities 
to be built, procured, or leased, including any future facilities 
included in the planned project, will exceed the lesser of 5 Megawatts 
or 30 percent of the Borrower's Equity;
    (2) Existing electric facilities or systems in service whose 
purchase price, or capitalized value in the case of a lease, exceeds ten 
percent of the Borrower's Net Utility Plant; and
    (3) Any project to serve a customer whose annual Kwh purchases or 
maximum annual Kw demand 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 of facilities.

    Section 6.3. Limitations on Changing Principal Place of Business

    The Borrower shall not change its principal place of business or 
keep property in a county not shown on a schedule to the Mortgage if the 
change would cause the lien in favor of RUS to become unperfected or 
fail to become perfected, as the case may be, unless, prior thereto, the 
Borrower shall have taken all steps required by law in order to assure 
that the lien in favor of RUS remains or becomes perfected, as the case 
may be, and, in either event, such lien has the priority accorded by the 
Mortgage.

     Section 6.4. Limitations on Employment and Retention of Manager

    At any time any Event of Default, or any occurrence which with the 
passage of time or giving of notice would be an Event of Default, occurs 
and is continuing the Borrower shall not employ any general manager of 
the Utility System or the Electric System or any person exercising 
comparable authority to such a manager unless such employment shall 
first have been approved by RUS. If any Event of Default, or any 
occurrence which with the passage of time or giving of notice would be 
an Event of Default, occurs and is continuing and RUS requests the 
Borrower to terminate the employment of any such manager or person 
exercising comparable authority, or RUS requests the Borrower to 
terminate any contract for operating the Utility System or the Electric 
System, the Borrower shall do so within thirty (30) days after the date 
of such notice. All contracts in respect of the employment of any such 
manager or person exercising comparable authority, or for the operation 
of the Utility System or the Electric System, shall contain provisions 
to permit compliance with the foregoing covenants.

         Section 6.5. Limitations on Certain Types of Contracts

    Without the prior approval of RUS in writing, the Borrower shall not 
enter into any of the following contracts:
    (a) Construction Contracts. Any contract for construction or 
procurement or for architectural and engineering services in connection 
with its Electric System if the project is financed or will be financed, 
in whole or in part, by a RUS loan or loan guarantee;
    (b) Large retail power contracts. Any contract to sell electric 
power and energy for periods exceeding two (2) years if the kWh sales or 
kW demand for any year covered by such contract shall exceed 25 percent 
of the Borrower's total kWh sales or maximum kW demand for the year 
immediately preceding the execution of such contract;
    (c) Wholesale power contracts. Any contract to sell electric power 
or energy for resale and any contract to purchase electric power or

[[Page 207]]

energy that, in either case, has a term exceeding two (2) years;
    (d) Power supply arrangements. Any interconnection agreement, 
interchange agreement, wheeling agreement, pooling agreement or similar 
power supply arrangement that has a term exceeding two (2) years;
    (e) System management and maintenance contracts. Any contract for 
the management and operation of all or substantially all of its Electric 
System; or
    (f) Other contracts. Any contracts of the type described on Schedule 
3.

   Section 6.6. Limitations on Mergers and Sale, Lease or Transfer of 
                             Capital Assets

    (a) The Borrower shall not consolidate with, or merge, or sell all 
or substantially all of its business or assets, to another entity or 
person except to the extent it is permitted to do so under the Mortgage. 
The exception contained in this paragraph (a) is subject to the 
additional limitation set forth in paragraph (b) of this section.
    (b) The Borrower shall not, without the written approval of the 
Administrator, voluntarily or involuntarily sell, convey or dispose of 
any portion of its business or assets (including, without limitation, 
any portion of its franchise or service territory) to another entity or 
person if such sale, conveyance or disposition could reasonably be 
expected to 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 RUS.

     Section 6.7. Limitations on Using non-FDIC Insured Depositories

    Without the prior written approval of RUS, the Borrower shall not 
place the proceeds of the Loan or any loan which has been made or 
guaranteed by RUS in the custody of any bank or other depository that is 
not insured by the Federal Deposit Insurance Corporation or other 
federal agency acceptable to RUS.

                Section 6.8. Limitation on Distributions

    Without the prior written approval of RUS, the Borrower shall not in 
any calendar year make any Distributions (exclusive of any Distributions 
to the estates of deceased natural patrons) to its members, stockholders 
or consumers except as follows:
    (a) Equity above 30%. If, after giving effect to any such 
Distribution, the Equity of the Borrower shall be greater than or equal 
to 30% of its Total Assets; or
    (b) Equity above 20%. If, after giving effect to any such 
Distribution, the aggregate of all Distributions made during the 
calendar year when added to such Distribution shall be less than or 
equal to 25% of the prior year's margins.
    Provided however, that in no event shall the Borrower make any 
Distributions if there is unpaid when due any installment of principal 
of (premium, if any) or interest on its Notes, if the Borrower is 
otherwise in default hereunder or if, after giving effect to any such 
Distribution, the Borrower's current and accrued assets would be less 
than its current and accrued liabilities.

  Section 6.9. Limitations on Loans, Investments and Other Obligations

    The Borrower shall not make any loan or advance to, or make any 
investment in, or purchase or make any commitment to purchase any stock, 
bonds, notes or other securities of, or guaranty, assume or otherwise 
become obligated or liable with respect to the obligations of, any other 
person, firm or corporation, except as permitted by the Act and RUS 
Regulations.

                    Section 6.10. Depreciation Rates

    The Borrower shall not file with or submit for approval of 
regulatory bodies any proposed depreciation rates which are inconsistent 
with RUS Regulations.

                   Section 6.11. Historic Preservation

    The Borrower shall not, without approval in writing by RUS, use any 
Advance to construct any facilities which shall involve any district, 
site, building, structure or object which is included in, or eligible 
for inclusion in, the National Register of Historic Places maintained by 
the Secretary of the Interior pursuant to the Historic Sites Act of 1935 
and the National Historic Preservation Act of 1966.

                      Section 6.12. Rate Reductions

    Without the prior written approval of RUS, the Borrower shall not 
decrease its rates if it has failed to achieve all of the Coverage 
Ratios for the calendar year prior to such reduction.

          Section 6.13. Limitations on Additional Indebtedness

    Except as expressly permitted by Article II of the Mortgage and 
subject to the further limitations expressed in the next section, the 
Borrower shall not incur, assume, guarantee or otherwise become liable 
in respect of any debt for borrowed money and Restricted Rentals 
(including Subordinated Indebtedness) other than the following: 
(``Permitted Debt'')
    (a) Additional Notes issued in compliance with Article II of the 
Mortgage;
    (b) Purchase money indebtedness in non-Utility System property, in 
an amount not exceeding 10% of Net Utility Plant;
    (c) Restricted Rentals in an amount not to exceed 5% of Equity 
during any 12 consecutive calendar month period;

[[Page 208]]

    (d) Unsecured lease obligations incurred in the ordinary course of 
business except Restricted Rentals;
    (e) Unsecured indebtedness for borrowed money, except when the 
aggregate amount of such indebtedness exceeds 15% of Net Utility Plant 
and after giving effect to such unsecured indebtedness the Borrower's 
Equity is less than 30% of its Total Assets;
    (f) Debt represented by dividends declared but not paid; and
    (g) Subordinated Indebtedness approved by RUS.
    PROVIDED, However, that the Borrower may incur Permitted Debt 
without the consent of RUS only so long as there exists no Event of 
Default hereunder and there has been no continuing occurrence which with 
the passage of time and giving of notice could become an Event of 
Default hereunder.
    PROVIDED, FURTHER, by executing this Agreement any consent of RUS 
that the Borrower would otherwise be required to obtain under this 
Section is hereby deemed to be given or waived by RUS by operation of 
law to the extent, but only to the extent, that to impose such a 
requirement of RUS consent would clearly violate federal laws or RUS 
Regulations.

  Section 6.14. Limitations on Issuing Additional Indebtedness Secured 
                           Under the Mortgage

    (a) The Borrower shall not issue any Additional Notes under the 
Mortgage to finance Eligible Property Additions without the prior 
written consent of RUS unless the following additional requirements are 
met in addition to the requirements set forth in the Mortgage for 
issuing Additional Notes:
    (1) The weighted average life of the loan evidenced by such Notes 
does not exceed the weighted average of the expected remaining useful 
lives of the assets being financed;
    (2) The principal of the loan evidenced by such Notes is amortized 
at a rate that shall yield a weighted average life that is not greater 
than the weighted average life that would result from level payments of 
principal and interest; and
    (3) The principal of the loan being evidenced by such Notes has a 
maturity of not less than 5 years.
    (b) The Borrower shall not issue any Additional Notes under the 
Mortgage to refund or refinance Notes without the prior written consent 
of RUS unless, in addition to the requirements set forth in the Mortgage 
for issuing Refunding or Refinancing Notes, the weighted average life of 
any such Refunding or Refinancing Notes is not greater than the weighted 
average remaining life of the Notes being refinanced.
    (c) Any request for consent from RUS under this section, shall be 
accompanied by a certificate of the Borrower's manager substantially in 
the form attached to this Agreement as Exhibit C-1 in the case of Notes 
being issued under Section [2.01] of the Mortgage and C-2 in the case of 
Notes being issued under Section [2.02] of the Mortgage.

          Section 6.15. Impairment of Contracts Pledged to RUS

    The Borrower shall not materially breach any obligation to be paid 
or performed by the Borrower on any contract, or take any action which 
is likely to materially impair the value of any contract, which has been 
pledged as security to RUS by the Borrower or any other entity.

               Section 6.16. Additional Negative Covenants

    The Borrower also agrees to comply with any additional negative 
covenant(s) identified in Schedule 1 hereto.

                          Article VII--Default

                     Section 7.1. Events of Default

    The following shall be Events of Default under this Agreement:
    (a) Representations and Warranties. Any representation or warranty 
made by the Borrower in Article II hereof or any certificate furnished 
to RUS hereunder or under the Mortgage shall prove to have been 
incorrect in any material respect at the time made and shall at the time 
in question be untrue or incorrect in any material respect and remain 
uncured;
    (b) Payment. Default shall be made in the payment of or on account 
of interest on or principal of the Note when and as the same shall be 
due and payable, whether by acceleration or otherwise, which shall 
remain unsatisfied for five (5) Business Days;
    (c) Borrowing Under the Mortgage in Violation of the Loan Contract. 
Default by the Borrower in the observance or performance of any covenant 
or agreement contained in Section 6.14 of this Agreement.
    (d) Other Covenants. Default by the Borrower in the observance or 
performance of any other covenant or agreement contained in any of the 
Loan Documents, which shall remain unremedied for 30 calendar days after 
written notice thereof shall have been given to the Borrower by RUS;
    (e) Corporate Existence. The Borrower shall forfeit or otherwise be 
deprived of its corporate charter, franchises, permits, easements, 
consents or licenses required to carry on any material portion of its 
business;
    (f) Other Obligations. Default by the Borrower in the payment of any 
obligation, whether direct or contingent, for borrowed money or in the 
performance or observance of the terms of any instrument pursuant to 
which such obligation was created or securing such obligation;
    (g) Bankruptcy. A court having jurisdiction in the premises shall 
enter a decree or order

[[Page 209]]

for relief in respect of the Borrower in an involuntary case under any 
applicable bankruptcy, insolvency or other similar law now or hereafter 
in effect, or appointing a receiver, liquidator, assignee, custodian, 
trustee, sequestrator or similar official, or ordering the winding up or 
liquidation of its affairs, and such decree or order shall remain 
unstayed and in effect for a period of ninety (90) consecutive days or 
the Borrower shall commence a voluntary case under any applicable 
bankruptcy, insolvency or other similar law now or hereafter in effect, 
or under any such law, or consent to the appointment or taking 
possession by a receiver, liquidator, assignee, custodian or trustee, of 
a substantial part of its property, or make any general assignment for 
the benefit of creditors; and
    (h) Dissolution or Liquidation. Other than as provided in the 
immediately preceding subsection, the dissolution or liquidation of the 
Borrower, or failure by the Borrower promptly to forestall or remove any 
execution, garnishment or attachment of such consequence as shall impair 
its ability to continue its business or fulfill its obligations and such 
execution, garnishment or attachment shall not be vacated within 30 
days. The term ``dissolution or liquidation of the Borrower'', as used 
in this subsection, shall not be construed to include the cessation of 
the corporate existence of the Borrower resulting either from a merger 
or consolidation of the Borrower into or with another corporation 
following a transfer of all or substantially all its assets as an 
entirety, under the conditions permitting such actions.

                         Article VIII--Remedies

                         Section 8.1. Generally

    Upon the occurrence of an Event of Default, then RUS may pursue all 
rights and remedies available to RUS that are contemplated by this 
Agreement or the Mortgage in the manner, upon the conditions, and with 
the effect provided in this Agreement or the Mortgage, including, but 
not limited to, a suit for specific performance, injunctive relief or 
damages. Nothing herein shall limit the right of RUS to pursue all 
rights and remedies available to a creditor following the occurrence of 
an Event of Default listed in Article VII hereof. Each right, power and 
remedy of RUS shall be cumulative and concurrent, and recourse to one or 
more rights or remedies shall not constitute a waiver of any other 
right, power or remedy.

                   Section 8.2. Suspension of Advances

    In addition to the rights, powers and remedies referred to in the 
immediately preceding section, RUS may, in its absolute discretion, 
suspend making Advances hereunder if (i) any Event of Default, or any 
occurrence which with the passage of time or giving of notice would be 
an Event of Default, occurs and is continuing; (ii) there has occurred a 
change in the business or condition, financial or otherwise, of the 
Borrower which in the opinion of RUS materially and adversely affects 
the Borrower's ability to meet its obligations under the Loan Documents, 
or (iii) RUS is authorized to do so under RUS Regulations.

                        Article IX--Miscellaneous

                          Section 9.1. Notices

    All notices, requests and other communications provided for herein 
including, without limitation, any modifications of, or waivers, 
requests or consents under, this Agreement shall be given or made in 
writing (including, without limitation, by telecopy) and delivered to 
the intended recipient at the ``Address for Notices'' specified below; 
or, as to any party, at such other address as shall be designated by 
such party in a notice to each other party. Except as otherwise provided 
in this Agreement, all such communications shall be deemed to have been 
duly given when transmitted by telecopier or personally delivered or, in 
the case of a mailed notice, upon receipt, in each case given or 
addressed as provided for herein. The Address for Notices of the 
respective parties are as follows:

Rural Utilities Service, United States Department of Agriculture, 
Washington, DC 20250-1500
Fax: (202) xxx-xxxx

Attention: [Administrator]
The Borrower:
The address set forth in Schedule 1 hereto

                          Section 9.2. Expenses

    To the extent allowed by law, the Borrower shall pay all costs and 
expenses of RUS, including reasonable fees of counsel, incurred in 
connection with the enforcement of the Loan Documents or with the 
preparation for such enforcement if RUS has reasonable grounds to 
believe that such enforcement may be necessary.

                       Section 9.3. Late Payments

    If payment of any amount due hereunder is not received at the United 
States Treasury in Washington, DC, or such other location as RUS may 
designate to the Borrower within five (5) Business Days after the due 
date thereof or such other time period as RUS may prescribe from time to 
time in its policies of general application in connection with any late 
payment charge (such unpaid amount being herein called the ``delinquent 
amount'', and the period beginning after such due date until payment of 
the delinquent amount being herein called the ``late-payment period''), 
the Borrower shall pay to

[[Page 210]]

RUS, in addition to all other amounts due under the terms of the Note, 
the Mortgage and this Agreement, any late-payment charge as may be fixed 
by RUS Regulations from time to time on the delinquent amount for the 
late-payment period.

                        Section 9.4. Filing Fees

    To the extent permitted by law, the Borrower agrees to pay all 
expenses of RUS (including the fees and expenses of its counsel) in 
connection with the filing or recordation of all financing statements 
and instruments as may be required by RUS in connection with this 
Agreement, including, without limitation, all documentary stamps, 
recordation and transfer taxes and other costs and taxes incident to 
recordation of any document or instrument in connection herewith. 
Borrower agrees to save harmless and indemnify RUS from and against any 
liability resulting from the failure to pay any required documentary 
stamps, recordation and transfer taxes, recording costs, or any other 
expenses incurred by RUS in connection with this Agreement. The 
provisions of this subsection shall survive the execution and delivery 
of this Agreement and the payment of all other amounts due hereunder or 
due on the Note.

                         Section 9.5. No Waiver

    No failure on the part of RUS to exercise, and no delay in 
exercising, any right hereunder shall operate as a waiver thereof nor 
shall any single or partial exercise by RUS of any right hereunder 
preclude any other or further exercise thereof or the exercise of any 
other right.

                       Section 9.6. Governing Law

    EXCEPT TO THE EXTENT GOVERNED BY APPLICABLE FEDERAL LAW, THE LOAN 
DOCUMENTS SHALL BE DEEMED TO BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE 
WITH, THE LAWS OF THE STATE [IN WHICH THE BORROWER IS INCORPORATED].

                      Section 9.7. Holiday Payments

    If any payment to be made by the Borrower hereunder shall become due 
on a day which is not a Business Day, such payment shall be made on the 
next succeeding Business Day and such extension of time shall be 
included in computing any interest in respect of such payment.

                         Section 9.8. Rescission

    The Borrower may elect not to borrow the RUS Commitment in which 
event RUS shall release the Borrower from its obligations hereunder, 
provided the Borrower complies with such terms and conditions as RUS may 
impose for such release and provided also that if the Borrower has any 
remaining obligations to RUS for loans made or guaranteed by RUS under 
any Prior Loan Contracts, RUS may, under Section [9.15] of this Loan 
Contract, withhold such release until all such obligations have been 
satisfied and discharged.

                   Section 9.9. Successors and Assigns

    This Agreement shall be binding upon and inure to the benefit of the 
Borrower and RUS and their respective successors and assigns, except 
that the Borrower may not assign or transfer its rights or obligations 
hereunder without the prior written consent of RUS.

              Section 9.10. Complete Agreement; Amendments

    Subject to RUS Regulations, this Agreement and the other Loan 
Documents are intended by the parties to be a complete and final 
expression of their agreement. However, RUS reserves the right to waive 
its rights to compliance with any provision of this Agreement and the 
other Loan Documents. No amendment, modification, or waiver of any 
provision hereof or thereof, and no consent to any departure of the 
Borrower herefrom or therefrom, shall be effective unless approved in 
writing by RUS in the form of either a RUS Regulation or other writing 
signed by or on behalf of RUS, and then such waiver or consent shall be 
effective only in the specific instance and for the specific purpose for 
which given.

                         Section 9.11. Headings

    The headings and sub-headings contained in the titling of this 
Agreement are intended to be used for convenience only and do not 
constitute part of this Agreement.

                       Section 9.12. Severability

    If any term, provision or condition, or any part thereof, of this 
Agreement or the Mortgage shall for any reason be found or held invalid 
or unenforceable by any governmental agency or court of competent 
jurisdiction, such invalidity or unenforceability shall not affect the 
remainder of such term, provision or condition nor any other term, 
provision or condition, and this Agreement, the Note, and the Mortgage 
shall survive and be construed as if such invalid or unenforceable term, 
provision or condition had not been contained therein.

                      Section 9.13. Right of Setoff

    Upon the occurrence and during the continuance of any Event of 
Default, RUS is hereby authorized at any time and from time to time, 
without prior notice to the Borrower, to exercise rights of setoff or 
recoupment and apply any and all amounts held or hereafter held, by RUS 
or owed to the Borrower or for the credit or account of the Borrower 
against any and all of the obligations of the Borrower now or hereafter 
existing hereunder or under the Note. RUS

[[Page 211]]

agrees to notify the Borrower promptly after any such setoff or 
recoupment and the application thereof, provided that the failure to 
give such notice shall not affect the validity of such setoff, 
recoupment or application. The rights of RUS under this section are in 
addition to any other rights and remedies (including other rights of 
setoff or recoupment) which RUS may have. Borrower waives all rights of 
setoff, deduction, recoupment or counterclaim.

                  Section 9.14. Schedules and Exhibits

    Each Schedule and Exhibit attached hereto and referred to herein is 
each an integral part of this Agreement.

                   Section 9.15. Prior Loan Contracts

    It is understood and agreed that with respect to all loan agreements 
previously entered into by and between RUS and the Borrower (hereinafter 
being referred to as ``Prior Loan Contracts'') the Borrower shall be 
required, after the date hereof, to meet affirmative and negative 
covenants as set forth in this Agreement rather than those set forth in 
the Prior Loan Contracts. In addition, any remaining obligation of RUS 
to make additional advances on promissory notes of the Borrower that 
have been previously delivered to RUS under Prior Loan Contracts shall, 
after the date hereof, be subject to the conditions set forth in this 
Agreement. In the event of any conflict between any provision set forth 
in a Prior Loan Contract and any provision in this Agreement, the 
requirements as set forth in this Agreement shall apply. Nothing in this 
section shall, however, eliminate or modify any special condition, 
special affirmative covenant or special negative covenant, if any, 
unless specifically agreed to in writing by RUS.

            Section 9.16. Authority of Representatives of RUS

    In the case of any consent, approval or waiver from RUS that is 
required under this Agreement or any other Loan Document, such consent, 
approval or waiver must be in writing and signed by an authorized RUS 
representative to be effective. As used in this section, ``authorized 
RUS representative'' means the Administrator of RUS, and also means a 
person to whom the Administrator has officially delegated specific or 
general authority to take the action in question.

                           Section 9.17. Term

    This Agreement shall remain in effect until one of the following two 
events has occurred:
    (a) The Borrower and RUS replace this Agreement with another written 
agreement; or
    (b) All of the Borrower's obligations under the prior loan contracts 
and this Agreement have been discharged and paid.
    IN WITNESS WHEREOF, the parties hereto have caused this Agreement to 
be duly executed as of the day and year first above written.

________________________________________________________________________
(Name of Borrower)

(SEAL)

By______________________________________________________________________
President

Attest:_________________________________________________________________

Secretary

                         RURAL UTILITIES SERVICE

By______________________________________________________________________
Administrator

                               Schedule 1

[citations subject to change]

    1. The purpose of this loan is -------------------- and such other 
purposes that RUS may agree to in writing in order to carry out the 
purposes of the Rural Electrification Act.
    2. The Mortgage shall mean the Restated Mortgage and Security 
Agreement, dated as of --------------------, between the Borrower and 
RUS, as it may have been or shall be supplemented, amended, 
consolidated, or restated from time to time.
    3. The governmental authority referred to in Section [2.1(c)] is --
------------------.
    4. The exception being taken to the representations in Section 
[2.1(e)] concerning material compliance with laws is as follows: ------
--------------.
    5. The litigation referred to in Section [2.1(f)] is described as 
follows: --------------------.
    6. The date of the Borrower's financial information referred to in 
Section [2.1(h)] is --------------------.
    7. The principal place of business of the Borrower referred to in 
Section [2.1(i)] is --------------------.
    8. All of the property of the Borrower is located in the counties of 
--------------------.
    9. The subsidiary (or subsidiaries) referred to in Section [2.1(k)] 
is (are): --------------------.
    10. The Contemporaneous Loan referred to in Section [5.3] is 
described as follows: --------------------.

Lender:_________________________________________________________________

Amount:_________________________________________________________________

Year of Final Maturity:_________________________________________________

    11. The RUS Commitment referred to in the definitions means a loan 
in the principal amount of $---------------- which is being made by RUS 
to the Borrower at the ------ Hardship Rate ------ Municipal Rate

[[Page 212]]

(CHECK ONE) pursuant to the Rural Electrification Act and RUS 
Regulations.
    12. Amortization of Advance shall be based upon the method indicated 
below:

------ level principal

------ level debt service

------ other

    13. The SPECIAL condition(s) referred to in Section [4.2] is (are): 
--------------------.
    14. The additional AFFIRMATIVE covenant(s) referred to in Section 
[5.22] is (are) as follows: ----------------. 15. The additional 
NEGATIVE covenant(s) referred to in Section [6.16] is (are) as follows: 
--------------------.
    16. The address of the Borrower referred to in Section [9.1]. is --
------------------.

                       Schedule 2--Existing Liens

    The Existing Liens referred to in Section [2.1(g)] are as follows:

[INSERT DESCRIPTION OF EXISTING LIENS, IF ANY, HERE]

                    Schedule 3--Additional Contracts

    The additional contracts referred to in Section [6.5(f)] are 
described as follows:

[INSERT LIST OF ANY ADDITIONAL CONTRACTS HERE]

                   Exhibit A--Form of Promissory Note

[INSERT EITHER MUNICIPAL or HARDSHIP RATE PROMISSORY NOTE FORM HERE]

            Exhibit B--Equal Opportunity Contract Provisions

    During the performance of this contract, the contractor agrees as 
follows:
    (a) The contractor shall not discriminate against any employee or 
applicant for employment because of race, color, religion, sex or 
national origin. The contractor shall take affirmative action to ensure 
that applicants are employed, and that employees are treated during 
employment without regard to their race, color, religion, sex or 
national origin. Such action shall include, but not be limited to the 
following: employment, upgrading, demotion or transfer, recruitment or 
recruitment advertising; layoff or termination; rates of pay or other 
forms of compensation; and selection for training, including 
apprenticeship. The contractor agrees to post in conspicuous places, 
available to employees and applicants for employment, notices to be 
provided setting forth the provisions of this nondiscrimination clause.
    (b) The contractor shall, in all solicitations or advertisements for 
employees placed by or on behalf of the contractor, state that all 
qualified applicants shall receive consideration for employment without 
regard to race, color, religion, sex or national origin.
    (c) The contractor shall send to each labor union or representative 
of workers with which he has a collective bargaining agreement or other 
contract or understanding, a notice to be provided advising the said 
labor union or workers' representative of the contractor's commitments 
under this section, and shall post copies of the notice in conspicuous 
places available to employees and applicants for employment.
    (d) The contractor shall comply with all provisions of Executive 
Order 11246 of September 24, 1965, and of the rules, regulations and 
relevant orders of the Secretary of Labor.
    (e) The contractor shall furnish all information and reports 
required by Executive Order 11246 of September 24, 1965, and by the 
rules, regulations and orders of the Secretary of Labor, or pursuant 
thereto, and shall permit access to his books, records and accounts by 
the administering agency and the Secretary of Labor for purposes of 
investigation to ascertain compliances with such rules, regulations and 
orders.
    (f) In the event of the contractor's noncompliance with the non-
discrimination clauses of this contract or with any of the said rules, 
regulations or orders, this contract may be cancelled, terminated or 
suspended in whole or in part and the contractor may be declared 
ineligible for further Government contracts or federally assisted 
construction contracts in accordance with procedures authorized in 
Executive Order 11246 of September 24, 1965, and such other sanctions 
may be imposed and remedies invoked as provided in said Executive Order 
or by rule, regulation or order of the Secretary of Labor, or as 
otherwise provided by law.
    (g) The contractor shall include the provisions of paragraphs (a) 
through (g) in every subcontract or purchase order unless exempted by 
rules, regulations or orders of the Secretary of Labor issued pursuant 
to section 204 of Executive Order 11246, dated September 24, 1965, so 
that such provisions shall be binding upon each subcontractor or vendor. 
The contractor shall take such action with respect to any subcontract or 
purchase order as the administering agency may direct as a means of 
enforcing such provisions, including sanctions for noncompliance: 
Provided, however, that in the event a contractor becomes involved in, 
or is threatened with, litigation with a subcontractor or vendor as a 
result of such direction by the agency, the contractor may request the 
United States to enter into such litigation to protect the interests of 
the United States.

Exhibit C-1--Manager's Certificate Required Under Loan Contract Section 
                        6.14 for Additional Notes

    On behalf on -------------------- [Name of Borrower] --------------
------ I hereby certify that the Additional Note or Notes to be

[[Page 213]]

issued under Section [2.01] of the Mortgage on or about ----------------
---- [Date Note or Notes are to be Signed] -------------------- meet all 
of the requirements of Section [6.14] of the Loan Contract, namely:
    (a) The weighted average life of the loan evidenced by such Notes 
(-------- years) does not exceed the weighted average of the expected 
remaining useful lives of the assets being financed (-------- years) as 
evidenced by the attached calculation of said weighted average lives.
    (b) The principal of the loan evidenced by such Notes shall either 
be [check one and provide evidence in the second case]:
    ------ (1) repaid based on level payments of principal and interest 
throughout the life of the loan, or
    ------ (2) amortized at a rate that shall yield a weighted average 
life that is not greater than the weighted average life that would 
result from level payments of principal and interest throughout the life 
of the loan as evidenced by the attached analysis of said weighted 
average lives.
    (c) The principal of the loan evidenced by such Notes has a maturity 
of not less than 5 years.

[Signed]________________________________________________________________

[Dated]_________________________________________________________________

[Name]__________________________________________________________________

[Title]_________________________________________________________________

[Name and Address of Borrower]__________________________________________

________________________________________________________________________

________________________________________________________________________

Exhibit C-2--Manager's Certificate Required Under Loan Contract Section 
                       6.14 for Refinancing Notes

    On behalf on -------------------- [Name of Borrower] --------------
------ I hereby certify that the Additional Note or Notes to be issued 
under Section [2.02] of the Mortgage on or about -------------------- 
[Date Note or Notes are to be Signed] -------------------- meet the 
requirement of Section [6.14] of the Loan Contract that the weighted 
average life of such Notes is not greater than the weighted average 
remaining life of the Notes being refinanced, as evidenced by the 
attached calculation of said weighted average lives.
[Signed]________________________________________________________________

[Dated]_________________________________________________________________

[Name]__________________________________________________________________

[Title]_________________________________________________________________

[Name and Address of Borrower]__________________________________________

________________________________________________________________________

________________________________________________________________________

[60 FR 67410, Dec. 29, 1995, as amended at 65 FR 51749, Aug. 25, 2000]



PART 1720_GUARANTEES FOR BONDS AND NOTES ISSUED FOR ELECTRIFICATION OR 

TELEPHONE PURPOSES--Table of Contents



Sec.
1720.1 Purpose.
1720.2 Background.
1720.3 Definitions.
1720.4 General standards.
1720.5 Eligibility criteria.
1720.6 Application process.
1720.7 Application evaluation.
1720.8 Issuance of the guarantee.
1720.9 Guarantee Agreement.
1720.10 Fees.
1720.11 Servicing.
1720.12 Reporting requirement.
1720.13 Limitations on guarantees.
1720.14 Nature of guarantee; acceleration of guaranteed bonds.
1720.15 Equal opportunity requirements.

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 940C.

    Source: 69 FR 63049, Oct. 29, 2004, unless otherwise noted.



Sec. 1720.1  Purpose.

    This part prescribes regulations implementing a guarantee program 
for bonds and notes issued for electrification or telephone purposes 
authorized by section 313A of the Rural Electrification Act of 1936 (7 
U.S.C. 940c-1).

[75 FR 42573, July 22, 2010]



Sec. 1720.2  Background.

    The Rural Electrification Act of 1936 (the ``RE Act'') (7 U.S.C. 901 
et seq.) authorizes the Secretary to guarantee and make loans to 
persons, corporations, States, territories, municipalities, and 
cooperative, non-profit, or limited-dividend associations for the 
purpose of furnishing or improving electric and telephone service in 
rural areas. Responsibility for administering electrification and 
telecommunications loan and guarantee programs along with other 
functions the Secretary deemed appropriate have been assigned to RUS 
under the Department of Agriculture Reorganization Act of 1994 (7 U.S.C. 
6941 et seq.). The Administrator of RUS has been delegated 
responsibility for administering the programs and activities of RUS, see 
7 CFR 1700.25. Section 6101 of the Farm Security and Rural Investment 
Act of 2002 (Pub. L.

[[Page 214]]

107-171) (FSRIA) amended the RE Act to include a new program under 
section 313A entitled Guarantees for Bonds and Notes Issued for 
Electrification or Telephone Purposes. This measure directed the 
Secretary of Agriculture to promulgate regulations that carry out the 
Program. The Secretary published the regulations for the program in the 
Federal Register as a final rule on October 29, 2004, adding part 1720 
to title 7 of the Code of Federal Regulations. Section 6106(a)(1)(A) of 
the Food, Conservation, and Energy Act of 2008 (Pub. L. 110-246) amended 
section 313A of the RE Act by replacing the level of ``concurrent 
loans'' as a factor limiting the amount of bonds and notes that could be 
guaranteed and inserted ``for eligible electrification or telephone 
purposes'' as the limitation on the amount of bonds and notes that can 
be guaranteed under section 313A up to an annual program limit of 
$1,000,000,000, subject to availability of funds. Section 6106(a)(1)(B) 
further amended section 313A of the RE Act by removing the prohibition 
against the recipient using an amount obtained from the reduction in 
funding costs as a result of a new guarantee under section 313A to 
reduce the interest rate charged on a new or concurrent loan.

[75 FR 42573, July 22, 2010]



Sec. 1720.3  Definitions.

    For the purpose of this part:
    Administrator means the Administrator of RUS.
    Applicant means a bank or other lending institution organized as a 
private, not-for-profit cooperative association, or otherwise on a non-
profit basis, that is applying for RUS to guarantee a bond or note under 
this part.
    Bond Documents means the trust indenture, bond resolution, 
guarantee, guarantee agreement and all other instruments and 
documentation pertaining to the issuance of the guaranteed bonds.
    Borrower means any organization that has an outstanding loan made or 
guaranteed by RUS for rural electrification or rural telephone under the 
RE Act, or that is eligible for such financing.
    Concurrent Loan means a loan that a guaranteed lender extends to a 
borrower for up to 30 percent of the cost of an eligible electrification 
or telephone purpose under the RE Act, concurrently with an insured loan 
made by the Secretary pursuant to section 307 of the RE Act.
    Eligible loan means a loan that a guaranteed lender extends to a 
borrower for up to 100 percent of the cost of eligible electrification 
or telephone purposes consistent with the RE Act.
    Federal Financing Bank (FFB) means a government corporation and 
instrumentality of the United States of America under the general 
supervision of the Secretary of the Treasury.
    Guarantee means the written agreement between the Secretary and a 
guaranteed bondholder, pursuant to which the Secretary guarantees full 
repayment of the principal, interest, and call premium, if any, on the 
guaranteed lender's guaranteed bond.
    Guarantee Agreement means the written agreement between the 
Secretary and the guaranteed lender which sets forth the terms and 
conditions of the guarantee.
    Guaranteed Bond means any bond, note, debenture, or other debt 
obligation issued by a guaranteed lender on a fixed or variable rate 
basis, and approved by the Secretary for a guarantee under this part.
    Guaranteed Bondholder means any investor in a guaranteed bond.
    Guaranteed Lender means an applicant that has been approved for a 
guarantee under this part.
    Loan means any credit instrument that the guaranteed lender extends 
to a borrower for any electrification or telephone purpose eligible 
under the RE Act, including loans as set forth in section 4 of the RE 
Act for electricity transmission lines and distribution systems 
(excluding generating facilities) and as set forth in section 201 of the 
RE Act for telephone lines, facilities and systems.
    Loan documents means the loan agreement and all other instruments 
and documentation between the guaranteed lender and the borrower 
evidencing the making, disbursing, securing, collecting, or otherwise 
administering of a loan.
    Program means the guarantee program for bonds and notes issued for

[[Page 215]]

electrification or telephone purposes authorized by section 313A of the 
RE Act as amended.
    Rating Agency means a bond rating agency identified by the 
Securities and Exchange Commission as a nationally recognized 
statistical rating organization.
    RE Act means the Rural Electrification Act of 1936 (7 U.S.C. 901 et 
seq.) as amended.
    RUS means the Rural Utilities Service, a Rural Development agency of 
the U.S. Department of Agriculture.
    Secretary means the Secretary of Agriculture acting through the 
Administrator of RUS.
    Subsidy Amount means the amount of budget authority sufficient to 
cover the estimated long-term cost to the Federal government of a 
guarantee, calculated on a net present value basis, excluding 
administrative costs and any incidental effects on government receipts 
or outlays, in accordance with the provisions of the Federal Credit 
Reform Act of 1990 (2 U.S.C. 661 et. seq.)

[69 FR 63049, Oct. 29, 2004, as amended at 75 FR 42574, July 22, 2010]



Sec. 1720.4  General standards.

    (a) In accordance with section 313A of the RE Act, a guarantee will 
be issued by the Secretary only if the Secretary determines, in 
accordance with the requirements set forth in this part, that:
    (1) The proceeds of the guaranteed bonds will be used by the 
guaranteed lender to make loans to borrowers for electrification or 
telephone purposes eligible for assistance under this chapter, or to 
refinance bonds or notes previously issued by the guaranteed lender for 
such purposes;
    (2) At the time the guarantee is executed, the total principal 
amount of guaranteed bonds outstanding would not exceed the principal 
amount of outstanding eligible loans previously made by the guaranteed 
lender;
    (3) The proceeds of the guaranteed bonds will not be used directly 
or indirectly to fund projects for the generation of electricity; and
    (4) The guaranteed lender will not use any amounts obtained from the 
reduction in funding costs provided by a loan guarantee issued prior to 
June 18, 2008, to reduce the interest rates borrowers are paying on new 
or outstanding loans, other than new concurrent loans as provided in 
part 1710 of this chapter.
    (b) During the term of the guarantee, the guaranteed lender shall:
    (1) Limit cash patronage refunds, for guaranteed lenders having a 
credit rating below ``A-'' on its senior secured debt without regard to 
the guarantee. For such guaranteed lenders, cash patronage refunds are 
limited to five percent of the total patronage refund eligible. The 
limit on patronage refunds must be maintained until the credit rating is 
restored to ``A-'' or above. For those guaranteed lenders subject to 
patronage limitations, equity securities issued as part of the patronage 
refund shall not be redeemable in cash during the term of any part of 
the guarantee, and the guaranteed lender shall not issue any dividends 
on any class of equity securities during the term of the guarantee.
    (2) Maintain sufficient collateral equal to the principal amount 
outstanding, for guaranteed lenders having a credit rating below ``A-'' 
on its senior secured debt without regard to the guarantee, or in the 
case of a lender that does not have senior secured debt, a corporate 
(counterparty) credit rating below ``A-'' without regard to the 
guarantee. Collateral shall be in the form of specific and identifiable 
unpledged securities equal to the value of the guaranteed amount. In the 
case of a guaranteed lender's default, the U.S. government claim shall 
not be subordinated to the claims of other creditors, and the indenture 
must provide that in the event of default, the government has first 
rights on the asset. Upon application and throughout the term of the 
guarantee, guaranteed lenders not subject to collateral pledging 
requirements shall identify, with the concurrence of the Secretary, 
specific assets to be held as collateral should the credit rating of its 
senior secured debt, or its corporate credit rating, as applicable, 
without regard to the guarantee fall below ``A-.'' The Secretary has 
discretion to require collateral at any time should circumstances 
warrant.
    (c) The final maturity of the guaranteed bonds shall not exceed 20 
years.

[[Page 216]]

    (d) The guaranteed bonds shall be issued to the Federal Financing 
Bank on terms and conditions consistent with comparable government-
guaranteed bonds and satisfactory to the Secretary.
    (e) The Secretary shall guarantee payment son guaranteed bonds in 
such forms and on such terms and conditions and subject to such 
covenants, representations, warranties and requirements (including 
requirements for audits) as determined appropriate for satisfying the 
requirements of this part. The Secretary shall require the guaranteed 
lender to enter into a guarantee agreement to evidence its acceptance of 
the foregoing. Any guarantee issued under this part shall be made in a 
separate and distinct offering.

[69 FR 63049, Oct. 29, 2004, as amended at 75 FR 42574, July 22, 2010]



Sec. 1720.5  Eligibility criteria.

    (a) To be eligible to participate in the program, a guaranteed 
lender must be:
    (1) A bank or other lending institution organized as a private, not-
for-profit cooperative association, or otherwise organized on a non-
profit basis; and
    (2) Able to demonstrate to the Secretary that it possesses the 
appropriate expertise, experience, and qualifications to make loans for 
electrification or telephone purposes.
    (b) To be eligible to receive a guarantee, a guaranteed lender's 
bond must meet the following criteria:
    (1) The guaranteed lender must furnish the Secretary with a 
certified list of the principal balances of eligible loans then 
outstanding and certify that such aggregate balance is at least equal to 
the sum of the proposed principal amount of guaranteed bonds to be 
issued, and any previously issued guaranteed bonds outstanding; and
    (2) The guaranteed bonds to be issued by the guaranteed lender must 
receive an underlying investment grade rating from a Rating Agency, 
without regard to the guarantee;
    (c) A lending institution's status as an eligible applicant does not 
assure that the Secretary will issue the guarantee sought in the amount 
or under the terms requested, or otherwise preclude the Secretary from 
declining to issue a guarantee.

[69 FR 63049, Oct. 29, 2004, as amended at 75 FR 42574, July 22, 2010]



Sec. 1720.6  Application process.

    (a) Applications shall contain the following:
    (1) Background and contact information on the applicant;
    (2) A term sheet summarizing the proposed terms and conditions of, 
and the security pledged to assure the applicant's performance under, 
the guarantee agreement;
    (3) A statement by the applicant as to how it proposes to use the 
proceeds of the guaranteed bonds, and the financial benefit it 
anticipates deriving from participating in the program;
    (4) A pro-forma cash flow projection or business plan for the next 
five years, demonstrating that there is reasonable assurance that the 
applicant will be able to repay the guaranteed bonds in accordance with 
their terms;
    (5) Consolidated financial statements of the guaranteed lender for 
the previous three years that have been audited by an independent 
certified public accountant, including any associated notes, as well as 
any interim financial statements and associated notes for the current 
fiscal year;
    (6) Evidence of having been assigned an investment grade rating on 
the debt obligations for which it is seeking the guarantee, without 
regard to the guarantee;
    (7) Evidence of a credit rating, from a Rating Agency, on its senior 
secured debt or its corporate credit rating, as applicable, without 
regard to the government guarantee and satisfactory to the Secretary; 
and
    (8) Such other application documents and submissions deemed 
necessary by the Secretary for the evaluation of applicants.
    (b) The application process occurs as follows:
    (1) The applicant submits an application to the Secretary;
    (2) The application is screened by RUS pursuant to 7 CFR 1720.7(a) 
of this part, to ascertain its threshold eligibility for the program;

[[Page 217]]

    (3) RUS evaluates the application pursuant to the selection criteria 
set forth in 7 CFR 1720.7(b) of this part;
    (4) If RUS provisionally approves the application, the applicant and 
RUS negotiate terms and conditions of the bond documents, and
    (5) The applicant offers its guaranteed bonds, and the Secretary 
upon approval of the pricing, redemption provisions and other terms of 
the offering, executes the guarantee.
    (c) If requested by the applicant at the time it files its 
application, the General Counsel of the Department of Agriculture shall 
provide the Secretary with an opinion regarding the validity and 
authority of a guarantee issued to the lender under section 313A of the 
RE Act.

[69 FR 63049, Oct. 29, 2004, as amended at 75 FR 42574, July 22, 2010]



Sec. 1720.7  Application evaluation.

    (a) Eligibility screening. Each application will be reviewed by the 
Secretary to determine whether it is eligible under 7 CFR 1720.5, the 
information required under 7 CFR 1720.6 is complete and the proposed 
guaranteed bond complies with applicable statutes and regulations. The 
Secretary can at any time reject an application that fails to meet these 
requirements.
    (b) Evaluation. Pursuant to paragraph (a) of this section, 
applications will be subject to a substantive review, on a competitive 
basis, by the Secretary based upon the following evaluation factors, 
listed in order of importance:
    (1) The extent to which the proposed provisions indicate the 
applicant will be able to repay the guaranteed bonds;
    (2) The adequacy of the proposed provisions to protect the Federal 
government, based upon items including, but not limited to the nature of 
the pledged security, the priority of the lien position, if any, pledged 
by the applicant, and the provision for an orderly retirement of 
principal such as an amortizing bond structure or an internal sinking 
fund;
    (3) The applicant's demonstrated performance of financially sound 
business practices as evidenced by reports of regulators, auditors and 
credit rating agencies;
    (4) The extent to which the applicant is subject to supervision, 
examination, and safety and soundness regulation by an independent 
federal agency;
    (5) The extent of concentration of financial risk that RUS may have 
resulting from previous guarantees made under section 313A of the RE 
Act; and
    (6) The extent to which providing the guarantee to the applicant 
will help reduce the cost and/or increase the supply of credit to rural 
America, or generate other economic benefits, including the amount of 
fee income available to be deposited into the Rural Economic Development 
Subaccount, maintained under section 313(b)(2)(A) of the RE Act (7 
U.S.C. 940c(b)(2)(A)), after payment of the subsidy amount.
    (c) Independent Assessment. Before a guarantee decision is made by 
the Secretary, the Secretary shall request that the Federal Financing 
Bank review the adequacy of the determination by the Rating Agency, 
required under Sec. 1720.5(b)(2) as to whether the bond or note to be 
issued would be below investment grade without the guarantee.
    (d) Decisions by the Secretary. The Secretary shall approve or deny 
applications in a timely manner as such applications are received; 
provided, however, that in order to facilitate competitive evaluation of 
applications, the Secretary may from time to time defer a decision until 
more than one application is pending. The Secretary may limit the number 
of guarantees made to a maximum of five per year, to ensure a sufficient 
examination is conducted of applicant requests. RUS shall notify the 
applicant in writing of the Secretary's approval or denial of an 
application. Approvals for guarantees shall be conditioned upon 
compliance with 7 CFR 1720.4 and 1720.6 of this part. The Secretary 
reserves the discretion to approve an application for an amount less 
than that requested.

[69 FR 63049, Oct. 29, 2004, as amended at 75 FR 42574, July 22, 2010]



Sec. 1720.8  Issuance of the guarantee.

    (a) The following requirements must be met by the applicant prior to 
the endorsement of a guarantee by the Secretary.

[[Page 218]]

    (1) A guarantee agreement suitable in form and substance to the 
Secretary must be delivered.
    (2) Bond documents must be executed by the applicant setting forth 
the legal provisions relating to the guaranteed bonds, including but not 
limited to payment dates, interest rates, redemption features, pledged 
security, additional borrowing terms including an explicit agreement to 
make payments even if loans made using the proceeds of such bond or note 
is not repaid to the lender, other financial covenants, and events of 
default and remedies;
    (3) Prior to the issuance of the guarantee, the applicant must 
certify to the Secretary that the proceeds from the guaranteed bonds 
will be applied to fund new eligible loans under the RE Act, to 
refinance concurrent loans, or to refinance existing debt instruments of 
the guaranteed lender used to fund eligible loans;
    (4) The applicant provides a certified list of eligible loans and 
their outstanding balances as of the date the guarantee is to be issued;
    (5) Counsel to the applicant must furnish an opinion satisfactory to 
the Secretary as to the applicant being legally authorized to issue the 
guaranteed bonds and enter into the bond documents;
    (6) No material adverse change occurs between the date of the 
application and date of execution of the guarantee;
    (7) The applicant shall provide evidence of an investment grade 
rating from a Rating Agency for the proposed guaranteed bond without 
regard to the guarantee;
    (8) The applicant shall provide evidence of a credit rating on its 
senior secured debt or its corporate credit rating, as applicable, 
without regard to the guarantee and satisfactory to the Secretary; and
    (9) Certification by the Chairman of the Board and the Chief 
Executive Officer of the applicant (or other senior management 
acceptable to the Secretary), acknowledging the applicant's commitment 
to submit to the Secretary, an annual credit assessment of the applicant 
by a Rating Agency, an annual review and certification of the security 
of the government guarantee that is audited by an independent certified 
public accounting firm or federal banking regulator, annual consolidated 
financial statements audited by an independent certified public 
accountant each year during which the guarantee bonds are outstanding, 
and other such information requested by the Secretary.
    (b) The Secretary shall not issue a guarantee if the applicant is 
unwilling or unable to satisfy all requirements.

[69 FR 63049, Oct. 29, 2004, as amended at 75 FR 42574, July 22, 2010]



Sec. 1720.9  Guarantee Agreement.

    (a) The guaranteed lender will be required to sign a guarantee 
agreement with the Secretary setting forth the terms and conditions upon 
which the Secretary guarantees the payment of the guaranteed bonds.
    (b) The guaranteed bonds shall refer to the guarantee agreement as 
controlling the terms of the guarantee.
    (c) The guarantee agreement shall address the following matters:
    (1) Definitions and principles of construction;
    (2) The form of guarantee;
    (3) Coverage of the guarantee;
    (4) Timely demand for payment on the guarantee;
    (5) Any prohibited amendments of bond documents or limitations on 
transfer of the guarantee;
    (6) Limitation on acceleration of guaranteed bonds;
    (7) Calculation and manner of paying the guarantee fee;
    (8) Consequences of revocation of payment on the guaranteed bonds;
    (9) Representations and warranties of the guaranteed lender;
    (10) Representations and warranties for the benefit of the holder of 
the guaranteed bonds;
    (11) Claim procedures;
    (12) What constitutes a failure by the guaranteed lender to pay;
    (13) Demand on RUS;
    (14) Assignment to RUS;
    (15) Conditions of guarantee which may include requiring the 
guaranteed lender to adopt measures to ensure adequate capital levels 
are retained to absorb losses relative to risk in the guaranteed 
lender's portfolio and requirements on the guaranteed lender to

[[Page 219]]

hold additional capital against the risk of default;
    (16) Payment by RUS;
    (17) RUS payment does not discharge guaranteed lender;
    (18) Undertakings for the benefit of the holders of guaranteed 
bonds, including: notices, registration, prohibited amendments, 
prohibited transfers, indemnification, multiple bond issues;
    (19) Governing law;
    (20) Notices;
    (21) Benefit of agreement;
    (22) Entirety of agreement;
    (23) Amendments and waivers;
    (24) Counterparts;
    (25) Severability, and
    (26) Such other matters as the Secretary believes to be necessary or 
appropriate.



Sec. 1720.10  Fees.

    (a) Guarantee fee. An annual fee equal to 30 basis points (0.3 
percent) of the amount of the unpaid principal of the guarantee bond 
will be deposited into the Rural Economic Development Subaccount 
maintained under section 313(b)(2)(A) of the RE Act.
    (b) Subject to paragraph (c) of this section, up to one-third of the 
30 basis point guarantee fee may be used to fund the subsidy amount of 
providing guarantees, to the extent not otherwise funded through 
appropriation actions by Congress.
    (c) Notwithstanding subsections (c) and (e)(2) of section 313A of 
the RE Act, the Secretary shall, with the consent of the lender and if 
otherwise authorized by law, adjust the schedule for payment of the 
annual fee, not to exceed an average of 30 basis points per year for the 
term of the loan, to ensure that sufficient funds are available to pay 
the subsidy costs for note guarantees.



Sec. 1720.11  Servicing.

    The Secretary, or other agent of the Secretary on his or her behalf, 
shall have the right to service the guaranteed bond, and periodically 
inspect the books and accounts of the guaranteed lender to ascertain 
compliance with the provisions of the RE Act and the bond documents.



Sec. 1720.12  Reporting requirements.

    (a) As long as any guaranteed bonds remain outstanding, the 
guaranteed lender shall provide the Secretary with the following items 
each year within 90 days of the guaranteed lender's fiscal year end:
    (1) Consolidated financial statements and accompanying footnotes, 
audited by independent certified public accountants;
    (2) A review and certification of the security of the government 
guarantee, audited by reputable, independent certified public 
accountants or a federal banking regulator, who in the judgment of the 
Secretary, has the requisite skills, knowledge, reputation, and 
experience to properly conduct such a review;
    (3) Pro forma projection of the guaranteed lender's balance sheet, 
income statement, and statement of cash flows over the ensuing five 
years;
    (4) Credit assessment issued by a Rating Agency;
    (5) Credit rating, by a Rating Agency, on its senior secured debt or 
its corporate credit rating, as applicable, without regard to the 
guarantee and satisfactory to the Secretary; and
    (6) Other such information requested by the Secretary.
    (b) The bond documents shall specify such bond monitoring and 
financial reporting requirements as deemed appropriate by the Secretary.

[69 FR 63049, Oct. 29, 2004, as amended at 75 FR 42575, July 22, 2010]



Sec. 1720.13  Limitations on guarantees.

    In a given year the maximum amount of guaranteed bonds that the 
Secretary may approve will be subject to budget authority, together with 
receipts authority from projected fee collections from guaranteed 
lenders, the principal amount of outstanding eligible loans made by the 
guaranteed lender, and Congressionally-mandated ceilings on the total 
amount of credit. The Secretary may also impose other limitations as 
appropriate to administer this guarantee program.

[75 FR 42575, July 22, 2010]

[[Page 220]]



Sec. 1720.14  Nature of guarantee; acceleration of guaranteed bonds.

    (a) Any guarantee executed by the Secretary under this part shall be 
an obligation supported by the full faith and credit of the United 
States and incontestable except for fraud or misrepresentation of which 
the guaranteed bondholder had actual knowledge at the time it purchased 
the guaranteed bonds.
    (b) Amounts due under the guarantee shall be paid within 30 days of 
demand by a bondholder, certifying the amount of payment then due and 
payable.
    (c) The guarantee shall be assignable and transferable to any 
purchaser of guaranteed bonds as provided in the bond documents.
    (d) The following actions shall constitute events of default under 
the terms of the guarantee agreements:
    (1) The guaranteed lender failed to make a payment of principal or 
interest when due on the guaranteed bonds;
    (2) The guaranteed bonds were issued in violation of the terms and 
conditions of the bond documents;
    (3) The guarantee fee required by 7 CFR 1720.10 of this part, has 
not been paid;
    (4) The guaranteed lender made a misrepresentation to the Secretary 
in any material respect in connection with the application, the 
guaranteed bonds, or the reporting requirements listed in 7 CFR 1720.12; 
or
    (5) The guaranteed lender failed to comply with any material 
covenant or provision contained in the bond documents.
    (e) In the event the guaranteed lender fails to cure such defaults 
within the notice terms and the timeframe set forth in the bond 
documents, the Secretary may demand that the guaranteed lender redeem 
the guaranteed bonds. Such redemption amount will be in an amount equal 
to the outstanding principal balance, accrued interest to the date of 
redemption, and prepayment premium, if any. To the extent the Secretary 
makes any payments under the guarantee, the Secretary shall be deemed 
the guaranteed bondholder.
    (f) To the extent the Secretary makes any payments under the 
guarantee, the interest rate the government will charge to the 
guaranteed lender for the period of default shall accrue at an annual 
rate of the greater of 1.5 times the 91-day Treasury-Bill rate or 200 
basis points (2.00%) above the rate on the guaranteed bonds.
    (g) Upon guaranteed lender's event of default, under the bond 
documents, the Secretary shall be entitled to take such other action as 
is provided for by law or under the bond documents.



Sec. 1720.15  Equal opportunity requirements.

    Executive Order 12898, ``Environmental Justice.'' To comply with 
Executive Order 12898, RUS will conduct a Civil Rights Analysis for each 
guarantee prior to approval. Rural Development Form 2006-28, ``Civil 
Rights Impact Analysis'', will be used to document compliance in regards 
to environmental justice. The Civil Rights Impact Analysis will be 
conducted prior to application approval or a conditional commitment of 
guarantee.



PART 1721_POST-LOAN POLICIES AND PROCEDURES FOR INSURED ELECTRIC LOANS--Table 

of Contents



                       Subpart A_Advance of Funds

Sec.
1721.1 Advances.

       Subpart B_Extensions of Payments of Principal and Interest

1721.100 Purpose.
1721.101 General.
1721.102 Definitions.
1721.103 Policy.
1721.104 Eligible purposes.
1721.105 Application documents.
1721.106 Repayment of deferred payments.
1721.107 Agreement.
1721.108 Commencement of the deferment.
1721.109 OMB control number.

    Authority: 7 U.S.C. 901 et seq.; 1921 et seq.; and 6941 et seq.



                       Subpart A_Advance of Funds



Sec. 1721.1  Advances.

    (a) Purpose and amount. With the exception of minor projects, 
insured loan funds will be advanced only for projects which are included 
in an RUS approved borrower's construction work plan (CWP) or approved 
amendment and in

[[Page 221]]

an approved loan, as amended. Loan fund advances can be requested in an 
amount representing actual costs incurred.
    (b) Minor project. Minor project means a project costing $100,000 or 
less. Such a project qualifies for advance of loan funds even though it 
may not have been included in an RUS-approved borrower's CWP, amendment 
to such CWP, or approved loan. Total advances requested shall not exceed 
the total loan amount. All projects for which loan fund advances are 
requested must be constructed to achieve purposes permitted by terms of 
the loan contract between the borrower and RUS.
    (c) Certification. Pursuant to the applicable provisions of the RUS 
loan contract, borrowers shall certify with each request for funds to be 
approved for advance that such funds are for projects in compliance with 
this section and shall also provide for those that cost in excess of 
$100,000, a contract or work order number as applicable and a CWP cross-
reference project coded identification number. For a minor project not 
included in an RUS approved borrower's CWP, the Borrower shall describe 
the project and do one of the following to satisfy RUS' environmental 
requirements (see 7 CFR part 1794).
    (1) If applicable, state that the project is a categorical exclusion 
of a type described in Sec. 1794.21(b), which normally does not require 
preparation of an Environmental Report (ER); or
    (2) If applicable, state that the project is a categorical exclusion 
of a type that normally requires an ER and then:
    (i) Submit the ER with the request for funds to be approved for 
advance, or
    (ii) If applicable, certify that it has analyzed the minor project 
with respect to a comprehensive service area environmental map and data 
base collected and used in preparing the ER for its RUS-approved 
borrower's CWP, and that on the basis of that information, the minor 
project will not be located in an environmentally sensitive area or 
location.
    (d) Noncompliance. Where insured loan funds are found to have been 
advanced in noncompliance with this section, borrowers will be required 
to deposit the appropriate amount of the over-advance in the 
construction fund-trustee account and pay any accrued and unpaid 
interest to RUS. The Administrator will require borrowers, in order to 
remedy such noncompliance, to pay an additional amount equal to the 
interest on the funds over-advanced for the period such funds were 
outstanding, calculated at a rate equal to the difference between the 
RUS loan interest rate and the most recent rate at which RUS sold 
Certificates of Beneficial Ownership (CBO's). While RUS will generally 
permit the amount of over-advance deposited in the construction fund-
trustee account to be subsequently used by the borrower for RUS approved 
projects, nothing in this section shall be construed to preclude RUS 
from exercising any rights or remedies which RUS may have pursuant to 
the loan contract.

[64 FR 72489, Dec. 28, 1999]



       Subpart B_Extensions of Payments of Principal and Interest

    Source: 67 FR 485, Jan. 4, 2002, unless otherwise noted.



Sec. 1721.100  Purpose.

    This subpart contains RUS procedures and conditions under which 
Borrowers of loans made by RUS may request RUS approval for extensions 
for the payment of principal and interest.



Sec. 1721.101  General.

    (a) The procedures in this subpart are intended to provide Borrowers 
with the flexibility to request an extension of principal and interest 
as authorized under section 12(a) of the RE Act and section 236 of the 
Disaster Relief Act of 1970 (Public Law 91-606).
    (b) The total amount of interest that has been deferred, including 
interest on deferred principal, will be added to the principal balance, 
and the total amount of principal and interest that has been deferred 
will be reamortized over the remaining life of the applicable note 
beginning in the first year the deferral period ends.
    (c) Payment of principal and interest will not be extended more than 
5 years after such payment is due as originally

[[Page 222]]

scheduled. However, in cases where the extension is being granted 
because, at the sole discretion of the Administrator, a severe hardship 
has been experienced, the Administrator may grant a longer extension 
provided that the maturity date of any such loan does not extend to a 
date beyond forty (40) years from the date of the note.

[67 FR 485, Jan. 4, 2002, as amended at 68 FR 37953, June 26, 2003]



Sec. 1721.102  Definitions.

    The definitions contained in 7 CFR 1710.2 are applicable to this 
subpart unless otherwise stated.



Sec. 1721.103  Policy.

    (a) In reviewing requests for extension of payment of principal and 
interest, consideration shall be given to the effect of such extensions 
on the security of the Government's loans, and on the ability of the 
Borrower to achieve program objectives. It is the policy of RUS to 
extend the time for payment of principal and interest on the basis of 
findings that such extension does not impair the security and 
feasibility of the Government's loans and:
    (1) Is essential to the effectiveness of the Borrower's operations 
in achieving RUS program objectives which include providing reliable, 
affordable electricity to RE Act beneficiaries;
    (2) Is necessary to help a Borrower place its operations on a more 
stable financial basis and thereby provide assurance of repayment of 
loans within the time when payments of such loans are due under the 
terms of the note or notes as extended; or
    (3) Is otherwise in the best interest of the Government.
    (b) Extensions will be given in the minimum amount to achieve the 
purpose of the extension.
    (c) The maximum interest rate a RUS Borrower can charge on 
deferments for programs relating to consumer loans, e.g., energy 
resource conservation (ERC) program, contribution-in-aid of construction 
(CIAC), etc., will not be more than 300 basis points above the average 
interest rate on the note(s) being deferred. For example, if the RUS 
Borrower's average interest rate on the note(s) being deferred is 5 
percent, the RUS Borrower can charge a maximum interest rate of 8 
percent.

[67 FR 485, Jan. 4, 2002, as amended at 68 FR 37953, June 26, 2003]



Sec. 1721.104  Eligible purposes.

    (a) Deferments for financial hardship. (1) In cases of financial 
hardship, a Borrower may request that RUS defer principal or interest or 
both. RUS will consider whether the deferral will help a Borrower place 
its operations on a more stable financial basis and thereby provide 
assurance of repayment of loans within the time when payment of such 
loans are due under the terms of the note or notes as extended.
    (2) RUS will determine whether a Borrower qualifies for the 
deferment on a case-by-case basis, considering such factors as the 
following:
    (i) Substantial unreimbursed or uninsured expenses relating to storm 
damage;
    (ii) Loss of large power load (as defined in Sec. 1710.7(c)(6)(ii) 
of this chapter, Large retail power contracts); or
    (iii) Substantial loss of consumers or load due to hostile 
annexations and condemnations, without adequate compensation.
    (b) Deferments for energy resource conservation (ERC) loans. (1) A 
Borrower may request that RUS defer principal payments to make funds 
available to the Borrower's consumers to conserve energy. Amounts 
deferred under this program can be used to cover the cost of labor and 
materials for the following energy conservation measures:
    (i) Caulking;
    (ii) Weather-stripping;
    (iii) Heat pump systems (including water source heat pumps);
    (iv) Heat pumps, water heaters, and central heating or central air 
conditioning system replacements or modifications, which reduce energy 
consumption;
    (v) Ceiling insulation;
    (vi) Wall insulation;
    (vii) Floor insulation;
    (viii) Duct insulation;
    (ix) Pipe insulation;
    (x) Water heater insulation;
    (xi) Storm windows;
    (xii) Thermal windows;
    (xiii) Storm or thermal doors;

[[Page 223]]

    (xiv) Electric system coordinated customer-owned devices that reduce 
the maximum kilowatt demand on the electric system;
    (xv) Clock thermostats; or
    (xvi) Attic ventilation fans.
    (2) ERC loans will be amortized over not more than 84 months, 
without penalty for prepayment of principal.
    (c) Deferments for renewable energy projects. (1) A Borrower may 
request that RUS defer principal payments to enable the Borrower to 
finance renewable energy projects. Amounts deferred under this program 
can be used to cover costs to install all or part of a renewable energy 
system including, without limitation:
    (i) Energy conversion technology;
    (ii) Electric power system interfaces;
    (iii) Delivery equipment;
    (iv) Control equipment; and
    (v) Energy consuming devices.
    (2) A Borrower may request that RUS defer principal payments for the 
purpose of enabling the Borrower to provide its consumers with loans to 
install all or part of customer-owned renewable energy systems up to 
5kW.
    (3) A renewable energy system is defined in Sec. 1710.2 of this 
chapter.
    (4) For the purpose of this subpart, a renewable energy project 
consists of one or more renewable energy systems.
    (d) Deferments for distributed generation projects. (1) A Borrower 
may request that RUS defer principal payments to enable the Borrower to 
finance distributed generation projects. Amounts deferred under this 
program can be used to cover costs to install all or part of a 
distributed generation system that:
    (i) The Borrower will own and operate, or
    (ii) The consumer owns, provided the system owned by the consumer 
does not exceed 5KW.
    (2) A distributed generation project may include one or more 
individual systems.
    (e) Deferments for contributions-in-aid of construction. (1) A 
Borrower may request RUS to defer principal payments to enable the 
Borrower to make funds available to new full time residential consumers 
to assist them in paying their share of the construction costs 
(contribution-in-aid of construction) needed to connect them to the 
Borrower's system.
    (2) Amounts available for this purpose will be limited to the amount 
of the construction costs that are in excess of the average cost per 
residential consumer incurred by the Borrower to connect new full time 
residential consumers during the last calendar year for which data are 
available. The average cost per residential consumer is the total cost 
incurred by the Borrower and will not be reduced by the amounts received 
as a contribution-in-aid of construction.

[67 FR 485, Jan. 4, 2002, as amended at 68 FR 37954, June 26, 2003]



Sec. 1721.105  Application documents.

    (a) Deferments for financial hardship. A Borrower requesting a 
section 12 deferment because of financial hardship must submit the 
following:
    (1) A summary of the financial position of the Borrower, based on 
the latest information available (usually less than 60 days old).
    (2) A copy of the board resolution requesting an extension due to 
financial hardship.
    (3) A 10-year financial forecast of revenues and expenses on a cash 
basis, by year, for the period of the extension and 5 years beyond to 
establish that the remaining payments can be made as rescheduled.
    (4) A listing of notes or portions of notes to be extended, the 
effective date for the beginning of the extension, and the length of the 
extension.
    (5) A narrative description of the nature and cause of the hardship 
and the strategy that will be instituted to mitigate or eliminate the 
effects of the hardship.
    (b) Deferments for energy resource conservation loans. A Borrower 
requesting principal deferments for an ERC loan program must submit the 
following information:
    (1) A letter from the Borrower's General Manager requesting an 
extension of principal payments for the purpose of offering an ERC loan 
program to its members and describing the details of the program.
    (2) A copy of the board resolution establishing the ERC loan 
program.

[[Page 224]]

    (c) Deferments for renewable energy projects. A Borrower requesting 
principal deferments for its renewable energy project must submit the 
following information:
    (1) A letter from the Borrower's General Manager requesting an 
extension of principal payments for the purpose of financing a renewable 
energy project and describing the details of the project.
    (2) A copy of the board resolution establishing the renewable energy 
project.
    (d) Deferments for distributed generation projects. A Borrower 
requesting principal deferments for distributed generation projects must 
submit the following information and approval is also subject to any 
applicable terms and conditions of the Borrower's loan contract, 
mortgage, or indenture:
    (1) A letter from the Borrower's General Manager requesting an 
extension of principal payments for the purpose of financing distributed 
generation projects and describing the details of the project, and
    (2) A copy of the board resolution establishing the distributed 
generation projects program.
    (e) Deferments for contribution-in-aid of construction. A Borrower 
requesting principal deferments for contribution-in-aid of construction 
must submit the following information:
    (1) A letter from the Borrower's General Manager requesting an 
extension of principal payments for the purpose of offering a 
contribution-in-aid of construction program and describing the details 
of the program.
    (2) A copy of the board resolution establishing the contribution-in-
aid of construction program.
    (3) A summary of the calculations used to determine the average cost 
per residential consumer. (See Sec. 1721.104 (e)(2)).

[67 FR 485, Jan. 4, 2002, as amended at 68 FR 37954, June 26, 2003]



Sec. 1721.106  Repayment of deferred payments.

    (a) Deferments relating to financial hardship. The total amount of 
interest that has been deferred, including interest on deferred 
principal, will be added to the principal balance, and the total amount 
of principal and interest that has been deferred will be reamortized 
over the remaining life of the applicable note beginning in the first 
year the deferral period ends. For example: the amount of interest 
deferred in years 2003, 2004, 2005, 2006, and 2007, will be added to the 
principal balance and reamortized over the life of the applicable note 
for repayment starting in year 2008.
    (b) Deferments relating to the ERC loan program, renewable energy 
project(s), distributed generation project(s), and the contribution(s)-
in-aid of construction. An extension agreement is for a term of two (2) 
years. The installment will be recalculated each time the Borrower 
defers the payment of principal and recognition of the deferred amount 
will begin with the next payment. For example: the amount deferred in 
the October payment will be reamortized over a 84 month period starting 
with the next payment (November if paying on a monthly basis). When a 
Borrower defers principal under any of these programs the scheduled 
payment on the account will increase by an amount sufficient to pay off 
the deferred amount, with interest, by the date specified in the 
agreement (usually 84 months (28 quarters)).

[67 FR 485, Jan. 4, 2002, as amended at 68 FR 37954, June 26, 2003]



Sec. 1721.107  Agreement.

    After approval of the Borrower's request for a deferment of 
principal and interest, an extension agreement, containing the terms of 
the extension, together with associated materials, will be prepared and 
forwarded to the Borrower by RUS. The extension agreement will then be 
executed and returned to RUS by the Borrower.



Sec. 1721.108  Commencement of the deferment.

    The deferment of principal and interest will not begin until the 
extension agreement and other supporting materials, in form and 
substance satisfactory to RUS, have been executed by the Borrower and 
returned to RUS. Examples of other supporting materials are items such 
as approving legal opinions from the Borrower's attorney and approvals 
from the relevant regulatory

[[Page 225]]

body for extending the maturity of existing debt and for the additional 
debt service payment incurred.



Sec. 1721.109  OMB control number.

    The information collection requirements in this part are approved by 
the Office of Management and Budget and assigned OMB control number 
0572-0123.



PART 1724_ELECTRIC ENGINEERING, ARCHITECTURAL SERVICES AND DESIGN POLICIES AND 

PROCEDURES--Table of Contents



                            Subpart A_General

Sec.
1724.1 Introduction.
1724.2 Waivers.
1724.3 Definitions.
1724.4 Qualifications.
1724.5 Submission of documents to RUS.
1724.6 Insurance requirements.
1724.7 Debarment and suspension.
1724.8 Restrictions on lobbying.
1724.9 Environmental compliance.
1724.10 Standard forms of contracts for borrowers.
1724.11-1724.19 [Reserved]

                    Subpart B_Architectural Services

1724.20 Borrowers' requirements--architectural services.
1724.21 Architectural services contracts.
1724.22-1724.29 [Reserved]

                     Subpart C_Engineering Services

1724.30 Borrowers' requirements--engineering services.
1724.31 Engineering services contracts.
1724.32 Inspection and certification of work order construction.
1724.33-1724.39 [Reserved]

                   Subpart D_Electric System Planning

1724.40 General.
1724.41-1724.49 [Reserved]

                    Subpart E_Electric System Design

1724.50 Compliance with National Electrical Safety Code (NESC).
1724.51 Design requirements.
1724.52 Permitted deviations from RUS construction standards.
1724.53 Preparation of plans and specifications.
1724.54 Requirements for RUS approval of plans and specifications.
1724.55 Dam safety.
1724.56-1724.69 [Reserved]

Appendix A to Subpart E--Hazard Potential Classification for Civil Works 
          Projects

                      Subpart F_RUS Contract Forms

1724.70 Standard forms of contracts for borrowers.
1724.71 Borrower contractual obligations.
1724.72 Notice and publication of listed contract forms.
1724.73 Promulgation of new or revised contract forms.
1724.74 List of electric program standard contract forms.
1724.75-1724.99 [Reserved]

    Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

    Source: 63 FR 35314, June 29, 1998, unless otherwise noted.



                            Subpart A_General



Sec. 1724.1  Introduction.

    (a) The policies, procedures and requirements in this part implement 
certain provisions of the standard form of loan documents between the 
Rural Utilities Service (RUS) and its electric borrowers.
    (b) All borrowers, regardless of the source of financing, shall 
comply with RUS' requirements with respect to design, construction 
standards, and the use of RUS accepted material on their electric 
systems.
    (c) Borrowers are required to use RUS contract forms only if the 
facilities are financed by RUS.



Sec. 1724.2  Waivers.

    The Administrator may waive, for good cause on a case-by-case basis, 
requirements and procedures of this part.



Sec. 1724.3  Definitions.

    Terms used in this part have the meanings set forth in Sec. 1710.2 
of this chapter. References to specific RUS forms and other RUS 
documents, and to specific sections or lines of such forms and 
documents, shall include the corresponding forms, documents, sections 
and lines in any subsequent revisions of these forms and documents. In 
addition to the terms defined in Sec. 1710.2 of this chapter, the 
following terms have the following meanings for the purposes of this 
part:

[[Page 226]]

    Architect means a registered or licensed person employed by the 
borrower to provide architectural services for a project and duly 
authorized assistants and representatives.
    Engineer means a registered or licensed person, who may be a staff 
employee or an outside consultant, to provide engineering services and 
duly authorized assistants and representatives.
    Force account construction means construction performed by the 
borrower's employees.
    GPO means Government Printing Office.
    NESC means the National Electrical Safety Code.
    RE Act means the Rural Electrification Act of 1936 as amended (7 
U.S.C. 901 et seq.).
    Repowering means replacement of the steam generator or the prime 
mover or both at a generating plant.
    RUS means Rural Utilities Service.
    RUS approval means written approval by the Administrator or a 
representative with delegated authority. RUS approval must be in 
writing, except in emergency situations where RUS approval may be given 
orally followed by a confirming letter.
    RUS financed means financed or funded wholly or in part by a loan 
made or guaranteed by RUS, including concurrent supplemental loans 
required by Sec. 1710.110 of this chapter, loans to reimburse funds 
already expended by the borrower, and loans to replace interim 
financing.

[63 FR 35314, June 29, 1998, as amended at 63 FR 58284, Oct. 30, 1998]



Sec. 1724.4  Qualifications.

    The borrower shall ensure that:
    (a) All selected architects and engineers meet the applicable 
registration and licensing requirements of the States in which the 
facilities will be located;
    (b) All selected architects and engineers are familiar with RUS 
standards and requirements; and
    (c) All selected architects and engineers have had satisfactory 
experience with comparable work.



Sec. 1724.5  Submission of documents to RUS.

    (a) Where to send documents. Documents required to be submitted to 
RUS under this part are to be sent to the office of the borrower's 
respective RUS Regional Director, the Power Supply Division Director, or 
such other office of RUS as designated by RUS. (See part 1700 of this 
chapter.)
    (b) Contracts requiring RUS approval. The borrower shall submit to 
RUS three copies of each contract that is subject to RUS approval under 
subparts B and C of this part. At least one copy of each contract must 
be an original signed in ink (i.e., no facsimile signature). Each 
contract submittal must be accompanied by a certified copy of the board 
resolution awarding the contract.
    (c) Contract amendments requiring RUS approval. The borrower shall 
submit to RUS three copies of each contract amendment (at least one copy 
of which must be an original signed in ink) which is subject to RUS 
approval. Each contract amendment submittal to RUS must be accompanied 
by a certified copy of the board resolution approving the amendment.



Sec. 1724.6  Insurance requirements.

    (a) Borrowers shall ensure that all architects and engineers working 
under contract with the borrower have insurance coverage as required by 
part 1788 of this chapter.
    (b) Borrowers shall also ensure that all architects and engineers 
working under contract with the borrower have insurance coverage for 
Errors and Omissions (Professional Liability Insurance) in an amount at 
least as large as the amount of the architectural or engineering 
services contract but not less than $500,000.



Sec. 1724.7  Debarment and suspension.

    Borrowers shall comply with the requirements on debarment and 
suspension in connection with procurement activities as set forth in 
part 3017 of this title, particularly with respect to lower tier 
transactions, e.g., procurement contracts for goods or services.

[[Page 227]]



Sec. 1724.8  Restrictions on lobbying.

    Borrowers shall comply with the restrictions and requirements in 
connection with procurement activities as set forth in part 3018 of this 
title.



Sec. 1724.9  Environmental compliance.

    Borrowers shall comply with the requirements of part 1794 of this 
chapter, Environmental Policies and Procedures for Electric and 
Telephone Borrowers.



Sec. 1724.10  Standard forms of contracts for borrowers.

    The standard loan agreement between RUS and its borrowers provides 
that, in accordance with applicable RUS regulations in this chapter, the 
borrower shall use standard forms of contracts promulgated by RUS for 
construction, procurement, engineering services, and architectural 
services financed by a loan made or guaranteed by RUS. This part 
implements these provisions of the RUS loan agreement. Subparts A 
through E of this part prescribe when and how borrowers are required to 
use RUS standard forms of contracts for engineering and architectural 
services. Subpart F of this part prescribes the procedures that RUS 
follows in promulgating standard contract forms and identifies those 
contract forms that borrowers are required to use for engineering and 
architectural services.

[63 FR 58284, Oct. 30, 1998]



Sec. Sec. 1724.11-1724.19  [Reserved]



                    Subpart B_Architectural Services



Sec. 1724.20  Borrowers' requirements--architectural services.

    The provisions of this section apply to all borrower electric system 
facilities regardless of the source of financing.
    (a) Each borrower shall select a qualified architect to perform the 
architectural services required for the design and construction 
management of headquarters facilities. The selection of the architect is 
not subject to RUS approval unless specifically required by RUS on a 
case by case basis. Architect's qualification information need not be 
submitted to RUS unless specifically requested by RUS on a case by case 
basis.
    (b) The architect retained by the borrower shall not be an employee 
of the building supplier or contractor, except in cases where the 
building is prefabricated and pre-engineered.
    (c) The architect's duties are those specified under the 
Architectural Services Contract and under subpart E of this part, and, 
as applicable, those duties assigned to the ``engineer'' for competitive 
procurement procedures in part 1726 of this chapter.
    (d) If the facilities are RUS financed, the borrower shall submit or 
require the architect to submit one copy of each construction progress 
report to RUS upon request.
    (e) Additional information concerning RUS requirements for electric 
borrowers' headquarters facilities are set forth in subpart E of this 
part. See also RUS Bulletin 1724E-400, Guide to Presentation of Building 
Plans and Specifications, for additional guidance. This bulletin is 
available from Program Development and Regulatory Analysis, Rural 
Utilities Service, U.S. Department of Agriculture, Stop 1522, 1400 
Independence Ave., SW., Washington, DC 20250-1522.



Sec. 1724.21  Architectural services contracts.

    The provisions of this section apply only to RUS financed electric 
system facilities.
    (a) RUS Form 220, Architectural Services Contract, must be used by 
electric borrowers when obtaining architectural services.
    (b) The borrower shall ensure that the architect furnishes or 
obtains all architectural services related to the design and 
construction management of the facilities.
    (c) Reasonable modifications or additions to the terms and 
conditions in the RUS contract form may be made to define the exact 
services needed for a specific undertaking. Such modifications or 
additions shall not relieve the architect or the borrower of the basic 
responsibilities required by the RUS contract form, and shall not alter 
any terms and conditions required by law.

[[Page 228]]

All substantive changes must be approved by RUS prior to execution of 
the contract.
    (d) Architectural services contracts are not subject to RUS approval 
and need not be submitted to RUS unless specifically requested by RUS on 
a case by case basis.
    (e) Closeout. Upon completion of all services and obligations 
required under each architectural services contract, including, but not 
limited to, submission of final documents, the borrower must closeout 
that contract. The borrower shall obtain from the architect a final 
statement of cost, which must be supported by detailed information as 
appropriate. For example, out-of-pocket expense and per diem types of 
compensation should be listed separately with labor, transportation, 
etc., itemized for each service involving these types of compensation. 
RUS Form 284, Final Statement of Cost for Architectural Service, may be 
used. All computations of the compensation must be made in accordance 
with the terms of the architectural services contract. Closeout 
documents need not be submitted to RUS unless specifically requested by 
RUS on a case by case basis.



Sec. Sec. 1724.22-1724.29  [Reserved]



                     Subpart C_Engineering Services



Sec. 1724.30  Borrowers' requirements--engineering services.

    The provisions of this section apply to all borrower electric system 
facilities regardless of the source of financing.
    (a) Each borrower shall select one or more qualified persons to 
perform the engineering services involved in the planning, design, and 
construction management of the system.
    (b) Each borrower shall retain or employ one or more qualified 
engineers to inspect and certify all new construction in accordance with 
Sec. 1724.32. The engineer must not be the borrower's manager.
    (c) The selection of the engineer is not subject to RUS approval 
unless specifically required by RUS on a case by case basis. Engineer's 
qualification information need not be submitted to RUS unless 
specifically requested by RUS on a case by case basis.
    (d) The engineer's duties are specified under the Engineering 
Services Contract and under part 1726 of this chapter. The borrower 
shall ensure that the engineer executes all certificates and other 
instruments pertaining to the engineering details required by RUS.
    (e) Additional requirements related to appropriate seismic safety 
measures are contained in part 1792, subpart C, of this chapter, Seismic 
Safety of Federally Assisted New Building Construction.
    (f) If the facilities are RUS financed, the borrower shall submit or 
require the engineer to submit one copy of each construction progress 
report to RUS upon RUS' request.



Sec. 1724.31  Engineering services contracts.

    The provisions of this section apply only to RUS financed electric 
system facilities.
    (a) RUS contract forms for engineering services shall be used. 
Reasonable modifications or additions to the terms and conditions in the 
RUS contract form may be made to define the exact services needed for a 
specific undertaking. Any such modifications or additions shall not 
relieve the engineer or the borrower of the basic responsibilities 
required by the RUS contract form, and shall not alter any terms and 
conditions required by law. All substantive changes to the RUS contract 
form shall be approved by RUS prior to execution of the contract.
    (b) RUS Form 236, Engineering Service Contract--Electric System 
Design and Construction, shall be used for all distribution, 
transmission, substation, and communications and control facilities. 
These contracts are not subject to RUS approval and need not be 
submitted to RUS unless specifically requested by RUS on a case by case 
basis.
    (c) RUS Form 211, Engineering Service Contract for the Design and 
Construction of a Generating Plant, shall be used for all new generating 
units and repowering of existing units. These contracts require RUS 
approval.
    (d) Any amendments to RUS approved engineering services contracts 
require RUS approval.

[[Page 229]]

    (e) Closeout. Upon completion of all services and obligations 
required under each engineering services contract, including, but not 
limited to, submission of final documents, the borrower must closeout 
the contract. The borrower shall obtain from the engineer a completed 
final statement of engineering fees, which must be supported by detailed 
information as appropriate. RUS Form 234, Final Statement of Engineering 
Fee, may be used. All computations of the compensation shall be made in 
accordance with the terms of the engineering services contract. Closeout 
documents need not be submitted to RUS unless specifically requested by 
RUS on a case by case basis.



Sec. 1724.32  Inspection and certification of work order construction.

    The provisions of this section apply to all borrower electric system 
facilities regardless of the source of financing.
    (a) The borrower shall ensure that all field inspection and related 
services are performed within 6 months of the completion of 
construction, and are performed by a licensed engineer, except that a 
subordinate of the licensed engineer may make the inspection, provided 
the following conditions are met:
    (1) The inspection by the subordinate is satisfactory to the 
borrower;
    (2) This practice is acceptable under applicable requirements of the 
States in which the facilities are located;
    (3) The subordinate is experienced in making such inspections;
    (4) The name of the person making the inspection is included in the 
certification; and
    (5) The licensed engineer signs such certification which appears on 
the inventory of work orders.
    (b) The inspection shall include a representative and sufficient 
amount of construction listed on each RUS Form 219, Inventory of Work 
Orders (or comparable form), being inspected to assure the engineer that 
the construction is acceptable. Each work order that was field inspected 
shall be indicated on RUS Form 219 (or comparable form.) The inspection 
services shall include, but not be limited to, the following:
    (1) Determination that construction conforms to RUS specifications 
and standards and to the requirements of the National Electrical Safety 
Code (NESC), State codes, and local codes;
    (2) Determination that the staking sheets or as-built drawings 
represent the construction completed and inspected;
    (3) Preparation of a list of construction clean-up notes and staking 
sheet discrepancies to be furnished to the owner to permit correction of 
construction, staking sheets, other records, and work order inventories;
    (4) Reinspection of construction corrected as a result of the 
engineer's report;
    (5) Noting, initialing, and dating the staking or structure sheets 
or as-built drawings and noting the corresponding work order entry for 
line construction; and
    (6) Noting, initialing, and dating the as-built drawings or sketches 
for generating plants, substations, and other major facilities.
    (c) Certification. (1) The following certification must appear on 
all inventories of work orders:

    I hereby certify that sufficient inspection has been made of the 
construction reported by this inventory to give me reasonable assurance 
that the construction complies with applicable specifications and 
standards and meets appropriate code requirements as to strength and 
safety. This certification is in accordance with acceptable engineering 
practice.

    (2) A certification must also include the name of the inspector, 
name of the firm, signature of the licensed engineer, the engineer's 
State license number, and the date of signature.



Sec. Sec. 1724.33-1724.39  [Reserved]



                   Subpart D_Electric System Planning



Sec. 1724.40  General.

    Borrowers shall have ongoing, integrated planning to determine their 
short-term and long-term needs for plant additions, improvements, 
replacements, and retirements for their electric systems. The primary 
components of the planning system consist of

[[Page 230]]

long-range engineering plans and construction work plans. Long-range 
engineering plans identify plant investments required over a long-range 
period, 10 years or more. Construction work plans specify and document 
plant requirements for a shorter term, 2 to 4 years. Long-range 
engineering plans and construction work plans shall be in accordance 
with part 1710, subpart F, of this chapter. See also RUS Bulletins 
1724D-101A, Electric System Long-Range Planning Guide, and 1724D-101B, 
System Planning Guide, Construction Work Plans, for additional guidance. 
These bulletins are available from Program Development and Regulatory 
Analysis, Rural Utilities Service, U.S. Department of Agriculture, Stop 
1522, 1400 Independence Ave., SW., Washington, DC 20250-1522.



Sec. Sec. 1724.41-1724.49  [Reserved]



                    Subpart E_Electric System Design



Sec. 1724.50  Compliance with National Electrical Safety Code (NESC).

    The provisions of this section apply to all borrower electric system 
facilities regardless of the source of financing.
    (a) A borrower shall ensure that its electric system, including all 
electric distribution, transmission, and generating facilities, is 
designed, constructed, operated, and maintained in accordance with all 
applicable provisions of the most current and accepted criteria of the 
National Electrical Safety Code (NESC) and all applicable and current 
electrical and safety requirements of any State or local governmental 
entity. Copies of the NESC may be obtained from the Institute of 
Electrical and Electronic Engineers, Inc., 445 Hoes Lane, Piscataway, NJ 
08855. This requirement applies to the borrower's electric system 
regardless of the source of financing.
    (b) Any electrical standard requirements established by RUS are in 
addition to, and not in substitution for or a modification of, the most 
current and accepted criteria of the NESC and any applicable electrical 
or safety requirements of any State or local governmental entity.
    (c) Overhead distribution circuits shall be constructed with not 
less than the Grade C strength requirements as described in Section 26, 
Strength Requirements, of the NESC when subjected to the loads specified 
in NESC Section 25, Loadings for Grades B and C. Overhead transmission 
circuits shall be constructed with not less than the Grade B strength 
requirements as described in NESC Section 26.



Sec. 1724.51  Design requirements.

    The provisions of this section apply to all borrower electric system 
facilities regardless of the source of financing.
    (a) Distribution. All distribution facilities must conform to the 
applicable RUS construction standards and utilize RUS accepted 
materials.
    (b) Transmission lines. (1) All transmission line design data must 
be approved by RUS.
    (2) Design data consists of all significant design features, 
including, but not limited to, transmission line design data summary, 
general description of terrain, right-of-way calculations, discussion 
concerning conductor and structure selection, conductor sag and tension 
information, design clearances, span limitations due to clearances, 
galloping or conductor separation, design loads, structure strength 
limitations, insulator selection and design, guying requirements, and 
vibration considerations. For lines composed of steel or concrete poles, 
or steel towers, in which load information will be used to purchase the 
structures, the design data shall also include loading trees, structure 
configuration and selection, and a discussion concerning foundation 
selection.
    (3) Line design data for uprating transmission lines to higher 
voltage levels or capacity must be approved by RUS.
    (4) Transmission line design data which has received RUS approval in 
connection with a previous transmission line construction project for a 
particular borrower is considered approved by RUS for that borrower, 
provided that:
    (i) The conditions on the project fall within the design data 
previously approved; and

[[Page 231]]

    (ii) No significant NESC revisions have occurred.
    (c) Substations. (1) All substation design data must be approved by 
RUS.
    (2) Design data consists of all significant design features, 
including, but not limited to, a discussion of site considerations, oil 
spill prevention measures, design considerations covering voltage, 
capacity, shielding, clearances, number of low and high voltage phases, 
major equipment, foundation design parameters, design loads for line 
support structures and the control house, seismic considerations, 
corrosion, grounding, protective relaying, and AC and DC auxiliary 
systems. Reference to applicable safety codes and construction standards 
are also to be included.
    (3) Substation design data which has received RUS approval in 
connection with a previous substation construction project for a 
particular borrower is considered approved by RUS for that borrower, 
provided that:
    (i) The conditions on the project fall within the design data 
previously approved; and
    (ii) No significant NESC revisions have occurred.
    (d) Generating facilities. (1) This section covers all portions of a 
generating plant including plant buildings, the generator step-up 
transformer, and the transmission switchyard at a generating plant. 
Warehouses and equipment service buildings not associated with 
generation plants are covered under paragraph (e) of this section. 
Generation plant buildings must meet the requirements of paragraph 
(e)(1) of this section.
    (2) For all new generation units and for all repowering projects, 
the design outline shall be approved by RUS, unless RUS determines that 
a design outline is not needed for a particular project.
    (3) The design outline will include all significant design criteria. 
During the early stages of the project, RUS will, in consultation with 
the borrower and its consulting engineer, identify the specific items 
which are to be included in the design outline.
    (e) Headquarters--(1) Applicable laws. The design and construction 
of headquarters facilities shall comply with all applicable Federal, 
State, and local laws and regulations, including, but not limited to:
    (i) Section 504 of the Rehabilitation Act of 1973, (29 U.S.C. 794), 
which states that no qualified individual with a handicap shall, solely 
by reason of their handicap, be excluded from participation in, be 
denied the benefits of, or be subject to discrimination under any 
program or activity receiving Federal financial assistance. The Uniform 
Federal Accessibility Standards (41 CFR part 101-19, subpart 101-19.6, 
appendix A) are the applicable standards for all new or altered borrower 
buildings, regardless of the source of financing.
    (ii) The Architectural Barriers Act of 1968 (42 U.S.C. 4151), which 
requires that buildings financed with Federal funds are designed and 
constructed to be accessible to the physically handicapped.
    (iii) The Earthquake Hazards Reduction Act of 1977 (42 U.S.C. 7701 
et seq.), and Executive Order 12699, Seismic Safety of Federal and 
Federally Assisted or Regulated New Building Construction (3 CFR 1990 
Comp., p. 269). Appropriate seismic safety provisions are required for 
new buildings for which RUS provides financial assistance. (See part 
1792, subpart C, of this chapter.)
    (2) The borrower shall provide evidence, satisfactory in form and 
substance to the Administrator, that each building will be designed and 
built in compliance with all Federal, State, and local requirements.
    (f) Communications and control. (1) This section covers microwave 
and powerline carrier communications systems, load control, and 
supervisory control and data acquisition (SCADA) systems.
    (2) The performance considerations for a new or replacement master 
system must be approved by RUS. A master system includes the main 
controller and related equipment at the main control point. Performance 
considerations include all major system features and their 
justification, including, but not limited to, the objectives of the 
system, the types of parameters to be controlled or monitored, the 
communication media, alternatives considered, and provisions for future 
needs.

[[Page 232]]



Sec. 1724.52  Permitted deviations from RUS construction standards.

    The provisions of this section apply to all borrower electric system 
facilities regardless of the source of financing.
    (a) Structures for raptor protection. (1) RUS standard distribution 
line structures may not have the extra measure of protection needed in 
areas frequented by eagles and other large raptors to protect such birds 
from electric shock due to physical contact with energized wires. Where 
raptor protection in the design of overhead line structures is required 
by RUS; a Federal, State or local authority with permit or license 
authority over the proposed construction; or where the borrower 
voluntarily elects to comply with the recommendations of the U.S. Fish 
and Wildlife Service or State wildlife agency, borrowers are permitted 
to deviate from RUS construction standards, provided:
    (i) Structures are designed and constructed in accordance with 
``Suggested Practices for Raptor Protection on Powerlines: The State of 
the Art in 1996'' (Suggested Practices for Raptor Protection); and,
    (ii) Structures are in accordance with the NESC and applicable State 
and local regulations.
    (2) Any deviation from the RUS construction standards for the 
purpose of raptor protection, which is not in accordance with the 
Suggested Practices for Raptor Protection, must be approved by RUS prior 
to construction. ``Suggested Practices for Raptor Protection on 
Powerlines: The State of the Art in 1996,'' published by the Edison 
Electric Institute/Raptor Research Foundation, is hereby incorporated by 
reference. This incorporation by reference is approved by the Director 
of the Office of the Federal Register in accordance with 5 U.S.C. 552(a) 
and 1 CFR part 51. Copies of this publication may be obtained from the 
Raptor Research Foundation, Inc., c/o Jim Fitzpatrick, Treasurer, 
Carpenter Nature Center, 12805 St. Croix Trail South, Hastings, 
Minnesota 55033. It is also available for inspection during normal 
business hours at RUS, Electric Staff Division, 1400 Independence 
Avenue, SW., Washington, DC, Room 1246-S, and at the National Archives 
and Records Administration (NARA). For information on the availability 
of this material at NARA, call 202-741-6030, or go to: http://
www.archives.gov/federal--register/code--of--federal--regulations/ibr--
locations.html.
    (b) Transformer neutral connections. Where it is necessary to 
separate the primary and secondary neutrals to provide the required 
electric service to a consumer, the RUS standard transformer secondary 
neutral connections may be modified in accordance with Rule 97D2 of the 
NESC.
    (c) Lowering of neutral conductor on overhead distribution lines. 
(1) It is permissible to lower the neutral attachment on standard 
construction pole-top assemblies an additional distance not exceeding 
two feet (0.6 m) for the purpose of economically meeting the clearance 
requirements of the NESC.
    (2) It is permissible to lower the transformer and associated 
neutral attachment up to two feet (0.6 m) to provide adequate clearance 
between the cutouts and single-phase, conventional distribution 
transformers.
    (3) It is permissible to lower the neutral attachment on standard 
construction pole-top assemblies an additional distance of up to six 
feet (2 m) for the purpose of performing construction and future line 
maintenance on these assemblies from bucket trucks designed for such 
work.

[63 FR 35314, June 29, 1998, as amended at 69 FR 18803, Apr. 9, 2004]



Sec. 1724.53  Preparation of plans and specifications.

    The provisions of this section apply to all borrower electric system 
facilities regardless of the source of financing.
    (a) General. (1) The borrower (acting through the engineer, if 
applicable) shall prepare plans and specifications that adequately 
represent the construction to be performed.
    (2) Plans and specifications for distribution, transmission, or 
generating facilities must be based on a construction work plan (as 
amended, if applicable), engineering study or construction program which 
has been approved by

[[Page 233]]

RUS if financing for the facilities will at any time be requested from 
RUS.
    (b) Composition of plans and specifications package. (1) Whether 
built by force account or contract, each set of plans and specifications 
must include:
    (i) Distribution lines. Specifications and drawings, staking sheets, 
key map and appropriate detail maps;
    (ii) Transmission lines. Specifications and drawings, transmission 
line design data manual, vicinity maps of the project, a one-line 
diagram, and plan and profile sheets;
    (iii) Substations. Specifications and drawings, including a one-line 
diagram, plot and foundation plan, grounding plan, and plans and 
elevations of structure and equipment, as well as all other necessary 
construction drawings, in sufficient detail to show phase spacing and 
ground clearances of live parts;
    (iv) Headquarters. Specifications and drawings, including:
    (A) A plot plan showing the location of the proposed building plus 
paving and site development;
    (B) A one line drawing (floor plan and elevation view), to scale, of 
the proposed building with overall dimensions shown; and
    (C) An outline specification including materials to be used (type of 
frame, exterior finish, foundation, insulation, etc.); and
    (v) Other facilities (e.g., generation and communications and 
control facilities). Specifications and drawings, as necessary and in 
sufficient detail to accurately define the scope and quality of work 
required.
    (2) For contract work, the appropriate standard RUS construction 
contract form shall be used as required by part 1726 of this chapter.



Sec. 1724.54  Requirements for RUS approval of plans and specifications.

    The provisions of this section apply only to RUS financed electric 
system facilities.
    (a) For any contract subject to RUS approval in accordance with part 
1726 of this chapter, the borrower shall obtain RUS approval of the 
plans and specifications, as part of the proposed bid package, prior to 
requesting bids. RUS may require approval of other plans and 
specifications on a case by case basis.
    (b) Distribution lines. RUS approval of the plans and specifications 
for distribution line construction is not required if standard RUS 
drawings, specifications, RUS accepted material, and standard RUS 
contract forms (as required by part 1726 of this chapter) are used. 
Drawings, plans and specifications for nonstandard distribution 
construction must be submitted to RUS and receive approval prior to 
requesting bids on contracts or commencement of force account 
construction.
    (c) Transmission lines. (1) Plans and specifications for 
transmission construction projects which are not based on RUS approved 
line design data or do not use RUS standard structures must receive RUS 
approval prior to requesting bids on contracts or commencement of force 
account construction.
    (2) Unless RUS approval is required by paragraph (a) of this 
section, plans and specifications for transmission construction which 
use previously approved design data and standard structures do not 
require RUS approval. Plans and specifications for related work, such as 
right-of-way clearing, equipment, and materials, do not require RUS 
approval unless required by paragraph (a) of this section.
    (d) Substations. (1)(i) Plans and specifications for all new 
substations must receive RUS approval prior to requesting bids on 
contracts or commencement of force account construction, unless:
    (A) The substation design has been previously approved by RUS; and
    (B) No significant NESC revisions have occurred.
    (ii) The borrower shall notify RUS in writing that a previously 
approved design will be used, including identification of the previously 
approved design.
    (2) Unless RUS approval is required by paragraph (a) of this 
section, plans and specifications for substation modifications and for 
substations using previously approved designs do not require RUS 
approval.
    (e) Generation facilities. (1) This paragraph (e) covers all 
portions of a generating plant including plant buildings, the generator 
step-up transformer, and

[[Page 234]]

the transmission switchyard at a generating plant. Warehouses and 
equipment service buildings not associated with generation plants are 
covered under paragraph (f) of this section.
    (2) The borrower shall obtain RUS approval, prior to issuing 
invitations to bid, of the terms and conditions for all generating plant 
equipment or construction contracts which will cost $1,500,000 or more. 
Unless RUS approval is required by paragraph (a) of this section, plans 
and specifications for generating plant equipment and construction do 
not require RUS approval.
    (f) Headquarters buildings. (1) This paragraph (f) covers office 
buildings, warehouses, and equipment service buildings. Generating plant 
buildings are covered under paragraph (e) of this section.
    (2) Unless RUS approval is required by paragraph (a) of this 
section, plans and specifications for headquarters buildings do not 
require RUS approval. The borrower shall submit two copies of RUS Form 
740g, Application for Headquarters Facilities. This form is available 
from Program Development and Regulatory Analysis, Rural Utilities 
Service, United States Department of Agriculture, Stop 1522, 1400 
Independence Ave., SW., Washington, DC 20250-1522. The application must 
show floor area and estimated cost breakdown between office building 
space and space for equipment warehousing and service facilities, and 
include a one line drawing (floor plan and elevation view), to scale, of 
the proposed building with overall dimensions shown. The information 
concerning the planned building may be included in the borrower's 
construction work plan in lieu of submitting it with the application. 
(See 7 CFR part 1710, subpart F.) Prior to issuing the plans and 
specifications for bid, the borrower shall also submit to RUS a 
statement, signed by the architect or engineer, that the building design 
meets the Uniform Federal Accessibility Standards (See Sec. 
1724.51(e)(1)(i)).
    (g) Communications and control facilities. (1) This paragraph (g) 
covers microwave and powerline carrier communications systems, load 
control, and supervisory control and data acquisition (SCADA) systems.
    (2) The borrower shall obtain RUS approval, prior to issuing 
invitations to bid, of the terms and conditions for communications and 
control facilities contracts which will cost $500,000 or more. Unless 
RUS approval is required by paragraph (a) of this section, plans and 
specifications for communications and control facilities do not require 
RUS approval.
    (h) Terms and conditions include the RUS standard form of contract, 
general and special conditions, and any other non-technical provisions 
of the contract. Terms and conditions which have received RUS approval 
in connection with a previous contract for a particular borrower are 
considered approved by RUS for that borrower.

[63 FR 35314, June 29, 1998, as amended at 65 FR 63196, Oct. 23, 2000]



Sec. 1724.55  Dam safety.

    (a) The provisions of this section apply only to RUS financed 
electric system facilities.
    (1)(i) Any borrower that owns or operates a RUS financed dam must 
utilize the``Federal Guidelines for Dam Safety,''(Guidelines), as 
applicable. A dam, as more fully defined in the Guidelines, is generally 
any artificial barrier which either:
    (A) Is 25 feet (8 m) or more in height; or
    (B) Has an impounding capacity at maximum water storage elevation of 
55 acre-feet (68,000 m\3\) or more.
    (ii) The``Federal Guidelines for Dam Safety,''FEMA 93, June, 1979, 
published by the Federal Emergency Management Agency (FEMA), is hereby 
incorporated by reference. This incorporation by reference is approved 
by the Director of the Office of the Federal Register in accordance with 
5 U.S.C. 552(a) and 1 CFR part 51. Copies of the``Federal Guidelines for 
Dam Safety''may be obtained from the Federal Emergency Management 
Agency, Mitigation Directorate, PO Box 2012, Jessup, MD 20794. It is 
also available for inspection during normal business hours at RUS, 
Electric Staff Division, 1400 Independence Avenue, SW., Washington, DC, 
Room 1246-S, and at the National Archives and Records Administration 
(NARA). For information on the availability of this material at

[[Page 235]]

NARA, call 202-741-6030, or go to: http://www.archives.gov/federal--
register/code--of--federal--regulations/ibr--locations.html.
    (2) The borrower shall evaluate the hazard potential of its dams in 
accordance with Appendix E of the U.S. Army Corps of Engineers 
Engineering and Design Dam Safety Assurance Program, ER 1110-2-1155, 
July 31, 1995. A summary of the hazard potential criteria is included 
for information as Appendix A to this subpart. The U.S. Army Corps of 
Engineers Engineering and Design Dam Safety Assurance Program, ER 1110-
2-1155, July 31, 1995, published by the United States Army Corps of 
Engineers, is hereby incorporated by reference. This incorporation by 
reference is approved by the Director of the Office of the Federal 
Register in accordance with 5 U.S.C. 552(a) and 1 CFR part 51. Copies of 
the U. S. Army Corps of Engineers Engineering and Design Dam Safety 
Assurance Program may be obtained from the U. S. Army Corps of 
Engineers, Publications Depot, 2803 52nd Ave., Hyattsville, MD 20781. It 
is also available for inspection during normal business hours at RUS, 
Electric Staff Division, 1400 Independence Avenue, SW., Washington, DC, 
Room 1246-S, and at the National Archives and Records Administration 
(NARA). For information on the availability of this material at NARA, 
call 202-741-6030, or go to: http://www.archives.gov/federal--register/
code--of--federal--regulations/ibr--locations.html.
    (3) For high hazard potential dams, the borrower must obtain an 
independent review of the design and critical features of construction. 
The reviewer must have demonstrated experience in the design and 
construction of dams of a similar size and nature. The reviewer must be 
a qualified engineer not involved in the original design of the dam or a 
Federal or State agency responsible for dam safety. The reviewer must be 
approved by RUS.
    (4) The independent review of design must include, but not 
necessarily be limited to, plans, specifications, design calculations, 
subsurface investigation reports, hydrology reports, and redesigns which 
result from encountering unanticipated or unusual conditions during 
construction.
    (5) The independent review of construction shall include:
    (i) Foundation preparation and treatment. When the foundation has 
been excavated and exposed, and before critical structures such as earth 
embankments or concrete structures are placed thereon, the borrower 
shall require the reviewer to conduct an independent examination of the 
foundation to ensure that suitable foundation material has been reached 
and that the measures proposed for treatment of the foundation are 
adequate. This examination must extend to the preparation and treatment 
of the foundation for the abutments.
    (ii) Fill placement. During initial placement of compacted fill 
materials, the borrower shall require the reviewer to conduct an 
independent examination to ensure that the materials being used in the 
various zones are suitable and that the placement and compaction 
procedures being used by the contractor will result in a properly 
constructed embankment.
    (6) If the reviewer disagrees with any aspect of the design or 
construction which could affect the safety of the dam, then the borrower 
must meet with the design engineer and the reviewer to resolve the 
disagreements.
    (7) Emergency action plan. For high hazard potential dams, the 
borrower must develop an emergency action plan incorporating preplanned 
emergency measures to be taken prior to and following a potential dam 
failure. The plan should be coordinated with local government and other 
authorities involved with the public safety and be approved by the 
borrower's board of directors.
    (b)(1) For more information and guidance, the following publications 
regarding dam safety are available from FEMA:
    (i)``Emergency Action Planning Guidelines for Dams,''FEMA 64.
    (ii)``Federal Guidelines for Earthquake Analysis and Design of 
Dams,''FEMA 65.
    (iii)``Federal Guidelines for Selecting and Accommodating Inflow 
Design Floods for Dams,''FEMA 94.

[[Page 236]]

    (iv)``Dam Safety: An Owner's Guidance Manual,''FEMA 145, August, 
1987.
    (2) These publications may be obtained from the Federal Emergency 
Management Agency, Mitigation Directorate, PO Box 2012, Jessup, MD 
20794.

[63 FR 35314, June 29, 1998, as amended at 69 FR 18803, Apr. 9, 2004]



Sec. Sec. 1724.56-1724.69  [Reserved]



      Sec. Appendix A to Subpart E of Part 1724--Hazard Potential 

                 Classification for Civil Works Projects

    The source for this appendix is U.S. Army Corps of Engineers 
Engineering and Design Dam Safety Assurance Program, ER 1110-2-1155, 
Appendix E. Appendix E is available from the address listed in Sec. 
1724.55(a)(2).

----------------------------------------------------------------------------------------------------------------
          Category \1\                      Low                    Significant                    High
----------------------------------------------------------------------------------------------------------------
Direct Loss of Life \2\........  None expected (due to      Uncertain (rural location  Certain (one or more
                                  rural location with no     with few residences and    extensive residential,
                                  permanent structures for   only transient or          commercial or industrial
                                  human habitation).         industrial development).   development).
Lifeline Losses \3\............  No disruption of           Disruption of essential    Disruption of critical
                                  services--repairs are      facilities and access.     facilities and access.
                                  cosmetic or rapidly
                                  repairable damage.
Property Losses \4\............  Private agricultural       Major public and private   Extensive public and
                                  lands, equipment and       facilities.                private facilities.
                                  isolated buildings.
Environmental Losses \5\.......  Minimal incremental        Major mitigation required  Extensive mitigation cost
                                  damage.                                               or impossible to
                                                                                        mitigate.
----------------------------------------------------------------------------------------------------------------
Notes:
\1\ Categories are based upon project performance and do not apply to individual structures within a project.
\2\ Loss of life potential based upon inundation mapping of area downstream of the project. Analysis of loss of
  life potential should take into account the extent of development and associated population at risk, time of
  flood wave travel and warning time.
\3\ Indirect threats to life caused by the interruption of lifeline services due to project failure, or
  operation, i.e., direct loss of (or access to) critical medical facilities or loss of water or power supply,
  communications, power supply, etc.
\4\ Direct economic impact of value of property damages to project facilities and down stream property and
  indirect economic impact due to loss of project services, i.e., impact on navigation industry of the loss of a
  dam and navigation pool, or impact upon a community of the loss of water or power supply.
\5\ Environmental impact downstream caused by the incremental flood wave produced by the project failure, beyond
  which would normally be expected for the magnitude flood event under a without project conditions.



                      Subpart F_RUS Contract Forms



Sec. 1724.70  Standard forms of contracts for borrowers.

    (a) General. The standard loan agreement between RUS and its 
borrowers provides that, in accordance with applicable RUS regulations 
in this chapter, the borrower shall use standard forms of contract 
promulgated by RUS for construction, procurement, engineering services, 
and architectural services financed by a loan made or guaranteed by RUS. 
(See section 5.16 of appendix A to subpart C of part 1718 of this 
chapter.) This subpart prescribes RUS procedures in promulgating 
electric program standard contract forms and identifies those forms that 
borrowers are required to use.
    (b) Contract forms. RUS promulgates standard contract forms, 
identified in the List of Required Contract Forms, Sec. 1724.74(c), 
that borrowers are required to use in accordance with the provisions of 
this part. In addition, RUS promulgates standard contract forms 
identified in the List of Guidance Contract Forms contained in Sec. 
1724.74(c) that the borrowers may but are not required to use in the 
planning, design, and construction of their electric systems. Borrowers 
are not required to use these guidance contract forms in the absence of 
an agreement to do so.

[63 FR 58284, Oct. 30, 1998]



Sec. 1724.71  Borrower contractual obligations.

    (a) Loan agreement. As a condition of a loan or loan guarantee under 
the RE Act, borrowers are normally required to enter into RUS loan 
agreements pursuant to which the borrower agrees

[[Page 237]]

to use RUS standard forms of contracts for construction, procurement, 
engineering services and architectural services financed in whole or in 
part by the RUS loan. Normally, this obligation is contained in section 
5.16 of the loan contract. To comply with the provisions of the loan 
agreements as implemented by this part, borrowers must use those forms 
of contract (hereinafter sometimes called``listed contract forms'') 
identified in the List of Required Standard Contract Forms contained in 
Sec. 1724.74(c).
    (b) Compliance. If a borrower is required by this part or by its 
loan agreement with RUS to use a listed standard form of contract, the 
borrower shall use the listed contract form in the format available from 
RUS, either paper or electronic format. Exact electronic reproduction is 
acceptable. The approved RUS standard forms of contract shall not be 
retyped, changed, modified, or altered in any manner not specifically 
authorized in this part or approved by RUS in writing on a case-by-case 
basis. Any modifications approved by RUS on a case-by-case basis must be 
clearly shown so as to indicate the modification difference from the 
standard form of contract.
    (c) Amendment. Where a borrower has entered into a contract in the 
form required by this part, no change may be made in the terms of the 
contract, by amendment, waiver or otherwise, without the prior written 
approval of RUS.
    (d) Waiver. RUS may waive for good cause, on a case by case basis, 
the requirements imposed on a borrower pursuant to this part. Borrowers 
seeking a waiver by RUS must provide RUS with a written request 
explaining the need for the waiver.
    (e) Violations. A failure on the part of the borrower to use listed 
contracts as prescribed in this part is a violation of the terms of its 
loan agreement with RUS and RUS may exercise any and all remedies 
available under the terms of the agreement or otherwise.

[63 FR 58285, Oct. 30, 1998, as amended at 69 FR 7108, Feb. 13, 2004]



Sec. 1724.72  Notice and publication of listed contract forms.

    (a) Notice. Upon initially entering into a loan agreement with RUS, 
borrowers will be provided with all listed contract forms. Thereafter, 
new or revised listed contract forms promulgated by RUS, including RUS 
approved exceptions and alternatives, will be sent by regular or 
electronic mail to the address of the borrower as identified in its loan 
agreement with RUS.
    (b) Availability. Listed contract forms are published by RUS. 
Interested parties may obtain the forms from: Rural Utilities Service, 
Program Development and Regulatory Analysis, U.S. Department of 
Agriculture, Stop 1522, 1400 Independence Avenue, SW., Stop 1522, 
Washington, DC 20250-1522, telephone number (202) 720-8674. The list of 
contract forms can be found in Sec. 1724.74(c), List of Required 
Contract Forms.

[63 FR 58285, Oct. 30, 1998]



Sec. 1724.73  Promulgation of new or revised contract forms.

    RUS may, from time to time, undertake to promulgate new contract 
forms or revise or eliminate existing contract forms. In so doing, RUS 
shall publish notice of rulemaking in the Federal Register announcing, 
as appropriate, a revision in, or a proposal to amend Sec. 1724.74, 
List of Electric Program Standard Contract Forms. The amendment may 
change the existing identification of a listed contract form; for 
example, changing the issuance date of a listed contract form or by 
identifying a new required contract form. The notice of rulemaking will 
describe the new standard contract form or the substantive change in the 
listed contract form, as the case may be, and the issues involved. The 
standard contract form or relevant portions thereof may be appended to 
the supplementary information section of the notice of rulemaking. As 
appropriate, the notice of rulemaking shall provide an opportunity for 
interested persons to provide comments. A copy of each such Federal 
Register document shall be sent by regular or electronic mail to all 
borrowers.

[63 FR 58285, Oct. 30, 1998]

[[Page 238]]



Sec. 1724.74  List of electric program standard contract forms.

    (a) General. The following is a list of RUS electric program 
standard contract forms for architectural and engineering services. 
Paragraph (c) of this section contains the list of required contract 
forms, i.e., those forms of contracts that borrowers are required to use 
by the terms of their RUS loan agreements as implemented by the 
provisions of this part. Paragraph (d) of this section contains the list 
of guidance contract forms, i.e., those forms of contracts provided as 
guidance to borrowers in the planning, design, and construction of their 
systems. All of these forms are available from RUS. See Sec. 1724.72(b) 
for availability of these forms.
    (b) Issuance date. Where required by this part to use a standard 
form of contract in connection with RUS financing, the borrower shall 
use that form identified by issuance date in the List of Required 
Contract Forms in paragraph (c) of this section, as most recently 
published as of the date the borrower executes the contract.
    (c) List of required contract forms. (1) RUS Form 211, Rev. 4-04, 
Engineering Service Contract for the Design and Construction of a 
Generating Plant. This form is used for engineering services for 
generating plant construction.
    (2) RUS Form 220, Rev. 6-98, Architectural Services Contract. This 
form is used for architectural services for building construction.
    (3) RUS Form 236, Rev. 6-98, Engineering Service Contract--Electric 
System Design and Construction. This form is used for engineering 
services for distribution, transmission, substation, and communications 
and control facilities.
    (d) List of guidance contract forms. (1) RUS Form 179, Rev. 9-66, 
Architects and Engineers Qualifications. This form is used to document 
architects and engineers qualifications.
    (2) RUS Form 215, Rev. 5-67, Engineering Service Contract--System 
Planning. This form is used for engineering services for system 
planning.
    (3) RUS Form 234, Rev. 3-57, Final Statement of Engineering Fee. 
This form is used for the closeout of engineering services contracts.
    (4) RUS Form 241, Rev. 3-56, Amendment of Engineering Service 
Contract. This form is used for amending engineering service contracts.
    (5) RUS Form 244, Rev. 12-55, Engineering Service Contract--Special 
Services. This form is used for miscellaneous engineering services.
    (6) RUS Form 258, Rev. 4-58, Amendment of Engineering Service 
Contract--Additional Project. This form is used for amending engineering 
service contracts to add an additional project.
    (7) RUS Form 284, Rev. 4-72, Final Statement of Cost for 
Architectural Service. This form is used for the closeout of 
architectural services contracts.
    (8) RUS Form 297, Rev. 12-55, Engineering Service Contract--Retainer 
for Consultation Service. This form is used for engineering services for 
consultation service on a retainer basis.
    (9) RUS Form 459, Rev. 9-58, Engineering Service Contract--Power 
Study. This form is used for engineering services for power studies.

[63 FR 58285, Oct. 30, 1998, as amended at 65 FR 63196, Oct. 23, 2000; 
69 FR 52595, Aug. 27, 2004]



Sec. Sec. 1724.75-1724.99  [Reserved]



PART 1726_ELECTRIC SYSTEM CONSTRUCTION POLICIES AND PROCEDURES--Table of 

Contents



                            Subpart A_General

Sec.
1726.1-1726.9 [Reserved]
1726.10 Introduction.
1726.11 Purpose.
1726.12 Applicability.
1726.13 Waivers.
1726.14 Definitions.
1726.15 ``Buy American''.
1726.16 Debarment and suspension.
1726.17 Restrictions on lobbying.
1726.18 Preloan contracting.
1726.19 Use of competitive procurement.
1726.20 Standards and specifications.
1726.21 New materials.
1726.22 Methods of construction.
1726.23 Qualification of bidders.
1726.24 Standard forms of contracts for borrowers.
1726.25 Subcontracts.
1726.26 Interest on overdue accounts.
1726.27 Contractor's bonds.
1726.28-1726.34 [Reserved]
1726.35 Submission of documents to RUS.
1726.36 Documents subject to RUS approval.

[[Page 239]]

1726.37 OMB control number.
1726.38-1726.49 [Reserved]

                    Subpart B_Distribution Facilities

1726.50 Distribution line materials and equipment.
1726.51 Distribution line construction.
1726.52-1726.74 [Reserved]

            Subpart C_Substation and Transmission Facilities

1726.75 General.
1726.76 Substation and transmission line materials and equipment.
1726.77 Substation and transmission line construction.
1726.78-1726.124 [Reserved]

                     Subpart D_Generation Facilities

1726.125 Generating plant facilities.
1726.126-1726.149 [Reserved]

                           Subpart E_Buildings

1726.150 Headquarters buildings.
1726.151-1726.174 [Reserved]

                         Subpart F_General Plant

1726.175 General plant materials.
1726.176 Communications and control facilities.
1726.177-1726.199 [Reserved]

                    Subpart G_Procurement Procedures

1726.200 General requirements.
1726.201 Formal competitive bidding.
1726.202 Informal competitive bidding.
1726.203 Multiparty negotiation.
1726.204 Multiparty unit price quotations.
1726.205 Multiparty lump sum quotations.
1726.206-1726.249 [Reserved]

         Subpart H_Modifications to RUS Standard Contract Forms

1726.250 General.
1726.251 Prior approved contract modification related to price 
          escalation on transmission equipment, generation equipment, 
          and generation construction contracts.
1726.252 Prior approved contract modification related to liability for 
          special and consequential damages.
1726.253 Prior approved contract modification related to alternative bid 
          provision for payment to contractor for bulk purchase of 
          materials.
1726.254 [Reserved]
1726.255 Prior approved contract modifications related to 
          indemnification.
1726.256-1726.299 [Reserved]

                      Subpart I_RUS Standard Forms

1726.300 Standard forms of contracts for borrowers.
1726.301 Borrower contractual obligations.
1726.302 Notice and publication of listed contract forms.
1726.303 Promulgation of new or revised contract forms.
1726.304 List of electric program standard contract forms.
1726.305-1726.399 [Reserved]

                       Subpart J_Contract Closeout

1726.400 Final contract amendment.
1726.401 Material contract closeout.
1726.402 Equipment contract closeout.
1726.403 Project construction contract closeout.
1726.404 Non-site specific construction contract closeout.
1726.405 Inventory of work orders (RUS Form 219).

    Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.

    Source: 60 FR 10155, Feb. 23, 1995, unless otherwise noted.



                            Subpart A_General



Sec. Sec. 1726.1-1726.9  [Reserved]



Sec. 1726.10  Introduction.

    The policies, procedures and requirements included in this part are 
intended to implement provisions of the standard form of loan documents 
between the Rural Utilities Service (RUS) and its electric borrowers. 
Unless prior written approval is received from RUS, borrowers are 
required to comply with RUS policies and procedures as a condition to 
RUS providing loans, loan guarantees, or reimbursement of general funds 
for the construction and improvement of electric facilities. 
Requirements relating to RUS approval of plans and specifications, 
duties and responsibilities of the engineer and architect, and 
engineering and architectural services contracts, are contained in other 
RUS regulations. 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 noted.

[[Page 240]]



Sec. 1726.11  Purpose.

    Each borrower is responsible for the planning, design, construction, 
operation and maintenance of its electric system. RUS, as a secured 
lender, has a legitimate interest in accomplishing RUS's programmatic 
objectives, and in assuring that the costs of construction, materials, 
and equipment are reasonable and economical and that the property 
securing the loans is constructed adequately to serve the purposes for 
which it is intended.



Sec. 1726.12  Applicability.

    The requirements of this part apply to the procurement of materials 
and equipment for use by electric borrowers in their electric systems 
and to the construction of their electric systems if such materials, 
equipment, and construction are financed, in whole or in part, with 
loans made or guaranteed by RUS, including reimbursable projects. In 
order for general fund expenditures for procurement or construction to 
be eligible for reimbursement from loan funds, the borrower must comply 
with the procedures required by this part. In the case of jointly owned 
projects, RUS will determine on a case by case basis the applicability 
of the requirements of this part.



Sec. 1726.13  Waivers.

    The Administrator may waive, for good cause on a case by case basis, 
certain requirements and procedures of this part. RUS reserves the 
right, as a condition of providing loans, loan guarantees, or other 
assistance, to require any borrower to make any specification, contract, 
or contract amendment subject to the approval of the Administrator.



Sec. 1726.14  Definitions.

    Terms used in this part have the meanings set forth in 7 CFR 1710.2. 
References to specific RUS forms and other RUS documents, and to 
specific sections or lines of such forms and documents, shall include 
the corresponding forms, documents, sections and lines in any subsequent 
revisions of these forms and documents. In addition to the terms defined 
in 7 CFR 1710.2, the following terms have the following meanings for the 
purposes of this part:
    Approval of proposed construction means RUS approval of a 
construction work plan or other appropriate engineering study and RUS 
approval, for purposes of system financing, of the completion of all 
appropriate requirements of part 1794 of this chapter.
    Architect means a registered or licensed person employed by the 
borrower to provide architectural services for a project and duly 
authorized assistants and representatives.
    Bona fide bid means a bid which is submitted by a contractor on the 
borrower's list of qualified bidders for the specific contract, prior to 
bid opening.
    ``Buy American'' certificate means a certification that the 
contractor has complied with the ``Buy American'' requirement (see Sec. 
1726.15).
    Competitive procurement means procurement of goods or services based 
on lowest evaluated bid for similar products or services when three or 
more bids are received.
    Construction unit means a specifically defined portion of a 
construction project containing materials, labor, or both, for purposes 
of bidding and payment.
    Contracting committee means the committee consisting of three to 
five members representing the borrower's management and board of 
directors and the engineer. The contracting committee represents the 
borrower during contract clarifying discussions or negotiations under 
informal competitive bidding or multiparty negotiation, respectively.
    Encumbrance means the process of approval for advance of loans funds 
by RUS.
    Engineer means a registered or licensed person, who may be a staff 
employee or an outside consultant, to provide engineering services and 
duly authorized assistants and representatives.
    Equipment means a major component of an electric system, e.g., a 
substation transformer, heat exchanger or a transmission structure.
    Force account construction means construction performed by the 
borrower's employees.

[[Page 241]]

    Formal competitive bidding means the competitive procurement 
procedure wherein bidders submit sealed proposals for furnishing the 
goods or services stipulated in the specification. Bids are publicly 
opened and read at a predetermined time and place. If a contract is 
awarded, it must be to the lowest evaluated responsive bidder (see Sec. 
1726.201).
    Goods or services means materials, equipment, or construction, or 
any combination thereof.
    Informal competitive bidding means the competitive procurement 
procedure which provides for private opening of bids and allows 
clarifying discussions between the contracting committee and the 
bidders. During the clarifying discussions any exceptions to the bid 
documents must be eliminated, or the bid rejected, so that the contract 
is awarded to the lowest evaluated responsive bidder (see Sec. 
1726.202).
    Material means miscellaneous hardware which is combined with 
equipment to form an electric system, e.g., poles, insulators, or 
conductors.
    Minor error or irregularity means a defect or variation in a bid 
that is a matter of form and not of substance. Errors or irregularities 
are ``minor'' if they can be corrected or waived without being 
prejudicial to other bidders and when they do not affect the price, 
quantity, quality, or timeliness of construction. A minor error or 
irregularity is not an exception for purposes of determining whether a 
bid is responsive.
    Minor modification or improvement means a project where the cost is 
less than $50,000, exclusive of the cost of owner furnished materials.
    Multiparty lump sum quotations means the procurement of goods or 
services on a lump sum basis, based on the lowest evaluated offering, 
when three or more offers are received. (See Sec. 1726.205).
    Multiparty negotiation means the procurement procedure where three 
or more bids are received and provides for negotiations between the 
contracting committee and each bidder to determine the bid which is in 
the borrower's best interest (see Sec. 1726.203).
    Multiparty unit price quotations means the procurement of goods or 
services on a unit price basis, based on the lowest evaluated offering, 
when three or more offers are received (See Sec. 1726.204).
    Net utility plant (NUP) means Part C, Line 5 of RUS Form 7 for 
distribution borrowers or Section B, Line 5 of RUS Form 12a for power 
supply borrowers for the immediately preceding calendar year.
    Procurement method means a procedure, including, but not limited to, 
those in subpart G of this part, that a borrower uses to obtain goods 
and services.
    Owner furnished materials means materials or equipment or both 
supplied by the borrower for installation by the contractor.
    Responsive bid means a bid with no exceptions or non-minor errors or 
irregularities on any technical requirement or in the contract terms and 
conditions.
    RUS approval means written approval by the Administrator or a 
representative with delegated authority. RUS approval must be in 
writing, except in emergency situations where RUS approval may be given 
over the telephone followed by a confirming letter.
    Unit prices means individual prices for specific construction units 
defined in accordance with RUS approved units specified in RUS standard 
contract forms.



Sec. 1726.15  ``Buy American''.

    The borrower must ensure that all materials and equipment financed 
with loans made or guaranteed by RUS complies with the ``Buy American'' 
provisions of the Rural Electrification Act of 1938 (7 U.S.C. 903 note), 
as amended by the North American Free Trade Agreement Implementation Act 
(107 Stat 2129). When a ``Buy American'' certificate is required by this 
part, this must be on RUS Form 213.



Sec. 1726.16  Debarment and suspension.

    Borrowers are required to comply with certain requirements on 
debarment and suspension in connection with procurement activities as 
set forth in part 3017 of this title, particularly with respect to lower 
tier transactions, e.g., procurement contracts for goods or services.

[[Page 242]]



Sec. 1726.17  Restrictions on lobbying.

    Borrowers are required to comply with certain restrictions and 
requirements in connection with procurement activities as set forth in 
part 3018 of this title.



Sec. 1726.18  Preloan contracting.

    Borrowers must consult with RUS prior to entering into any contract 
for material, equipment, or construction if a construction work plan, 
general funds, loan or loan guarantee for the proposed work has not been 
approved. While the RUS staff will work with the borrower in such 
circumstances, nothing contained in this part is to be construed as 
authorizing borrowers to enter into any contract before the availability 
of funds has been ascertained by the borrower and all the requirements 
of part 1794 of this chapter, Environmental Policies and Procedures for 
Electric and Telephone Borrowers, have been fulfilled.



Sec. 1726.19  Use of competitive procurement.

    RUS borrowers' procurement is not subject to the provisions of the 
Federal Acquisition Regulation (48 CFR chapter 1); however, since 
borrowers receive the benefit of Federal financial assistance borrowers 
must use competitive procurement to the greatest extent practical. The 
borrower must use competitive procurement for obtaining all goods or 
services when a RUS loan or loan guarantee is involved except:
    (a) As specifically provided for in subparts B through F of this 
part; or
    (b) A waiver is granted.



Sec. 1726.20  Standards and specifications.

    All materials, equipment, and construction must meet the minimum 
requirements of all applicable RUS standards and specifications. (See 
part 1728 of this chapter, Electric Standards and Specifications for 
Materials and Construction, which is applicable regardless of the source 
of funding.)

[69 FR 7109, Feb. 13, 2004]



Sec. 1726.21  New materials.

    The borrower shall purchase only new materials and equipment unless 
otherwise approved by RUS, on a case by case basis, prior to the 
purchase.



Sec. 1726.22  Methods of construction.

    The borrower is generally responsible for determining whether 
construction will be by contract or force account. If construction is by 
contract, the borrower must determine whether materials will be supplied 
by the contractor or will be furnished by the borrower. RUS reserves the 
right to require contract construction in lieu of force account 
construction on a case by case basis.



Sec. 1726.23  Qualification of bidders.

    (a) Qualified bidder list (QBL). The borrower shall (acting through 
its engineer, if applicable) review the qualifications of prospective 
bidders for contract construction and for material and equipment 
procurement, and select firms qualified for inclusion on the borrower's 
list of qualified bidders for each contract. (See also Sec. 1726.16 and 
Sec. 1726.17.) A bid may not be solicited from a prospective bidder or 
opened by the borrower unless that bidder has been determined to be a 
qualified bidder for the contract. When preparing the QBL, in addition 
to the actual experience of the borrower, if any, in dealing with a 
prospective bidder, the borrower may solicit information from that 
bidder or from other parties with firsthand experience regarding the 
firm's capabilities and experience. It is also important to consider the 
firm's performance record, safety record, and similar factors in 
determining whether to include that firm on the QBL, since the borrower 
may not evaluate these factors when evaluating a bid from a qualified 
and invited bidder.
    (b) Conflict of interest. If there is a relationship between the 
borrower or engineer and a prospective bidder which might cause the 
borrower or engineer to have or appear to have a conflict of interest, 
that prospective bidder shall not be included on the QBL unless the 
engineer discloses the nature of the relationship to the borrower. In 
the case of the borrower, if its employees or directors have a 
relationship with a prospective bidder, the prospective bidder shall not 
be included on the qualified

[[Page 243]]

bidders list unless the nature of the relationship is disclosed to the 
board of directors, and the board of directors specifically approves the 
inclusion of that bidder in light of the potential for a conflict of 
interest.



Sec. 1726.24  Standard forms of contracts for borrowers.

    (a) General. The standard loan agreement between RUS and the 
borrowers provides that, in accordance with applicable RUS regulations 
in this chapter, the borrower shall use standard forms of contracts 
promulgated by RUS for construction, procurement, engineering services, 
and architectural services financed by a loan made or guaranteed by RUS. 
This part implements these provisions of the RUS loan agreement. 
Subparts A through H and J of this part prescribe when and how borrowers 
are required to use RUS standard forms of contracts in procurement and 
construction. Subpart I of this part prescribes the procedures that RUS 
follows in promulgating standard contract forms and identifies those 
contract forms that borrowers are required to use for procurement and 
construction.
    (b) Amendments to contracts--(1) Contract forms. The borrower must 
use RUS Form 238, Construction or Equipment Contract Amendment, for any 
change or addition in any contract for construction or equipment.
    (2) Special considerations. Each time an amendment to a construction 
contract is executed, the borrower must ensure that contractor's bond is 
adequate, that all necessary licenses and permits have been obtained, 
and that any environmental requirements associated with the proposed 
construction have been met.
    (3) Amendment approval requirements. (i) If a RUS approved form of 
contract is required by this part, an amendment must not alter the terms 
and conditions of the RUS approved form of contract without prior RUS 
approval.
    (ii) The borrower must make a contract amendment subject to RUS 
approval if the underlying contract was made subject to RUS approval and 
the total amended contract price exceeds 120 percent of the original 
contract price (excluding any escalation provision contained in the 
contract).
    (iii) Contract amendments, except as provided in paragraph 
(b)(3)(ii) of this section, are not subject to RUS approval and need not 
be submitted to RUS unless specifically requested by RUS on a case by 
case basis.

[60 FR 10155, Feb. 23, 1995, as amended at 63 FR 58286, Oct. 30, 1998; 
69 FR 7109, Feb. 13, 2004]



Sec. 1726.25  Subcontracts.

    Subcontracts are not subject to RUS approval and need not be 
submitted to RUS unless specifically requested by RUS on a case by case 
basis.

[69 FR 7109, Feb. 13, 2004]



Sec. 1726.26  Interest on overdue accounts.

    Certain RUS contract forms contain a provision concerning payment of 
interest on overdue accounts. Prior to issuing the invitation to 
bidders, the borrower must insert an interest rate equal to the lowest 
``Prime Rate'' listed in the ``Money Rates'' section of the Wall Street 
Journal on the date such invitation to bid is issued. If no prime rate 
is published on that date, the last such rate published prior to that 
date must be used. The rate must not, however, exceed the maximum rate 
allowed by any applicable state law.

[63 FR 58286, Oct. 30, 1998]



Sec. 1726.27  Contractor's bonds.

    (a) RUS Form 168b, Contractor's Bond, shall be used when a 
contractor's bond is required by RUS Forms 200, 257, 786, 790, or 830 
unless the contractor's surety has accepted a Small Business 
Administration guarantee and the contract is for $1 million or less.
    (b) RUS Form 168c, Contractor's Bond, shall be used when a 
contractor's bond is required by RUS Forms 200, 257, 786, 790, or 830 
and the contractor's surety has accepted a Small Business Administration 
guarantee and the contract is for $1 million or less.
    (c) Surety companies providing contractor's bonds shall be listed as 
acceptable sureties in the U.S. Department of the Treasury Circular No. 
570,

[[Page 244]]

Companies Holding Certificates of Authority as Acceptable Sureties on 
Federal Bonds and as Acceptable Reinsuring Companies. Copies of the 
circular and interim changes may be obtained directly from the 
Government Printing Office (202) 512-1800. Interim changes are published 
in the Federal Register as they occur. The list is also available 
through the Internet at http://www.fms.treas.gov/c570/index.html and on 
the Department of the Treasury's computerized public bulletin board at 
(202) 874-6887.

[63 FR 58286, Oct. 30, 1998, as amended at 69 FR 7109, Feb. 13, 2004]



Sec. Sec. 1726.28-1726.34  [Reserved]



Sec. 1726.35  Submission of documents to RUS.

    (a) Where to send documents. Documents required to be submitted to 
RUS under this part are to be sent to the office of the borrower's 
respective RUS Regional Director, the Power Supply Division Director, or 
such other office of RUS as designated by RUS (see part 1700 of this 
chapter.)
    (b) Borrower certification. When a borrower certification is 
required by this part, it must be made by the borrower's manager unless 
the board of directors specifically authorizes another person to make 
the required certification. In such case, a certified copy of the 
specific authorizing resolution must accompany the document or be on 
file with RUS.
    (c) Contracts requiring RUS approval. The borrower shall submit to 
RUS three copies of each contract that is subject to RUS approval under 
subparts B through F of this part. At least one copy of each contract 
must be an original signed in ink (i.e., no facsimile signature). Each 
contract submittal must be accompanied by:
    (1) A bid tabulation and evaluation and, if applicable, a written 
recommendation of the architect or engineer.
    (2) For awards made under the informal competitive bidding procedure 
or the multiparty negotiation procedure, a written recommendation of the 
contracting committee (See Sec. Sec. 1726.202 and 1726.203).
    (3) Three copies of an executed contractor's bond on RUS approved 
bond forms as required in the contract form (at least one copy of which 
must be an original signed in ink) and one copy of the bid bond or 
facsimile of the certified check.
    (4) A certification by the borrower or chairperson of the 
contracting committee, as applicable, that the appropriate bidding 
procedures were followed as required by this part.
    (5) A certified copy of the board resolution awarding the contract.
    (6) Evidence of clear title to the site for substations and 
headquarters construction contracts, if not previously submitted.
    (7) Documentation that all reasonable measures were taken to assure 
competition if fewer than three bids were received.
    (d) Contract amendments requiring RUS approval. The borrower must 
submit to RUS three copies of each contract amendment (at least one copy 
of which must be an original signed in ink) which is subject to RUS 
approval under Sec. 1726.24(b). Each contract amendment submittal to 
RUS must be accompanied by:
    (1) A certified copy of the board resolution approving the 
amendment; and
    (2) A bond extension, where necessary.
    (e) Encumbrance of loan or loan guarantee funds. (1) For contracts 
subject to RUS approval, the submittals required under paragraph (c) of 
this section will initiate RUS action to encumber loan or loan guarantee 
funds for such contracts.
    (2) For contracts not subject to RUS approval (except for generation 
projects), loan or loan guarantee funds will normally be encumbered 
using RUS Form 219, Inventory of Work Orders, after closeout of the 
contracts. In cases where the borrower can show good cause for a need 
for immediate cash, the borrower may request encumbrance of loan or loan 
guarantee funds based on submittal of a copy of the executed contract, 
provided it meets all applicable RUS requirements.
    (3) For generation project contracts not subject to RUS approval, 
the borrower must submit to RUS the following documentation:

[[Page 245]]

    (i) A brief description of the scope of the contract, including 
contract identification (name, number, etc.);
    (ii) Contract date;
    (iii) Contractor's name;
    (iv) Contract amount;
    (v) Bidding procedure used;
    (vi) Borrower certification that:
    (A) The board of directors approved the contract;
    (B) The bidding procedures and contract award for each contract were 
in conformance with the requirements of Part 1726, Electric System 
Construction Policies and Procedures;
    (C) If a RUS approved form of contract is required by this part, the 
terms and conditions of the RUS approved form of contract have not been 
altered;
    (D) If RUS has approved plans and specifications for the contract, 
the contract was awarded on the basis of those plans and specifications; 
and
    (E) No restriction has been placed on the borrower's right to assign 
the contract to RUS or its successors.
    (4) Contract amendments. (i) For amendments subject to RUS approval, 
the submittals required under paragraph (c) of this section will 
initiate RUS action to encumber loan or loan guarantee funds for 
contract amendments requiring RUS approval.
    (ii) For amendments not subject to RUS approval (except generation 
projects), loan or loan guarantee funds will normally be encumbered 
using RUS Form 219, Inventory of Work Orders, after closeout of the 
contracts. In cases where the borrower can justify a need for immediate 
cash, the borrower may request encumbrance of loan or loan guarantee 
funds based on submittal of a copy of the executed amendment, providing 
it meets all applicable RUS requirements.
    (iii) For each generation project contract amendment not subject to 
RUS approval, the borrower must submit to RUS the following information 
and documentation:
    (A) The contract name and number;
    (B) The amendment number;
    (C) The amendment date;
    (D) The dollar amount of the increase or the decrease of the 
amendment;
    (E) Borrower certification that:
    (1) The amendment was approved in accordance with the policy of the 
board of directors (the borrower must ensure that RUS has a certified 
copy of the board resolution establishing such policy);
    (2) If a RUS approved form of contract is required by this part, the 
terms and conditions of the RUS approved form of contract has not been 
altered; and
    (3) No restriction has been placed on the borrower's right to assign 
the contract to RUS or its successors.



Sec. 1726.36  Documents subject to RUS approval.

    Unless otherwise indicated, the borrower shall make all contracts 
and amendments that are subject to RUS approval effective only upon RUS 
approval.



Sec. 1726.37  OMB control number.

    The collection of information requirements in this part have been 
approved by the Office of Management and Budget and assigned OMB control 
number 0572-0107.



Sec. Sec. 1726.38-1726.49  [Reserved]



                    Subpart B_Distribution Facilities



Sec. 1726.50  Distribution line materials and equipment.

    (a) Contract forms. (1) The borrower shall use RUS Form 198, 
Equipment Contract, for purchases of equipment where the total cost of 
the contract is $500,000 or more.
    (2) The borrower may, in its discretion, use RUS Form 198, Equipment 
Contract, or a written purchase order for purchases of equipment of less 
than $500,000 and for all materials.
    (b) Standards and specifications. Distribution line materials and 
equipment must meet the minimum requirements of RUS standards as 
determined in accordance with the provisions of part 1728 of this 
chapter, Electric Standards and Specifications for Materials and 
Construction. The borrower must obtain RUS approval prior to purchasing 
any unlisted distribution line material or equipment of the types listed 
in accordance with the provisions of part 1728 of this chapter.

[[Page 246]]

    (c) Procurement procedures. It is the responsibility of each 
borrower to determine the procurement method that best meets its needs 
for the purchase of material and equipment to be used in distribution 
line construction.
    (d) Contract approval. Contracts for purchases of distribution line 
materials and equipment are not subject to RUS approval and need not be 
submitted to RUS unless specifically requested by RUS on a case by case 
basis.

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7109, Feb. 13, 2004]



Sec. 1726.51  Distribution line construction.

    (a) Contract forms. The borrower must use RUS Form 790, or 830, as 
outlined in this paragraph (a), for distribution line construction, 
except for minor modifications or improvements.
    (1) The borrower may use RUS Form 790, Electric System Construction 
Contract--Non-Site Specific Construction, under the following 
circumstances:
    (i) For contracts for which the borrower supplies all materials and 
equipment; or
    (ii) For non-site specific construction contracts accounted for 
under the work order procedure; or
    (iii) If neither paragraph (a)(1)(i) or (a)(1)(ii) of this section 
are applicable, the borrower may use RUS Form 790 for contracts, up to a 
cumulative total of $250,000 or one percent of net utility plant (NUP), 
whichever is greater, per calendar year of distribution line 
construction, exclusive of the cost of owner furnished materials and 
equipment.
    (2) The borrower must use RUS Form 830, Electric System Construction 
Contract--Project Construction, for all other distribution line 
construction.
    (b) Procurement procedures. (1) It is the responsibility of each 
borrower to determine the procurement method that best meets its needs 
to award contracts in amounts of up to a cumulative total of $250,000 or 
one percent of NUP, whichever is greater, per calendar year of 
distribution line construction (including minor modifications or 
improvements), exclusive of the cost of owner furnished materials and 
equipment.
    (2) In addition to the cumulative total stipulated in paragraph 
(b)(1) of this section, a borrower may use Multiparty Unit Price 
Quotations to award contracts in amounts of up to a cumulative total of 
$350,000 or 1.5 percent of NUP, whichever is greater, per calendar year 
of distribution line construction (including minor modifications or 
improvements), exclusive of the cost of owner furnished materials and 
equipment.
    (3) The borrower shall use formal competitive bidding for all other 
distribution line contract construction. The amount of contracts bid 
using the formal competitive bidding procedure do not apply to the 
cumulative total stipulated in paragraph (b)(1) of this section.
    (4) An amendment which increases the scope of the contract by adding 
a project is not considered competitively bid, therefore, the amount of 
that amendment does apply to the cumulative total stipulated in 
paragraph (b)(1) of this section.
    (c) Contract approval. Contracts for distribution line construction 
are not subject to RUS approval and need not be submitted to RUS unless 
specifically requested by RUS on a case by case basis.

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7109, Feb. 13, 2004]



Sec. Sec. 1726.52-1726.74  [Reserved]



            Subpart C_Substation and Transmission Facilities



Sec. 1726.75  General.

    As used in this part, ``substations'' includes substations, 
switching stations, metering points, and similar facilities.



Sec. 1726.76  Substation and transmission line materials and equipment.

    (a) Contract forms. (1) The borrower must use RUS Form 198, 
Equipment Contract, for purchases of equipment where the total cost of 
the contract is $500,000 or more.
    (2) The borrower may, in its discretion, use RUS Form 198, Equipment 
Contract, or a written purchase order for purchases of equipment of less 
than $500,000 and for all materials.

[[Page 247]]

    (b) Standards and specifications. Substation and transmission line 
materials and equipment must meet the minimum requirements of RUS 
standards as determined in accordance with the provisions of part 1728 
of this chapter, Electric Standards and Specifications for Materials and 
Construction. The borrower must obtain RUS approval prior to purchasing 
of any unlisted substation or transmission line material or equipment of 
the types listed in accordance with the provisions of part 1728 of this 
chapter.
    (c) Procurement procedures. It is the responsibility of each 
borrower to determine the procurement method that best meets its needs 
for purchase of material and equipment to be used in substation and 
transmission line construction.
    (d) Contract approval. Contracts for purchases of substation and 
transmission line materials and equipment are not subject to RUS 
approval and need not be submitted to RUS unless specifically requested 
by RUS on a case by case basis.

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7109, Feb. 13, 2004]



Sec. 1726.77  Substation and transmission line construction.

    (a) Contract forms. The borrower must use RUS Form 830, Electric 
System Construction Contract--Project Construction, for construction of 
substations, except for minor modifications or improvements.
    (b) Procurement procedures. (1) It is the responsibility of each 
borrower to determine the procurement method that best meets its needs 
to award contracts not requiring RUS approval in amounts of up to a 
cumulative total of $250,000 or one percent of NUP (not to exceed 
$2,000,000), whichever is greater, per calendar year of substation and 
transmission line construction (including minor modifications or 
improvements), exclusive of the cost of owner furnished materials and 
equipment.
    (2) The borrower shall use formal competitive bidding for all other 
contract construction, including all contracts requiring RUS approval. 
The amount of contracts bid using the formal competitive bidding 
procedure do not apply to the cumulative total stipulated in paragraph 
(b)(1) of this section.
    (3) An amendment which increases the scope of the contract by adding 
a project is not considered competitively bid, therefore, the amount of 
that amendment does apply to the cumulative total stipulated in 
paragraph (b)(1) of this section.
    (c) Contract approval. Individual contracts in amounts of $250,000 
or more or one percent of NUP (not to exceed $500,000 for distribution 
borrowers or $1,500,000 for power supply borrowers), whichever is 
greater, exclusive of the cost of owner furnished materials and 
equipment, are subject to RUS approval.

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7109, Feb. 13, 2004]



Sec. Sec. 1726.78-1726.124  [Reserved]



                     Subpart D_Generation Facilities



Sec. 1726.125  Generating plant facilities.

    This section covers the construction of all portions of a generating 
plant, including plant buildings and the generator step-up transformer. 
Generally, the transmission switchyard will be covered under this 
section during initial construction of the plant. Subpart C of this part 
covers subsequent modifications to transmission switchyards. Warehouses 
and equipment service type buildings are covered under subpart E of this 
part.
    (a) Contract forms. (1) The borrower must use RUS Form 198, 
Equipment Contract, for the purchase of generating plant equipment in 
the amount of $1,500,000 or more and for any generating plant equipment 
contract requiring RUS approval.
    (2) The borrower must use RUS Form 200, Construction Contract--
Generating, for generating project construction contracts in the amount 
of $1,500,000 or more and for any generating project construction 
contract requiring RUS approval.
    (3) The borrower may, in its discretion, use other contract or 
written purchase order forms for those contracts in amounts of less than 
$1,500,000 and that do not require RUS approval.
    (b) Procurement procedures. (1) It is the responsibility of each 
borrower to

[[Page 248]]

determine the procurement method that best meets its needs to award 
contracts in amounts of less than $1,500,000 each.
    (2) If the amount of the contract is $1,500,000 or more or if the 
contract requires RUS approval, the borrower must use formal or informal 
competitive bidding to award the contract.
    (3) Where formal or informal competitive bidding is not applicable, 
or does not result in a responsive bid, multiparty negotiation may be 
used only after RUS approval is obtained.
    (c) Contract approval. During the early stages of generating plant 
design or project design, RUS will, in consultation with the borrower 
and its consulting engineer, identify the specific contracts which 
require RUS approval based on information supplied in the plant design 
manual. The following are typical contracts for each type of generating 
project which will require RUS approval. Although engineering services 
are not covered by this part, they are listed in this paragraph (d) to 
emphasize that RUS approval is required for all major generating station 
engineering service contracts in accordance with applicable RUS rules. 
For types of projects not shown, such as nuclear and alternate energy 
projects, RUS will identify the specific contracts which will require 
RUS approval on a case by case basis.
    (1) Fossil generating stations. Engineering services, steam 
generator, turbine generator, flue gas desulfurization system, 
particulate removal system, electric wiring and control systems, 
mechanical equipment installation (including turbine installation and 
plant piping), power plant building (foundation and superstructure), 
site preparation, coal unloading and handling facilities, main step-up 
substation, cooling towers, and dams or reservoirs.
    (2) Diesel and combustion turbine plants. Engineering services, 
prime mover and generator, building (foundation and superstructure), and 
electrical control systems.
    (3) Hydro installations. Engineering services, turbine/generator, 
civil works and powerhouse construction, electrical control system, and 
mechanical installation.

[60 FR 10155, Feb. 23, 1995, as amended at 69 FR 7109, Feb. 13, 2004]



Sec. Sec. 1726.126-1726.149  [Reserved]



                           Subpart E_Buildings



Sec. 1726.150  Headquarters buildings.

    This section includes headquarters buildings such as warehouses and 
equipment service type buildings. Generating plant buildings are covered 
under subpart D of this part.
    (a) Contract forms. The borrower must use RUS Form 257, Contract to 
Construct Buildings, for all contracts for construction of new 
headquarters facilities, and additions to, or modifications of existing 
headquarters facilities (except for minor modifications or 
improvements).
    (b) Procurement procedures. A borrower may use Multiparty Lump Sum 
Quotations to award contracts in amounts of up to a cumulative total of 
$250,000 or one percent of NUP (not to exceed $1,000,000), whichever