Last updated on May 31st, 2023 at 10:10 pm
Title 7—Agriculture–Volume 11
Subtitle B—Regulations of the Department of Agriculture (Continued)
CHAPTER XVI [RESERVED]
CHAPTER XVII—RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
PART 1700—GENERAL INFORMATION
Subpart A—General
§ 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) 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 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.
§ 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 available on the world wide web at http://www.usda.gov/rus.
§ 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.
§ 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
§§ 1700.5-1700.24 [Reserved]
Subpart B—Agency Organization and Functions
§ 1700.25 Office of the Administrator.
The Administrator of the Rural Utilities Service (RUS) is appointed by the President. The Under Secretary, Rural Development delegated to the Administrator, in 7 CFR part 2, responsibility for administering the programs and activities of RUS. 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.
§ 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.
§ 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.
§ 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 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.
§ 1700.29 Telecommunications Program.
RUS, 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.
§ 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 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.
§ 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 § 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.
§ 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.
§ 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.
§ 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.
§§ 1700.35-1700.49 [Reserved]
Subpart C—Loan and Grant Approval Authorities
§§ 1700.50-1700.52 [Reserved]
§ 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.
§ 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.
(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.
§ 1700.56 Water and Environmental Programs.
The State Rural Development Offices have the responsibility for making and servicing water and waste loans and grants.
§ 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.
§ 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 any required certifications and to approve all grant and loan servicing actions not specifically reserved to the Administrator.
§§ 1700.59-1700.99 [Reserved]
Subpart D—Substantially Underserved Trust Areas
§ 1700.100 Purpose.
This subpart establishes policies and procedures for the Rural Utilities Service (RUS) implementation of the Substantially Underserved Trust Areas (SUTA) initiative under section 306F of the Rural Electrification Act of 1936, as amended (7 U.S.C. 906f). The purpose of this rule is to identify and improve the availability of eligible programs in communities in substantially underserved trust areas.
§ 1700.101 Definitions.
Administrator means the Administrator of the Rural Utilities Service, or designee or successor.
Applicant means an entity that is eligible for an eligible program under that program’s eligibility criteria.
Borrower means any organization that has an outstanding loan or loan guarantee made by RUS for a program purpose.
Completed application means an application that includes the elements specified by the rules for the applicable eligible program in form and substance satisfactory to RUS.
ConAct means the Consolidated Farm and Rural Development Act, as amended (7 U.S.C. 1921 et seq.).
Credit support means equity, cash requirements, letters of credit, and other financial commitments provided in support of a loan or loan guarantee.
Eligible community means a community as defined by 7 CFR 1700.103.
Eligible program means a program as defined by 7 CFR 1700.102.
Financial assistance means a grant, combination loan and grant, loan guarantee or loan.
Financial feasibility means the ability of a project or enterprise to meet operating expenses, financial performance metrics, such as debt service coverage requirements and return on investment, and the general ability to repay debt and sustain continued operations at least through the life of the RUS loan or loan guarantee.
Matching fund requirements means the applicant’s financial or other required contribution to the project for approved purposes.
Nonduplication generally means a restriction on financing projects for services in a geographic area where reasonably adequate service already exists as defined by the applicable program.
Project means the activity for which financial assistance has been provided.
RE Act means the Rural Electrification Act of 1936, as amended (7 U.S.C. 901 et seq.).
RUS means the Rural Utilities Service, an agency of the United States Department of Agriculture, successor to the Rural Electrification Administration.
Substantially underserved trust area means a community in trust land with respect to which the Administrator determines has a high need for the benefits of an eligible program.
Trust land means “trust land” as defined in section 3765 of title 38, United States Code as determined by the Administrator under 7 CFR 1700.104.
Underserved means an area or community lacking an adequate level or quality of service in an eligible program, including areas of duplication of service provided by an existing provider where such provider has not provided or will not provide adequate level or quality of service.
§ 1700.102 Eligible programs.
SUTA does not apply to all RUS programs. SUTA only applies to eligible programs. An eligible program means a program administered by RUS and authorized in paragraph (a) of the RE Act, or paragraphs (b)(1), (2), (14), (22), or (24) of section 306(a) (7 U.S.C. 1926(a)(1), (2), (14), (22), (24)), or sections 306A, 306C, 306D, or 306E of the Con Act (7 U.S.C. 1926a, 1926c, 1926d, 1926e).
§ 1700.103 Eligible communities.
An eligible community is a community that:
(a) Is located on Trust land;
(b) May be served by an RUS administered program; and
(c) Is determined by the Administrator as having a high need for benefits of an eligible program.
§ 1700.104 Financial feasibility.
Pursuant to normal underwriting practices, and such reasonable alternatives within the discretion of RUS that contribute to a financial feasibility determination for a particular eligible program or project, the Administrator will only make grants, loans and loan guarantees that RUS finds to be financially feasible and that provide eligible program benefits to substantially underserved trust areas. All income and assets available to and under the control of the Applicant will be considered as part of the Applicant’s financial profile.
§ 1700.105 Determining whether land meets the statutory definition of “trust land.”
The Administrator will use one or more of the following resources in determining whether a particular community is located in Trust land:
(a) Official maps of Federal Indian Reservations based on information compiled by the U. S. Department of the Interior, Bureau of Indian Affairs and made available to the public;
(b) Title Status Reports issued by the U. S. Department of the Interior, Bureau of Indian Affairs showing that title to such land is held in trust or is subject to restrictions imposed by the United States;
(c) Trust Asset and Accounting Management System data, maintained by the Department of the Interior, Bureau of Indian Affairs;
(d) Official maps of the Department of Hawaiian Homelands of the State of Hawaii identifying land that has been given the status of Hawaiian home lands under the provisions of section 204 of the Hawaiian Homes Commission Act, 1920;
(e) Official records of the U.S. Department of the Interior, the State of Alaska, or such other documentation of ownership as the Administrator may determine to be satisfactory, showing that title is owned by a Regional Corporation or a Village Corporation as such terms are defined in the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq);
(f) Evidence that the land is located on Guam, American Samoa or the Commonwealth of the Northern Mariana Islands, and is eligible for use in the Veteran’s Administration direct loan program for veterans purchasing or constructing homes on communally-owned land; and
(g) Any other evidence satisfactory to the Administrator to establish that the land is “trust land” within the meaning of 38 U.S.C. 3765(1).
§ 1700.106 Discretionary provisions.
(a) To improve the availability of eligible programs in eligible communities determined to have a high need for the benefits of an eligible program, the Administrator retains the discretion, on a case-by-case basis, to use any of the following SUTA authorities individually or in combination to:
(1) Make available to qualified applicants financing with an interest rate as low as 2 percent;
(2) Extend repayment terms;
(3) Waive (individually or in combination) non-duplication restrictions, matching fund requirements, and credit support requirements from any loan or grant program administered by RUS; and
(4) Give the highest funding priority to designated projects in substantially underserved trust areas.
(b) Requests for waivers of nonduplication restrictions, matching fund requirements, and credit support requirements, and requests for highest funding priority will be reviewed on a case-by-case basis upon written request of the applicant filed pursuant to 7 CFR 1700.108.
(c) Notwithstanding the requirements in paragraph (b) of this section, the Administrator reserves the right to evaluate any application for an eligible program for use of the discretionary provisions of this subpart without a formal, written request from the applicant.
§ 1700.107 Considerations relevant to the exercise of SUTA discretionary provisions.
(a) In considering requests to make available financing with an interest rate as low as 2 percent, and extended repayment terms, the Administrator will evaluate the effect of and need for such terms on the finding of financial feasibility.
(b) In considering a request for a non-duplication waiver, the Administrator will consider the offerings of all existing service providers to determine whether or not granting the non-duplication waiver is warranted. A waiver of non-duplication restrictions will not be given if the Administrator determines as a matter of financial feasibility that, taking into account all existing service providers, an applicant or RUS borrower would not be able to repay a loan or successfully implement a grant agreement. Requests for waivers of non-duplication restrictions will be reviewed by taking the following factors into consideration:
(1) The size, extent and demographics of the duplicative area;
(2) The cost of service from existing service providers;
(3) The quality of available service; and
(4) The ability of the existing service provider to serve the eligible service area.
(c) Requests for waivers of matching fund requirements will be evaluated by taking the following factors into consideration:
(1) Whether waivers or reductions in matching or equity requirements would make an otherwise financially infeasible project financially feasible;
(2) Whether permitting a matching requirement to be met with sources not otherwise permitted in an affected program due to regulatory prohibition may be allowed under a separate statutory authority; and
(3) Whether the application could be ranked and scored as if the matching requirements were fully met.
(d) Requests for waivers of credit support requirements will be evaluated taking the following factors into consideration:
(1) The cost and availability of credit support relative to the loan security derived from such support;
(2) The extent to which the requirement is shown to be a barrier to the applicant’s participation in the program; and
(3) The alternatives to waiving the requirements.
(e) The Administrator may adapt the manner of assigning highest funding priority to align with the selection methods used for particular programs or funding opportunities.
(1) Eligible programs which use priority point scoring may, in a notice of funds availability or similar notice, assign extra points for SUTA eligible applicants as a means to exercise a discretionary authority under this subpart.
(2) The Administrator may announce a competitive grant opportunity focused exclusively or primarily on trust lands which incorporates one or more discretionary authorities under this subpart into the rules or scoring for the competition.
§ 1700.108 Application requirements.
(a) To receive consideration under this subpart, the applicant must submit to RUS a completed application that includes all of the information required for an application in accordance with the regulations relating to the program for which financial assistance is being sought. In addition, the applicant must notify the RUS contact for the applicable program in writing that it seeks consideration under this subpart and identify the discretionary authorities of this subpart it seeks to have applied to its application. The required written request memorandum or letter must include the following items:
(1) A description of the applicant, documenting eligibility.
(2) A description of the community to be served, documenting eligibility in accordance with 7 CFR 1700.103.
(3) An explanation and documentation of the high need for the benefits of the eligible program, which may include:
(i) Data documenting a lack of service (i.e. no service or unserved areas) or inadequate service in the affected community;
(ii) Data documenting significant health risks due to the fact that a significant proportion of the community’s residents do not have access to, or are not served by, adequate, affordable service.
(iii) Data documenting economic need in the community, which may include:
(A) Per capita income of the residents in the community, as documented by the U.S. Department of Commerce, Bureau of Economic Analysis;
(B) Local area unemployment and not-employed statistics in the community, as documented by the U.S. Department of Labor, Bureau of Labor Statistics and/or the U.S. Department of the Interior, Bureau of Indian Affairs;
(C) Supplemental Nutrition Assistance Program participation and benefit levels in the community, as documented by the U.S. Department of Agriculture, Economic Research Service;
(D) National School Lunch Program participation and benefit levels in the community, as documented by the U.S. Department of Agriculture, Food and Nutrition Service;
(E) Temporary Assistance for Needy Families Program participation and benefit levels in the community, as documented by the U.S. Department of Health and Human Services, Administration for Children and Families;
(F) Lifeline Assistance and Link-Up America Program participation and benefit levels in the community, as documented by the Federal Communications Commission and the Universal Service Administrative Company;
(G) Examples of economic opportunities which have been or may be lost without improved service.
(H) Data maintained and supplied by Indian tribes or other tribal or jurisdictional entities on “trust land” to the Department of Interior, the Department of Health and Human Services and the Department of Housing and Urban Development that illustrates a high need for the benefits of an eligible program.
(4) The impact of the specific authorities sought under this subpart.
(b) The applicant must provide any additional information RUS may consider relevant to the application which is necessary to adequately evaluate the application under this subpart.
(c) 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.
(d) The applicant must submit a completed application within the application window and guidelines for an eligible program.
§ 1700.109 RUS review.
(a) RUS will review the application to determine whether the applicant is eligible to receive consideration under this subpart and whether the application is timely, complete, and responsive to the requirements set forth in 7 CFR 1700.107.
(b) If the Administrator determines that the application is eligible to receive consideration under this subpart and one or more SUTA requests are granted, the applicant will be so notified.
(c) If RUS determines that the application is not eligible to receive further consideration under this subpart, RUS will so notify the applicant. The applicant may withdraw its application or request that RUS treat its application as an ordinary application for review, feasibility analysis and service area verification by RUS consistent with the regulations and guidelines normally applicable to the relevant program.
§§ 1700.110-1700.149 [Reserved]
§ 1700.150 OMB Control Number.
The reporting and recordkeeping requirements contained in this part have been approved by the Office of Management and Budget and have been assigned OMB control number 0572–0147.
PART 1703—RURAL DEVELOPMENT
Subparts A–B [Reserved]
Subpart C—Rural Business Incubator Program [Reserved]
§§ 1703.80-1703.99 [Reserved]
Subparts D–G [Reserved]
Subpart H—Deferments of RUS Loan Payments for Rural Development Projects
§ 1703.300 Purpose.
This subpart H sets forth RUS’ 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.
§ 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.
§ 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.
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 § 1703.302(a) include both the plural and the singular.
§ 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.
§ 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 of the application for a deferment based on such project cannot be used to satisfy the requirements of this section.
§ 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 § 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.
§ 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.
§ 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.
§ 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.
§ 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 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.
§ 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.
§ 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 § 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 § 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 § 1703.305(a);
(6) Submit certification by the appropriate officer to the Administrator that it will comply with § 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;
(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 § 1703.300.
(c) The Administrator will decide whether the borrower is eligible for the deferment and will notify the borrower of the decision.
§ 1703.312 RUS review requirements.
Borrowers shall ensure that funds are invested in the rural development project as approved by RUS. The Administrator reserves the right to review the books and copy records of borrowers receiving loan payment deferments as necessary to ensure that the investments in the rural development project are in accordance with this subpart and the representations and purposes stated in the borrower’s completed application. If an audit discloses that the amount deferred was not used for the purposes stated in the completed application, the borrower shall be required to promptly repay the amount deferred and the benefits of the deferment to the borrower will be recaptured by RUS. The borrower is responsible for ensuring that disbursements and expenditures of funds covering the investment in the rural development project are properly supported with certifications, invoices, contracts, bills of sale, cancelled checks, or any other forms of evidence determined appropriate by the Administrator and that such supporting material is available at the borrower’s premises for review by the RUS field accountant, borrower’s certified public accountant, the Office of Inspector General, the General Accounting Office and any other accountant conducting an audit of the borrower’s financial statements for this rural development program.
§ 1703.313 Compliance with other regulations.
(a) Investments in a rural economic development project made by an electric borrower under this subpart are subject to the provisions of 7 CFR part 1717, Subpart N, Investments, Loans and Guarantees by Electric Borrowers.
(b) Investments in a rural economic development project made by a telephone borrower under this subpart are subject to the provisions of 7 CFR Part 1744, Post Loan Policies and Procedures Common to Guaranteed and Insured Loans.
PART 1709—ASSISTANCE TO HIGH ENERGY COST COMMUNITIES
Subpart A—General Requirements
§ 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).
§ 1709.2 [Reserved]
§ 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 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.
Funding opportunity announcement (FOA) means a publicly available document by which a Federal agency makes know its intentions to award discretionary grants or cooperative agreements, usually as a result of competition for funds. FOA announcements may be known as program announcements, notices of funding availability, solicitations, or other names depending on the agency and type of program. FOA announcements can be found at www.Grants.gov in the Search Grants tab and on the funding agency’s or program’s website.
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.
§ 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.
§ 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.
§ 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 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.
§ 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.
§ 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.
§ 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.
§ 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.
§ 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.
§ 1709.12 Reporting requirements.
To support Agency monitoring of project performance and use of grant funds, Grantees shall file periodic reports, required under 2 CFR part 200, as adopted by USDA through 2 CFR part 400, 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.
§ 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 2 CFR part 200, as adopted by USDA through 2 CFR part 400.
§ 1709.14 Inspections.
The grantee will permit periodic inspection of the grant project operations by a representative of the Agency.
§ 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.
§ 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. 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 2 CFR part 200, as adopted by USDA through 2 CFR part 400.
§ 1709.17 Environmental review.
(a) Grants made under this subpart must comply with the environmental review requirements in accordance with 7 CFR part 1970.
(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 in accordance with 7 CFR part 1970 prior to final award approval. The Agency may require the selected applicant to submit additional information, 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.
§ 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.
§ 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) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, 2 CFR part 200, as adopted by USDA through 2 CFR part 400;
(b) Drug-Free Workplace Act of 1998 (41 U.S.C. 8101 et. seq.), 2 CFR part 421;
(c) E.O.s 12549 and 12689, Debarment and Suspension, 2 CFR part 180, which is adopted by USDA through 2 CFR part 417;
(d) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352), 2 CFR part 418; and
(e) Subpart F of 2 CFR 200, as adopted by USDA through 2 CFR 400.
§ 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.
§ 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 recipient is a for-profit entity, an electric or telecommunications cooperative, or any other entity not covered by the definition of “non-Federal entity” in 2 CFR 200.1, the recipient shall provide an independent audit report in accordance with 7 CFR part 1773 and the grant agreement.
(b) If the recipient is a non-Federal entity, as defined in 2 CFR 200.1, the recipient shall provide an audit in accordance with subpart F of 2 CFR part 200.
§ 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.
§§ 1709.23-1709.99 [Reserved]
§ 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
§ 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 (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.
§ 1709.102 Policy.
(a) All high energy cost grants will be awarded competitively subject to the limited exceptions in 2 CFR 415.1(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.
§§ 1709.103-1709.105 [Reserved]
§ 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.
§ 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 Census block according to the most recent decennial Census of the United States (decennial Census).
(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 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.
§ 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.
§ 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 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 .
§ 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.
§ 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.
§ 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 § 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.
§ 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.
§ 1709.114 Application process.
The RUS will request applications for high energy cost grants on a competitive basis by posting a FOA on www.Grant.gov. The FOA 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, deadlines and procedures for submitting applications. This information will also be made available in the RUS High Energy Cost Grant program application guide and the RUS High Energy Cost Grant program website.
§ 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.
§ 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.
§ 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:
(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 review requirements. Grants made under this subpart must comply with the environmental review requirements in accordance with 7 CFR part 1970.
(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.
§ 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.
§ 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.
§ 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.
§ 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.
(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 FOA 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 FOA. Another FOA regarding the reopening of an application period will be announced on www.Grants.gov.
§ 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.
§ 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.
(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 population figures from the most recent decennial Census. If the applicable population figure cannot be based on the most recent decennial Census, RD will determine the applicable population figure based on available population data.
(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.
§ 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 environmental review requirements in accordance with 7 CFR part 1970, and to meet other pre-award conditions.
(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.
§§ 1709.125-1709.200 [Reserved]
Subpart C—Bulk Fuel Revolving Fund Grant Program
§ 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.
§ 1709.202 [Reserved]
§ 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.
§§ 1709.204-1709.206 [Reserved]
§ 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.
§ 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.
§ 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.
§ 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 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 the most recent decennial Census of the United States. If the applicable population estimate cannot be based on the most recent decennial Census, RD will determine the applicable population figure based on available population data. 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 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.
§ 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.
§ 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.
§ 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.
§ 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.
§ 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.
§ 1709.216 Evaluation criteria and weights.
Unless supplemented in the grant announcement, the criteria listed in this 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.
§ 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.
§§ 1709.218-1709.300 [Reserved]
Subparts D–F [Reserved]
§ 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 has expired. The Agency shall make full use of available authority and procedures, including but not limited to those available under 2 CFR part 200, as adopted by USDA through 2 CFR part 400.
§§ 1709.602-1709.999 [Reserved]
PART 1710—GENERAL AND PRE-LOAN POLICIES AND PROCEDURES COMMON TO ELECTRIC LOANS AND GUARANTEES
Subpart A—General
§ 1710.1 General statement.
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.
§ 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.
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:
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.
Cybersecurity and grid security improvements means:
(i) Investment in the development, expansion, and modernization of rural utility infrastructure that addresses known and emerging cybersecurity and grid security risks. This definition incorporates both cybersecurity and grid security as one concept. The cybersecurity component of the definition includes measures and investments designed to prevent damage to, otherwise protect, or restore computers and computer systems, industrial control systems/operational technology, electronic communications systems, electronic communications services, wire, and all other forms electronic communication including information contained therein. Rural utilities often utilize cybersecurity measures and investments to ensure service availability, system integrity, user authentication, confidentiality, and nonrepudiation, related to the services.
(ii) The grid security component of this definition, includes measures and investments made to protect a utility’s infrastructure reliability and resiliency against both natural impacts and man-made physical attacks or intrusions by individuals or groups intent on damaging, destroying, disrupting, or removing components of utility infrastructure or threatening to damage utility infrastructure. Measures considered for RUS financing include, but are not limited to, fire prevention, physical barriers, remote sensing equipment, monitoring physical assets, security cameras, security vehicles, information and operational technology cybersecurity measures, control systems cybersecurity monitoring technologies, fire prevention devices and sensors and other investments which serve the purpose of protecting assets and maintaining the reliability of rural utility systems.
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.
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:
DSM activities means activities of the type referred to in § 1710.354(f).
DSM plan means a plan that describes the implementation at the distribution level of the DSM activities identified in the integrated resource plan as having positive net benefits. See § 1710.357.
Electric system means all of the borrower’s interests in all electric production, transmission, distribution, conservation, load management, general plant and other related facilities, equipment or property and in any mine, well, pipeline, plant, structure or other facility for the development, production, manufacture, storage, fabrication or processing of fossil, nuclear, or other fuel or in any facility or rights with respect to the supply of water, in each case for use, in whole or in major part, in any of the borrower’s generating plants, including any interest or participation of the borrower in any such facilities or any rights to the output or capacity thereof, together with all lands, easements, rights-of-way, other works, property, structures, contract rights and other tangible and intangible assets of the borrower in each case used or useful in such electric system.
Eligible Energy Efficiency and Conservation Programs (Eligible EE Program) means an energy efficiency and conservation program that meets the requirements of subpart H of this part.
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 § 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.
Loan means any loan made or guaranteed by RUS.
Loan Contract means the agreement, as amended, supplemented, or restated from time to time, between a borrower and RUS providing for loans made or guaranteed pursuant to the RE Act.
Loan Feasibility means that the borrower has the capability of repaying the loan in full as scheduled, in accordance with the terms of the mortgage, note, and loan contract.
Loan Guarantee means a loan guarantee made by RUS pursuant to the RE Act.
Loan period means the period of time during which the facilities will be constructed not to exceed the time identified in the Loan note, as approved.
MDSC means Modified Debt Service Coverage of the electric system calculated as:
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.
MTIER means Modified Times Interest Earned Ratio of the electric system calculated as:
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:
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:
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:
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;
(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; and
(iii) Which excludes certain populations pursuant to 7 U.S.C. 1991(a)(13)(H) and (I).
RUS means the Rural Utilities Service, an agency of the United States Department of Agriculture established pursuant to Section 232 of the Federal Crop Insurance Reform and Department of Agriculture Reorganization Act of 1994 (Pub. L. 103–354, 108 Stat. 3178), successor to REA with respect to administering certain electric and telephone programs. See 7 CFR 1700.1.
Subtransmission Facilities means the transmission facilities that connect the high voltage side of the distribution substation to the low voltage side of the bulk transmission or generating facilities, as well as related supervisory control and data acquisition facilities.
System Improvement means the change or addition to electric plant facilities to improve the quality of electric service or to increase the quantity of electric power available to RE Act beneficiaries.
TIER means Times Interest Earned Ratio of the borrower calculated as:
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
(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.
§ 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.
Consistent with the RE Act and other applicable laws, the Administrator may waive or reduce any requirement imposed by this part or other RUS regulations on an electric borrower, or a lender whose loan is guaranteed by RUS, if the Administrator determines that imposition of the requirement would adversely affect the Government’s financial interest.
§ 1710.5 Availability of forms.
Information about the availability of RUS forms and publications cited in this part is available from Administrative Services Division, Rural Utilities Service, United States Department of Agriculture, Washington, DC 20250–1500. These RUS forms and publications may be reproduced.
§ 1710.6 Applicability of certain provisions to completed loan applications.
(a) Certain new or revised policies and requirements set forth in this part, which are listed in this paragraph, shall not apply to a pending loan application that has been determined by RUS to be complete as of January 9, 1992, the date of publication of such policies and requirements in the
(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.
§§ 1710.7-1710.49 [Reserved]
Subpart B—Types of Loans and Loan Guarantees
§ 1710.50 Insured loans.
RUS makes insured loans under section 305 of the RE Act.
(a) Municipal rate loans. The standard interest rate on an insured loan made on or after November 1, 1993, is the municipal rate, which is the rate determined by the Administrator to be equal to the current market yield on outstanding municipal obligations with remaining periods to maturity, up to 35 years, similar to the interest rate term selected by the borrower. In certain cases, an interest rate cap of 7 percent may apply. The interest rate term and rollover maturity date for a municipal rate loan will be determined pursuant to 7 CFR part 1714, and the borrower 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
§ 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 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.
§ 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.
§ 1710.53 Refinancing.
(a) General. (1) Subject to the availability of funds for such purpose, RUS may use loan funds to refinance prior loans made or guaranteed under the RE Act, as amended, (7 U.S.C. 902(a)). Such refinancing must be in the interest of rural consumers, taxpayers, rural economic development or otherwise in the public interest, as determined by the Administrator.
(2) The Secretary’s authority to make loans for refinancing under this section is in addition to any other authority granted to the Secretary to make or modify loans under the RE Act or any other statutory authority.
(3) Nothing in this section changes the policies or standards set forth in 7 CFR part 1717, subpart Y, or the terms and conditions of the agreements entered into between RUS and FFB or the notes issued to RUS or FFB in connection with RUS or FFB loans.
(4) When funds are made available under this section, RUS will issue a public notice in the
(b) Definitions. For the purpose of this section, the following terms have the following meanings. Terms not defined here are defined in § 1710.2. When the definitions provided in this section conflict with any other definition applicable to RUS Electric Program regulations in this chapter, including § 1710.2, the definition of this section will control only as it relates to refinancing under this section.
Advance means advance or advances of loan funds made by RUS to the borrower pursuant to the terms and conditions in the loan documents.
Agency means the Rural Utilities Service or its successor.
Conditional commitment letter means the notification issued by the Administrator to an eligible entity advising it of the estimated terms, conditions, and amount of the new loan.
Eligible entity means an RUS Electric Program borrower with an unpaid and outstanding FFB loan or RUS loan.
FFB means the Federal Financing Bank.
FFB loan means a loan made by FFB and guaranteed by RUS pursuant to the RE Act for electric purposes.
RUS loan means a loan made by the RUS under the RE Act for electric purposes.
(c) Loan purpose. Proceeds of loans made under this section may be used to:
(1) Prepay all outstanding amounts owed on an FFB or RUS loan or one or more advances made under such loan; and
(2) Pay any applicable prepayment premium, fee, or expense related to the eligible RUS or FFB loan being refinanced.
(d) Eligibility requirements—(1) Eligible entity. Loans under this section may only be made to an eligible entity for the purposes indicated in paragraph (c) of this section.
(2) Eligible loans for refinancing. Only FFB loans and RUS loans as defined in this section are eligible for refinancing under this section.
(e) Allocation of funds under this section. Unless prohibited by congressional appropriation or statute, in allocating the funds available to RUS under its lending authority, the Administrator may determine, on a programmatic or case by case basis, that other RE Act loan purposes take priority over refinancing. The Administrator may, but is not limited to, consider the following factors in making this determination:
(1) The overall availability of funding compared to anticipated loan demand;
(2) The best interests of rural consumers;
(3) The protection of the Government’s financial interest in existing loans and collateral; and
(4) Broader policy objectives, including directing benefits to disadvantaged communities, reducing greenhouse gas emissions, and other priorities of the Secretary of Agriculture.
(f) Application process. (1) When funds are available, the RUS will publish a notice identifying the amount and type of funds available for refinancing for the funding period in total and per applicant. The notice will identify the priorities established by the Agency for the use of the available funds. Borrowers seeking to refinance RUS loans or FFB loans will be required to submit, at a minimum, the following information:
(i) Borrower reference number;
(ii) Note designation;
(iii) Rural Electric Telephone (RET) Advance loan account number;
(iv) FFB complete identifier for an FFB loan;
(v) Date(s) of advance;
(vi) Interest rate;
(vii) Principal outstanding;
(viii) Current final maturity date;
(ix) Short narrative explaining how the proposed refinancing would be in the interest of rural consumers, taxpayers, rural economic development or otherwise in the public interest; and
(x) The requested final maturity date for the new loan. The requested final maturity date must be for a period not to exceed the maximum maturity date allowed by statute, regulation, or applicable notice. An eligible entity must submit a certification that the remaining useful life of its electric system is equal to or exceeds the new requested final maturity date and, that the requested final maturity date does not exceed the term of its wholesale power contract with its members or with its generation and transmission supplier (where applicable).
(2) The Agency reserves the right to offer a loan under this section with a maturity date that varies from the requested date. Unless the Administrator makes a specific determination to the contrary, the Electric Program will not approve a new loan that includes a final maturity date that exceeds the remaining useful life of its electric system or any applicable wholesale power contract term.
(3) On a case-by-case basis, as necessary, the Administrator may approve a new loan that includes a final maturity that exceeds the remaining useful life of the applicant’s electric system or applicable wholesale power contract term provided the Administrator finds that the requirements contained in § 1710.151 are satisfied, the new loan is feasible under § 1710.151(b), and such action addresses critical environmental or consumer needs.
(g) Loan requirements. (1) All refinancing loans made under this section must be in the interest of rural consumers, taxpayers, rural economic development, or otherwise in the public interest.
(2) All refinancing loans made under this section must be feasible as determined by RUS based on the financial condition of the borrower and the borrower’s ability to repay and all loans must be adequately secured, as determined by RUS.
(3) Borrowers will be required to execute new legal documents, including a new note, loan contract, and security documents as necessary.
(4) Refinancing loans made under this section will generally be considered categorical exclusions for the purpose of environmental reviews because environmental reviews have previously been completed for the FFB loans or RUS loans being refinanced.
(h) New loan terms. (1) Interest on advances made on loans made under this section will be at the interest rate available on the date of the advance for the new loan used to refinance the prior outstanding loan and any related premium, fee, or expense.
(2) An eligible entity must propose a maturity date for the new loan not to exceed the maturity prescribed by this section, a funding notice, or thirty-five (35) years, whichever is shortest.
(3) An eligible entity may be given the option of applying the proceeds of an advance made on the new loan to cover any applicable prepayment premium, fee, or other expense.
(4) If the prepayment premiums are to be financed by the new loan, the maximum principal amount of the note will be increased in an amount sufficient to cover such prepayment premiums in full.
(5) Provided such waiver is not inconsistent with applicable law or the terms and conditions of the notes previously issued to RUS or FFB, the Administrator may, on a case-by-case basis, waive or modify the requirements set forth in this paragraph (h), if in the Administrator’s judgment, it is necessary to implement the intent of the authorizing statute and is in the best financial interest of the Government.
§§ 1710.54-1710.99 [Reserved]
Subpart C—Loan Purposes and Basic Policies
§ 1710.100 General.
(a) RUS makes loans and loan guarantees to finance the construction of electric distribution, transmission, and generation facilities, including system improvements and replacements, and cybersecurity and grid security improvements, required to furnish and improve electric service in rural areas, and for demand side management, efficiency, and energy conservation programs, and on-grid and off-grid renewable energy systems. In certain limited circumstances, and at the discretion of the Administrator, RUS may finance selected operating expenses of its borrowers. Loans made or guaranteed by the Administrator will be made in conformance with the RE Act, as amended (7 U.S.C. 901 et seq.), and this chapter. The Administrator’s decision to provide financing for selecting operating expenses may include, but is not limited to the following factors:
(1) The overall availability of funding compared to anticipated loan demand;
(2) The best interests of rural consumers;
(3) The protection of the Government’s financial interest in existing loans and collateral; and
(4) Broader policy objectives, including directing benefits to disadvantaged communities, reducing greenhouse gas emissions, and other priorities of the Secretary of Agriculture.
(b) RUS provides technical assistance to borrowers to aid the development or improvement of rural electric service and to protect RUS’ loan security. Additional information is available at https://rd.usda.gov/programs-services/electric-programs.
(c) Provided funds are available for such purpose, RUS may refinance, as provided in § 1710.53, RUS Electric Program loans made or guaranteed for the purpose of furnishing and improving electric service in rural areas, and for the purpose of assisting electric borrowers to implement demand side management, energy efficiency and conservation programs, on-grid and off-grid renewable energy systems, and cybersecurity and grid security improvements.
§ 1710.101 Types of eligible borrowers.
(a) RUS makes loans to corporations, States, Tribes, 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 arrangement satisfactory to RUS, or
(3) Eligible purposes under the Rural Energy Savings Program, including energy efficiency, renewable energy, energy storage or energy conservation measures and related services, improvements, investments, financing or relending.
(b) In making loans, RUS gives preference to States, Tribes, territories, and subdivisions and agencies thereof; municipalities; people’s utility districts; and cooperative, nonprofit, or limited-dividend associations. RUS does not make direct loans to individual consumers.
(c) For the purpose of determining eligibility of a distribution borrower not in default on the repayment of a loan made or guaranteed under the RE Act for a loan, loan guarantee, or lien accommodation, a default by a borrower from which a distribution borrower purchases wholesale power shall not:
(1) Be considered a default by the distribution borrower;
(2) Reduce the eligibility of the distribution borrower for assistance under the RE Act; or
(3) Be the cause, directly or indirectly, of imposing any requirement or restriction on the borrower as a condition of the assistance, except such requirements or restrictions as are necessary to implement a debt restructuring agreed on by the power supply borrower and RUS.
(d) For the purpose of determining the eligibility of a distribution borrower, RUS will consider whether the distribution borrower is current on its obligations to its wholesale power supplier under the RUS wholesale power contract.
(e) Nothing in paragraph (c) of this section relieves any distribution borrower that is a member of a power supply borrower in default on its obligations to RUS or operating under a debt restructuring agreement, of requirements set forth in RUS regulations, including, without limitation, § 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.
§ 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 efficiency and energy conservation programs, and on grid and off grid renewable energy systems. In accordance with § 1710.110, the Administrator may require the borrower to obtain no more than 30 percent of the total debt financing required for a proposed project by means of a supplemental loan from another lender without an RUS guarantee.
(b) 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 efficiency and 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 § 1710.106, including, under certain circumstances, the implementation of demand side management, energy conservation programs, and on grid and off grid renewable energy systems. (See 7 CFR part 1712). These guarantees are normally used to finance bulk transmission and generation facilities, but they may also be used to finance distribution and subtransmission facilities. If a borrower applies for a section 306 loan guarantee to finance all or a portion of distribution and subtransmission facilities, such request will not affect the borrower’s eligibility for an insured loan to finance any remaining portion of said facilities or for any future insured loan to finance other distribution or subtransmission facilities. A section 306 loan guarantee, however, may not be used to guarantee a supplemental loan required by § 1710.110.
(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.)
§ 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.
§ 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.
§ 1710.105 State and Tribal regulatory approvals.
(a) In States or in Tribal areas where a borrower is required to obtain approval of a project or its financing from a State or Tribal regulatory authority, RUS requires that such approvals be obtained 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) In Tribal areas all borrowers are required to obtain approval of the project from the Tribal government or relevant Tribal regulatory body, before any loan is approved by RUS.
(c) At minimum, in the case of all loans in States or Tribal areas where State regulatory approval is required of the project or its financing, such State or Tribal approvals will be required before loan funds are advanced.
(d) In cases where State regulatory authority or Tribal government or relevant Tribal regulatory body approval has been obtained, but the borrower has failed to proceed with the project in a timely manner according to the schedule contained in the borrower’s project design manual, or if there are cost overruns or other developments that threaten loan feasibility or security, RUS may require the borrower to obtain a reaffirmation of the project and its financing from the State or Tribal authority before any additional loan funds are advanced.
§ 1710.106 Uses of loan funds.
(a) Funds from loans made or guaranteed by RUS may be used to finance:
(1) Distribution facilities. (i) The construction of new distribution facilities or systems, the cost of system improvements and removals less salvage value, the cost of ordinary replacements and removals less salvage value, needed to meet load growth requirements, improve the quality of service, or replace existing facilities.
(ii) The purchase, rehabilitation and integration of existing distribution facilities and associated service territory when the acquisition is an incidental and necessary means of providing or improving service to persons in rural areas who are not receiving adequate central station service, and the borrower is unable to finance the acquisition from other sources. See § 1710.107.
(2) Transmission and generation facilities. (i) The construction of new transmission and generation facilities or systems, the cost of system improvements and removals, less salvage value, the cost of ordinary replacements and removals less salvage value, needed to meet load growth, improve the quality of service, or replace existing facilities.
(ii) The purchase of an ownership interest in new or existing transmission or generation facilities to serve RE Act beneficiaries.
(3) Headquarters Offices, Warehouse, and garage facilities. The purchase, remodeling, or construction of headquarters office, other headquarters facilities, warehouse, and garage facilities required for the operation of a borrower’s system. See paragraph (b) of this section.
(4) Interest. The payment of interest on indebtedness incurred by a borrower to finance the construction of generation and transmission facilities during the period preceding the date such facilities are placed into service, if requested by the borrower and found necessary by RUS.
(5) Certain costs incurred in demand side management, energy conservation programs and on and off grid renewable energy systems.
(6) Eligible Energy Efficiency and Conservation Programs pursuant to Subpart H of this part.
(7) Cybersecurity and grid security. Eligible cybersecurity and grid security improvements.
(8) Smart grid infrastructure. The purchase, installation, improvements, and investments in assets needed for a robust smart grid infrastructure capability that enables the utility to operate efficiently, improve its reliability, and enhance its ability to recover from disasters, physical or cyber-attacks, carry out energy efficiency and demand side management activities, and implement renewable energy technologies and cybersecurity and grid security strategies.
(i) Smart grid, grid security, or cybersecurity infrastructure financed under this section must relate to one or more electric utility or energy efficiency purpose. Loan proceeds under this section may not be used to solely finance retail broadband services.
(ii) Notwithstanding paragraph (a)(8)(i) of this section, a borrower is permitted to use up to 10 percent of the amount provided under this subpart to construct, improve, or acquire broadband infrastructure related to the project financed, subject to the requirements of 7 CFR part 1980, subpart M.
(b) In cases of financial hardship, as determined by the Administrator, loans may also be made to finance the following items:
(1) General plant equipment, including furniture, office, transportation, data processing and other work equipment; and
(2) Working capital required for the initial operation of a new system.
(c) RUS will not make loans to finance the following:
(1) Electric facilities, equipment, appliances, or wiring located inside the premises of the consumer, except for measures related to grid security, cybersecurity, or assets financed pursuant to an eligible EE Program, and qualifying items included in a loan for demand side management or energy resource conservation programs, or renewable energy systems.
(2) Facilities to serve consumers who are not RE Act beneficiaries unless those facilities are necessary and incidental to providing or improving electric service in rural areas (See § 1710.104).
(3) Any facilities or other purposes that a State regulatory authority having jurisdiction will not approve for inclusion in the borrower’s rate base or will not otherwise allow rates sufficient to repay with interest the debt incurred for the facilities or other purposes.
(d) A distribution borrower may request a loan period of up to 4 years. Except in the case of loans for new generating and associated transmission facilities, a power supply borrower may request a loan period of not more than 4 years for transmission and substation facilities and improvements or replacements of generation facilities. The loan period for new generating facilities and DSM activities will be determined on a case-by-case basis. The Administrator may approve a loan period shorter than the period requested by the borrower, if in the Administrator’s sole discretion, a loan made for the longer period would fail to meet RUS requirements for loan feasibility and loan security set forth in §§ 1710.112 and 1710.113, respectively.
(e)(1) If, in the sole discretion of the Administrator, the amount authorized for lending for municipal rate loans, hardship rate loans, and loan guarantees in a fiscal year is substantially less than the total amount eligible for RUS financing, RUS may limit the size, type, or purpose of loans approved during the fiscal year. Depending on the amount of the shortfall between the amount authorized for lending and the loan application inventory on hand for each type of loan, RUS may either reduce the amount on an equal proportion basis for all applicants for that type of loan based on the amount of funds for which the applicant is eligible or may shorten the loan period for which funding will be approved to less than the maximum of 4 years. All applications for the same type of loan approved during a fiscal year will be treated in the same manner, except that RUS will not limit funding to any borrower requesting a RUS loan or loan guarantee of $1 million or less. Should a shortfall or urgent need related to cybersecurity, grid security, or statutory preference become evident during a fiscal year, the Administrator may announce priorities in a public notice for utilizing available funds for the balance of the fiscal year.
(2) If RUS limits the amount of loan funds approved for borrowers, the Administrator shall provide public notice to all electric borrowers as early as possible in the fiscal year of the manner in which funding will be limited. The portion of the loan application that is not funded during that fiscal year may, at the borrower’s option, be treated as a second loan application received by RUS at a later date. This date will be determined by RUS in the same manner for all affected loans and will be based on the availability of loan funds. The second loan application shall be considered complete except that the borrower must submit a certification from a duly authorized corporate official stating that funds are still needed for loan purposes specified in the original application and must notify RUS of any changes in its circumstances that materially affects the information contained in the original loan application or the primary support documents. See § 1710.401(f).
(f)(1) For borrowers having one or more loans approved on or after October 1, 1991, advances of funds will be made only for the primary budget purposes included in the loan as shown on RUS Form 740c as amended and approved by RUS, or on a construction work plan or a construction work plan amendment approved by RUS. Each advance will be charged to the oldest outstanding note(s) having unadvanced funds for the primary budget purpose for which the request for advances was made, regardless of whether such notes are associated with loans approved before or after October 1, 1991, unless any conditions on advances under any of these notes have not been met by the borrower.
(2) For borrowers whose most recent loan was approved before October 1, 1991, advances will be made on the oldest outstanding note having unadvanced funds, unless any conditions on advances under such note have not been met by the borrower.
(g) A borrower is permitted to use up to 10 percent of the amount provided under this part to construct, improve, or acquire broadband infrastructure related to the project financed, subject to the requirements of 7 CFR part 1980, subpart M.
§ 1710.107 Amount lent for acquisitions.
The maximum amount that will be lent for an acquisition is limited to the value of the property, as determined by RUS. If the acquisition price exceeds this amount, the borrower shall provide the remainder without RUS financial assistance.
§ 1710.108 Mergers and consolidations.
(a) RUS encourages its borrowers to consider merging or consolidating with another electric borrower when such action will contribute to greater operating efficiency and financial soundness.
(b) After a merger or consolidation, RUS will give priority consideration per § 1710.119 to the processing of loans for the surviving system to finance the integration and rehabilitation of electric facilities, if necessary, and the improvement or extension of electric service in rural areas. Such priority consideration will also be given in the case of a borrower that has merged or consolidated with an electric system that has not previously received RUS financial assistance, if such system was serving primarily rural residents at the time of the merger or consolidation and such rural residents will continue to be served by the merged or consolidated system. RUS does not make loans for costs incurred in effectuating mergers or consolidations, such as legal expenses or feasibility study costs.
§ 1710.109 Reimbursement of general funds and interim financing.
(a) Borrowers may request that a loan include funds to reimburse general funds and/or replace interim financing used to finance equipment and facilities that were included in an RUS-approved construction work plan, energy efficiency and conservation program 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 § 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) 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 48 months. 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.
§ 1710.110 Supplemental financing.
(a) Except in the case of financial hardship as determined by the Administrator, and following certain mergers, consolidations, and transfers of systems substantially in their entirety as set forth in 7 CFR 1717.154, applicants for a municipal rate loan will be required to obtain a portion of their loan funds from a supplemental source without an RUS guarantee, in the amounts set forth in paragraph (c) of this section. RUS will normally grant a lien accommodation to the supplemental lender. RUS does not require supplemental financing in conjunction with an RUS guaranteed loan. However, if a borrower elects to obtain supplemental financing in conjunction with a guaranteed loan, the granting of RUS’s loan guarantee may be conditioned on the borrower’s obtaining supplemental financing.
(b) The terms and conditions of supplemental financing and any security offered to the supplemental lender are subject to RUS approval. Generally, supplemental loans must have the same final maturity and be amortized in the same manner as RUS loans made concurrently. Borrowers may elect to repay the loans either in substantially equal periodic installments covering interest and principal, or in periodic installments that include interest and level amortization of principal.
(c) Supplemental financing required for municipal rate loans—(1) Distribution borrowers. (i) Distribution borrowers that had, as of December 31, 1980, an average consumer density of 2 or fewer consumers per mile or an average adjusted plant revenue ratio (APRR), as defined in § 1710.2, of over 9.0 shall obtain supplemental financing equal to 10 percent of their loan request.
(ii) All other distribution borrowers must obtain supplemental financing according to their plant revenue ratio (PRR), as defined in § 1710.2, based on the most recent year-end data available on the date of loan approval, as follows:
| PRR | Supplemental loan percentage |
|---|---|
| 9.00 and above | 10 |
| 8.01–8.99 | 20 |
| 8.00 and below | 30 |
(iii) If a distribution borrower enters into a merger, consolidation, or transfer of system substantially in its entirety, and the provisions of 7 CFR 1717.154(b) do not apply, required supplemental financing will be determined as follows for loans approved by RUS after December 19, 1996. If one of the merging parties met the criteria in paragraph (c)(1)(i) of this section prior to the effective date of the merger consolidation or transfer, the borrower will be required to obtain supplemental financing equal to 10 percent of any loan funds requested for facilities to 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:
(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:
(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.
§ 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 for 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 § 1710.109).
§ 1710.112 Loan feasibility.
(a) RUS will make a loan only if there is reasonable assurance that the loan, together with all outstanding loans and other obligations of the borrower, will be repaid in full as scheduled, in accordance with the mortgage, notes, and loan contracts. The borrower must provide evidence satisfactory to the Administrator that the loan will be repaid in full as scheduled, and that all other obligations of the borrower will be met.
(b) Based on evidence submitted by the borrower and other information, RUS will use the following criteria to evaluate loan feasibility:
(1) Projections of power requirements, rates, revenues, expenses, margins, and other factors for the present system and proposed additions are based on reasonable assumptions and adequate supporting data and analysis, including analysis of a range of assumptions for the significant variables, when required by § 1710.300(d)(5).
(2) Projected revenues from the rates proposed by the borrower are adequate to meet the required TIER and DSC ratios based on the borrower’s total costs, including the projected maximum debt service cost of the new loan.
(3) The economics of the borrower’s operations and service area are such that consumers can reasonably be expected to pay the proposed rates required to cover all expenses and meet RUS TIER and DSC requirements, and the borrower can reasonably compete with other utilities and other energy sources to prevent substantial load loss while providing satisfactory service to its consumers.
(4) Risks of possible loss of substantial loads from large consumers or from load concentrations in particular industries will not substantially impair loan feasibility.
(5) Risks of loss of portions of the borrower’s service territory from annexation or other causes will not substantially impair loan feasibility. If there appears to be a substantial risk, RUS may require additional information from the borrower, such as a summary and analysis of the risk by the borrower; state, county or local planning reports having information on projected growth or expansion plans of local communities; annexation plans of the municipalities in question; and any other relevant information.
(6) In states where rates or investment decisions are subject to approval by state regulatory authorities, there is reasonable expectation that such approvals will be forthcoming to enable repayment of the loan in full according to its terms.
(7) The experience and performance of the system’s management is acceptable.
(8) In the case of joint ventures, the borrower has sufficient management control or other contractual safeguards with respect to the construction and operation of the jointly owned facility to ensure that the borrower’s interests are protected and the credit risk is minimized.
(9) The borrower has implemented adequate financial and management controls and there are and have been no significant financial or other irregularities.
(10) The borrower’s projected capitalization, measured by its equity as a percentage of total assets, is adequate to enable the borrower to meet its financial needs and to provide service consistent with the RE Act. Among the factors to be considered in reviewing the borrower’s projected capitalization are the economic strength of the borrower’s service territory, the inherent cost of providing service to the territory, the disparity in rates between the borrower and neighboring utilities, the intensity of competition faced by the borrower from neighboring utilities and other power sources, and the relative amount of new capital investment required to serve existing or new loads.
§ 1710.113 Loan security.
(a) RUS makes loans only if, in the judgment of the Administrator, the security therefor is reasonably adequate and the loan will be repaid according to its terms within the time agreed.
(b) RUS generally requires that borrowers provide it with a first lien on all of the borrower’s real and personal property, including intangible personal property and any property acquired after the date of the loan. This lien shall be in the form of a mortgage by the borrower to the Government or a deed of trust between the borrower and a trustee satisfactory to the Administrator, together with such security documents as RUS may deem necessary in a particular case.
(c)(1) When a borrower is unable by reason of preexisting encumbrances, or otherwise, to furnish a first mortgage lien on its entire system the Administrator may accept other forms of security, such as a pledge of revenues, if he or she determines such security is reasonably adequate and the form and nature thereof is otherwise acceptable.
(2) The Administrator, at his or her discretion, may approve the use of an indenture patterned after those indentures commonly used by utilities engaged in private market financing, in lieu of a mortgage as the security instrument for loans to power supply borrowers. The use of an indenture will be by mutual agreement of the borrower and the Administrator. The terms of each indenture and related loan agreement will be negotiated on a case by case basis to best meet the needs of the individual borrower and the Government. The provisions of the indenture and loan contract shall control, notwithstanding any provisions of 7 CFR Chapter XVII which may be in conflict therewith.
(d) In the case of loans that include the financing of electric facilities that are operated as an integral component of a non-RUS financed system (such as generation and transmission facilities co-owned with other electric utilities), the borrower shall, in addition to the mortgage lien on all of the borrower’s electric facilities, furnish adequate assurance, in the form of contractual or other security arrangements, that the system will be operated on an efficient and continuous basis. Satisfactory evidence must also be provided that the non-RUS financed system is financially sound and under capable management. Examples of such evidence include financial reports, annual reports, Security and Exchange Commission 10K reports if the system is required to file them, credit reports from Standard and Poor’s, Moodys or other recognized sources, reports to state regulatory authorities and the Federal Energy Regulatory Commission, and evidence of a successful track record in related construction projects.
(e) Additional controls on the borrower’s financial, investment and managerial activities appear in the loan contract and mortgage required by RUS.
§ 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. Nothing in this section, however, shall limit the Administrator’s ability to contractually agree to a different ratio provided in this section when doing so would advance or protect the interests of the government.
(b) Coverage ratios. (1) The minimum coverage ratios required of distribution borrowers whether applied on an annual or average basis of the 2 best years out of the 3 most recent calendar years, are a TIER of 1.25, DSC of 1.25. Further, the minimum coverage ratios required of distribution borrowers whether applied on an annual or average basis of the 2 best years out of the 3 most recent calendar years are an OTIER and ODSC of 1.1 or an MTIER and MDSC of 1.1.
(2) The minimum coverage ratios required of power supply borrowers, whether applied on an annual or average basis, are a TIER of 1.05 and DSC of 1.00.
(3) When new loan contracts are executed, the Administrator may, case by case, increase the coverage ratios of distribution and power supply borrowers above the levels cited in paragraphs (b)(1) and (b)(2), respectively, of this section if the Administrator determines that the higher ratios are required to ensure reasonable security for and/or the repayment of loans made or guaranteed by RUS. Also, the Administrator may, case by case, reduce said coverage ratios if the Administrator determines that the lower ratios are required to ensure reasonable security for and/or the repayment of loans made or guaranteed by RUS. Policies for coverage ratios following certain mergers, consolidations, and transfers of systems substantially in their entirety are in 7 CFR 1717.155.
(4) If a distribution borrower has in service or under construction a substantial amount of generation and associated transmission plant financed at a cost of capital substantially higher than the cost of funds under section 305 of the RE Act, then the Administrator may establish, in his or her sole discretion, blended levels for TIER, DSC, OTIER, and ODSC based on the respective shares of total utility plant represented by said generation and associated transmission plant and by distribution and other transmission plant.
(c) Requirements for loan feasibility. To be eligible for a loan, borrowers must demonstrate to RUS that they will, on a pro forma basis, earn the coverage ratios required by paragraph (b) of this section in each of the years included in the borrower’s long-range financial forecast prepared in support of its loan application, as set forth in subpart G of this part.
(d) Requirements for maintenance of coverage ratios—(1) Prospective requirement. Borrowers must design and implement rates for utility service to provide sufficient revenue (along with other revenue available to the borrower in the case of TIER and DSC) to pay all fixed and variable expenses, to provide and maintain reasonable working capital and to maintain on an annual basis the coverage ratios required by paragraph (b) of this section. Rates must be designed and implemented to produce at least enough revenue to meet the requirements of this paragraph under the assumption that average weather conditions in the borrower’s service territory will prevail in the future, including average system damage and outages due to weather and the related costs. Failure to design and implement rates pursuant to the requirements of this paragraph shall be an event of default upon notice provided in accordance with the terms of the borrower’s mortgage or loan contract.
(2) Retrospective requirement. The average coverage ratios achieved by a borrower in the 2 best years out of the 3 most recent calendar years must meet the levels required by paragraph (b) of this section. If a borrower fails to achieve these average levels, it must promptly notify RUS in writing. Within 30 days of such notification or of the borrower being notified in writing by RUS, whichever is earlier, the borrower, in consultation with RUS, must provide a written plan satisfactory to RUS setting forth the actions that will be taken to achieve the required coverage ratios on a timely basis. Failure to develop and implement a plan satisfactory to RUS shall be an event of default upon notice provided in accordance with the terms of the borrower’s mortgage or loan contract.
(3) Fixed and variable expenses, as used in this section, include but are not limited to: all taxes, depreciation, maintenance expenses, and the cost of electric power and energy and other operating expenses of the electric system, including all obligations under the wholesale power contract, all lease payments when due, and all principal and interest payments on outstanding indebtedness when due.
(e) Requirements for advance of funds. (1) If a borrower applying for a loan has failed to achieve the coverage ratios required by paragraph (b) of this section during the latest 12 month period 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 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.
§ 1710.115 Final maturity.
(a) RUS is authorized to make loans and loan guarantees with a final maturity of up to 35 years. The borrower may elect a repayment period for a loan not longer than the expected useful life of the facilities, not to exceed 35 years. Most of the electric facilities financed by RUS have a long useful life, often approximating 35 years. Some facilities, such as load management equipment and Supervisory Control and Data Acquisition equipment, have a much shorter useful life due, in part, to obsolescence. Operating loans to finance working capital required for the initial operation of a new system are a separate class of loans and usually have a final maturity of less than 10 years.
(b) Loans made or guaranteed by RUS for facilities owned by the borrower generally must be repaid with interest within a period, up to 35 years, that approximates the expected useful life of the facilities financed. The expected useful life shall be based on the weighted average of the useful lives that the borrower proposes for the facilities financed by the loan, provided that the proposed useful lives are deemed appropriate by RUS. RUS Form 740c, Cost Estimates and Loan Budget for Electric Borrowers, submitted as part of the loan application must include, as a note, either a statement certifying that at least 90 percent of the loan funds are for facilities that have a useful life of 33 years or longer, or a schedule showing the costs and useful life of those facilities with a useful life of less than 33 years. 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) The term for loans made to finance Eligible EE Programs will be determined in accordance with § 1710.408 of this part.
(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.
§ 1710.116 [Reserved]
§ 1710.117 Environmental review requirements.
Borrowers are required to comply with the environmental review requirements in accordance with 7 CFR part 1970, and other applicable environmental laws, regulations and Executive orders.
§ 1710.118 [Reserved]
§ 1710.119 Loan processing priorities.
(a) Generally loans are processed in chronological order based on the date the complete application is received in the Regional office.
(b) The Administrator may give priority to processing loans that are required to meet the following needs:
(1) To restore electric service following a major storm or other catastrophe;
(2) To bring existing electric facilities into compliance with any environmental requirements imposed by Federal or state law that were not in effect at the time the facilities were originally constructed;
(3) To finance the capital needs of borrowers that are the result of a merger, consolidation, or a transfer of a system substantially in its entirety, provided that the merger, consolidation, or transfer has either been approved by RUS or does not need RUS approval pursuant to the borrower’s loan documents (See 7 CFR 1717.154); or
(4) To correct serious safety problems, other than those resulting from borrower mismanagement or negligence.
(c) The Administrator may also change the normal order of processing loan applications when it is necessary to ensure that all loan authority for the fiscal year is utilized.
§ 1710.120 Construction standards and contracting.
Borrowers shall follow all RUS requirements regarding construction work plans, energy efficiency and conservation program work plans, construction standards, approved materials, construction and related contracts, inspection procedures, and bidding procedures.
§ 1710.121 Insurance requirements.
Borrowers are required to comply with certain requirements with respect to insurance and fidelity coverage as set forth in 7 CFR part 1788.
§ 1710.122 Equal opportunity and nondiscrimination.
Borrowers are required to comply with certain regulations on nondiscrimination in program services and benefits and on equal employment opportunity as set forth in RUS Bulletins 20–15 and 20–19 or their successors; 7 CFR parts 15 and 15b; and 45 CFR part 90.
§ 1710.123 Debarment and suspension.
Borrowers are required to comply with certain requirements on debarment and suspension as set forth in 2 CFR part 180, as adopted by USDA through 2 CFR part 417.
§ 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.
§ 1710.125 Restrictions on lobbying.
Borrowers are required to comply with certain requirements with respect to restrictions on lobbying activities. See 2 CFR part 418.
§ 1710.126 Federal debt delinquency.
(a) Prior to approval of a loan or advance of funds, a borrower must report to RUS whether or not it is delinquent on any Federal debt, such as Federal income tax obligations or a loan or loan guarantee from another Federal agency. If delinquent, the reasons for the delinquency must be explained, and RUS will take such explanation into consideration in deciding whether to approve the loan or advance of funds.
(b) Applicants for a loan or loan guarantee must also certify that they have been informed of the collection options the Federal government may use to collect delinquent debt.
§ 1710.127 Drug free workplace.
Borrowers are required to comply with the Drug Free Workplace Act of 1988 (41 U.S.C. 8101 et. seq.) and the Act’s implementing regulations (2 CFR part 421) when a borrower receives a Federal grant or enters into a procurement contract awarded pursuant to the provisions of the Federal Acquisition Regulation (title 48 CFR) to sell to a Federal agency property or services having a value of $25,000 or more.
§§ 1710.128-1710.149 [Reserved]
Subpart D—Basic Requirements for Loan Approval
§ 1710.150 General.
The RE Act and prudent lending practice require that the Administrator make certain findings before approving an electric loan or loan guarantee. The borrower shall provide the evidence determined by the Administrator to be necessary to make these findings.
§ 1710.151 Required findings for all loans.
(a) Area coverage. Adequate electric service will be made available to the widest practical number of rural users in the borrower’s service area during the life of the loan. See § 1710.103.
(b) Feasibility. The loan is feasible and it will be repaid on time according to the terms of the mortgage, note, and loan contract. At any time after the original determination of feasibility, the Administrator may require the borrower to demonstrate that the loan remains feasible if there have been, or are anticipated to be, material changes in the borrower’s costs, loads, rates, rate disparity, revenues, or other relevant factors from the time that feasibility was originally determined. See § 1710.112 and subpart G of this part.
(c) Security. RUS will have a first lien on the borrower’s total system or other adequate security, and adequate financial and managerial controls will be included in loan documents. See § 1710.113.
(d) Interim financing. For loans that include funds to replace interim financing, there is satisfactory evidence that the interim financing was used for purposes approved by RUS and that the loan meets all applicable requirements of this part.
(e) Facilities for nonrural areas. Whenever a borrower proposes to use loan funds for the improvement, expansion, construction, or acquisition of electric facilities for non-RE Act beneficiaries, there is satisfactory evidence that such funds are necessary and incidental to furnishing or improving electric service for RE Act beneficiaries. See § 1710.104.
(f) Facilities to be included in rate base. In states having jurisdiction, the borrower has provided satisfactory evidence based on the information available, such as an opinion of counsel, that the state regulatory authority will not exclude from the borrower’s rate base any of the facilities included in the loan request, or otherwise prevent the borrower from charging rates sufficient to repay with interest the debt incurred for the facilities. Such evidence may be based on, but not necessarily limited to, the provisions of applicable state laws; the rules and policies of the state authority; precedents in other similar cases; statements made by the state authority; any assurances given to the borrower by the state authority; and other relevant information and experience.
§ 1710.152 Primary support documents.
The following primary support documents and studies must be prepared by the borrower for approval by RUS in order to support a loan application:
(a) 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) Environmental review requirements. A borrower must comply with the environmental review requirements in accordance with 7 CFR part 1970.
(e) EE Program work plan (EEWP). In the case of a loan application to finance an Eligible Energy Efficient Program, an EE Program work plan shall be prepared in lieu of a traditional CWP required pursuant to paragraph (b) of this section. The requirements for an EEWP are set forth in § 1710.255 and in subpart H of this part.
§ 1710.153 Additional requirements and procedures.
Additional requirements and procedures for obtaining RUS financial assistance are set forth in 7 CFR part 1712 for loan guarantees, and in 7 CFR part 1714 for insured loans.
§ 1710.154 Board of Director Resolutions.
Specific actions that require a Board of Director Resolution from a borrower:
(a) Board approval of loan documents;
(b) Major change in the terms of a loan, i.e. maturity;
(c) Initial access to RD Apply (or successor RUS online application systems);
(d) Requests for approval by a Board, acting as the regulatory authority, for any departure from the RUS Uniform System of Accounts with the exception of those deferrals specifically identified in § 1767.13(d); and
(e) eAuthentication requirements.
§§ 1710.155-1710.199 [Reserved]
Subpart E—Load Forecasts
§ 1710.200 Purpose.
This subpart contains RUS policies for the preparation, review, approval and use of load forecasts. 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 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.
§ 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.
§ 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 and provide a current (prepared within the last 2 years) load forecast in support of any request for RUS financial assistance.
(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 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 load forecast of its power supply borrower.
(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 a 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.
§ 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 provide a current (prepared within the last 2 years) 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.
(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 provide a current (prepared within the last 2 years) 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 load forecast of its power supply borrower.
(c) A distribution borrower that is a member of a power supply borrower with a total utility plant of less than $500 million must provide a current (prepared within the last 2 years) 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 load forecast of its power supply borrower.
(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 a current (prepared within the last 2 years) 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.
(e) A distribution borrower with a total utility plant of $500 million or more must provide a current (prepared within the last 2 years) load forecast in support of any request for RUS financing assistance. The distribution borrower may comply with this requirement by participation in and inclusion of its load forecasting information in the load forecast of its power supply borrower.
§ 1710.204 [Reserved]
§ 1710.205 Minimum requirements for all load forecasts.
(a) Contents of load forecast. All load forecasts submitted by borrowers for approval must include:
(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, and other resources used in the preparation of the load forecast. The borrower shall identify the borrower’s members 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 load forecasts.
(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. The narrative shall discuss the methods and procedures used in the analysis and modeling of the borrower’s electric system loads. The narrative shall also describe the borrower’s system, service territory, and consumers.
(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. The narrative shall describe examples of uncertainties such as economic scenarios, weather conditions, and others that borrowers may decide to address in their analysis including:
(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.
(9) Borrowers with a residential demand of 50 percent or more of total kWh should include in the Load Forecast a Residential Consumer Survey that is performed 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.
(10) Residential consumer surveys may be based on the aggregation of member-based samples or on a system-wide sample, provided that the latter provides relevant regional breakdowns as appropriate.
(11) A load forecast for a power supply borrower and its members must cover all member systems, including those that are not borrowers. Each borrower is individually responsible for forecasting all its RE Act beneficiary and non-RE Act beneficiary loads.
(12) 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.
(13) 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.
(14) 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.
(15) The load impacts of a borrower’s demand side management and energy efficiency and conservation program activities, if applicable.
(16) Graphic representations of the variables specifically identified by management as influencing a borrower’s loads.
(17) A database that tracks all relevant variables that might influence a borrower’s loads.
(b) 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.
(c) Documentation retention. The borrower must retain its latest load forecasts and supporting documentation.
(d) 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 when requested by RUS.
(e) 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.
(f) Coordination. A load forecast of a power supply borrower must consider the load forecasts of all its member systems.
§ 1710.206 [Reserved]
§ 1710.207 RUS criteria for load forecasts by distribution borrowers.
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.
§ 1710.208 RUS criteria for load forecasts by power supply borrowers and by distribution borrowers.
All load forecasts submitted by power supply borrowers and by distribution borrowers 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
§ 1710.209 [Reserved]
§ 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.
§§ 1710.211-1710.249 [Reserved]
Subpart F—Construction Work Plans and Related Studies
§ 1710.250 General.
(a) An ongoing, integrated planning system is needed by borrowers to determine their short-term and long-term needs for plant additions, improvements, replacements, and retirements. The primary components of the system consist of long-range engineering plans, construction work plans (CWPs), CWP amendments, and special engineering and cost studies. Long range engineering plans identify plant investments required over a period of 10–20 years or more. CWPs specify and document plant requirements for the short-term, usually 4 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) 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.
(c) A CWP shall include investment cost estimates and supporting engineering and cost studies to demonstrate the need for each proposed facility or activity and the reasonableness of the investment projections and the engineering assumptions used in sizing the facilities. The CWP must be consistent with the borrower’s long range engineering plan and both documents must be consistent with the borrower’s RUS-approved power requirements study.
(d) Applications for a loan or loan guarantee from RUS (new loans or budget reclassifications) must be supported by a current CWP approved by 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.
(e) Except as provided in paragraph (f) 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 and receive Environmental Clearance 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.
(f) 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 losing eligibility for RUS financing of the repairs. The borrower must notify the RUS regional office in writing 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.
(g) A CWP may be amended or augmented when the borrower can demonstrate the need for the changes.
(h) A borrower’s CWP or special engineering studies must be supported by the appropriate level of environmental review documentation, in accordance with 7 CFR part 1970.
(i) All engineering activities required by this subpart must be performed by qualified engineers, who may be staff employees of the borrower or outside consultants. All engineering services must be reviewed by a licensed professional engineer.
(j) 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.
§ 1710.251 Construction work plans—distribution borrowers.
(a) All distribution borrowers must maintain a current CWP covering all new construction, improvements, replacements, and retirements of distribution and transmission plant, and improvements replacements, and retirements of any generation plant. Construction of new generation capacity need not be included in a CWP but must be specified and supported by specific engineering and cost studies. (See § 1710.253.)
(b) A distribution borrower’s CWP shall typically cover a construction period of 4 years and includes all facilities to be constructed which are eligible for RUS financing, whether or not RUS financial assistance will be sought or be available for certain facilities. Any RUS financing provided for the facilities will be limited to a 4 year loan period. The construction period covered by a CWP in support of a loan application shall not be shorter than the loan period requested for financing of the facilities.
(c) The facilities, equipment and other items included in a distribution borrower’s CWP may include:
(1) Line extensions required to connect consumers, improve service reliability or improve voltage conditions;
(2) Distribution tie lines to improve reliability of service and voltage regulation;
(3) Line conversions and changes required to improve existing services or provide additional capacity for new consumers;
(4) New substation facilities or additions to existing substations;
(5) Transmission and substation facilities required to support the distribution system;
(6) Distribution equipment required to serve new consumers or to provide adequate and dependable service to existing consumers, including replacement of existing plant facilities;
(7) Outdoor 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;
(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; and
(13) Other items that are specifically determined by RUS as being eligible for financing prior to inclusion in the CWP.
§ 1710.252 Construction work plans—power supply borrowers.
(a) All power supply borrowers must maintain a current CWP 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) Typically a power supply borrower’s CWP shall cover a period of 4 years. While comprehensive CWP’s are desired, if there are extenuating circumstances RUS may accept a single-purpose transmission or generation CWP in support of a loan application or budget reclassification. The construction period covered by a CWP in support of a loan application shall not be shorter than the loan period requested for financing of the facilities.
(c) Facilities, equipment, and other items included in a power supply borrower’s CWP may include:
(1) Distribution and related facilities as set forth in § 1710.251(c);
(2) Transmission facilities required to deliver the power needed to serve the existing and planned new loads of the borrower and its members, and to improve service reliability, including tie lines for improved reliability of service, line conversions, improvements and replacements, new substations and substation improvements and replacements, and Systems Control and Data Acquisition equipment, including communications, dispatching and sectionalizing equipment, and load management equipment;
(3) The borrower’s proportionate share of transmission facilities required to tie together the operating systems of supporting power pools and to connect with adjacent power suppliers;
(4) Improvements and replacements of generation facilities; and
(5) The cost of engineering, architectural, environmental and other studies and plans needed to support the construction of facilities, when such cost is capitalized as part of the cost of the facilities.
(d) A CWP for transmission facilities shall normally include studies of load flows, voltage regulation, and stability characteristics to demonstrate system performance and needs.
§ 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. An analysis of purchased power options, including an analysis of available alternate sources of power shall be included. The analysis should include the terms and conditions of any requests for proposals and responses to such requests.
(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.
§ 1710.254 [Reserved]
§ 1710.255 Energy efficiency work plans—energy efficiency borrowers.
(a) All energy efficiency borrowers must maintain a current EEWP covering in aggregate all new construction, improvements, replacements, and retirements of energy efficiency related equipment and activities;
(b) An energy efficiency borrower’s EEWP shall cover a period of between 2 and 4 years, and include all facilities to be constructed or improved which are eligible for RUS financing, whether or not RUS financial assistance will be sought or be available for certain facilities. The construction period covered by an EEWP in support of a loan application shall not be shorter than the loan period requested for financing of the facilities;
(c) The borrower’s EEWP may only include facilities, equipment and other activities that have been approved by RUS as a part of an Eligible Energy Efficiency and Conservation Program pursuant to subpart H of this part;
(d) The borrower’s EEWP must be consistent with the documentation provided as part of the current RUS approved EE Program as outlined in § 1710.410(c); and
(e) The borrower’s EEWP must include an estimated schedule for the implementation of included projects.
§§ 1710.256-1710.299 [Reserved]
Subpart G—Long-Range Financial Forecasts
§ 1710.300 General.
(a) RUS encourages borrowers to maintain a current long-range financial forecast. The forecast should be used by the board of directors and the manager to guide the system towards its financial goals.
(b) A borrower must prepare, for RUS review and approval, a long-range financial forecast in support of its loan application. The forecast must demonstrate that the borrower’s system is economically viable and that the proposed loan is financially feasible. Loan feasibility will be assessed based on the criteria set forth in § 1710.112.
(c) The financial forecast and related projections submitted in support of a loan application shall include:
(1) The projected results of future actions planned by the borrower’s board of directors;
(2) The financial goals established for margins, TIER, DSC, equity, and levels of general funds to be invested in plant;
(3) A pro forma balance sheet, statement of operations, and general funds summary projected for each year during the forecast period;
(4) A full explanation of the assumptions, supporting data, and analysis used in the forecast, including the methodology used to project loads, rates, revenue, power costs, operating expenses, plant additions, and other factors having a material effect on the balance sheet and on financial ratios such as equity, TIER, and DSC;
(5) Current and projected cash flows;
(6) Projections of future borrowings and the associated interest and principal expenses required to meet the projected investment requirements of the system;
(7) Current and projected kW and kWh energy sales;
(8) Current and projected unit prices of significant variables such as retail and wholesale power prices, average labor costs, and interest;
(9) Current and projected system operating costs, including, but not limited to, wholesale power costs, depreciation expenses, labor costs, and debt service costs;
(10) Current and projected revenues from sales of electric power and energy;
(11) Current and projected non-operating income and expense;
(12) A discussion of the historical experience of the borrower, and in the case of a power supply borrower its member systems as appropriate, with respect to the borrower’s market competitiveness as it relates to the rates charged for electricity, competition from other fuels, and other factors. Additional data and analysis may be required by RUS on a case by case basis to assess the probable future competitiveness of those borrowers that have a history of serious competitive problems; and
(13) An analysis of the effects of major factors, such as projected increases in rates charged for electricity, on the ability of the borrower, and in the case of a power supply borrower its member systems, to compete with neighboring utilities and other energy sources.
(d) The following plans, studies and assumptions shall be used in developing the financial forecast:
(1) The RUS-approved CWP;
(2) RUS-approved power requirements data;
(3) RUS-approved EE Program work plan;
(4) The current rate schedules or new rates;
(5) 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
(6) 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.
§ 1710.301 Financial forecasts—distribution borrowers.
(a) Financial forecasts prepared by distribution borrowers shall cover at least a ten-year period, unless a shorter period is authorized by other RUS regulations.
(b) In addition to the requirements set forth in § 1710.300 of this part, financial forecasts prepared by distribution borrowers in support of a loan application shall:
(1) Include expenditures for any maintenance determined to be needed in the current system’s operation and maintenance review and evaluation in order to comply with mortgage covenants and prudent utility practice;
(2) Fully explain the basis for the power cost projections used. Generally, the power supplier’s most recent forecasted rates shall be used; and
(3) Use RUS Form 325 or computer-generated equivalent reports.
§ 1710.302 Financial forecasts—power supply borrowers.
(a) The requirements of this section apply only to financial forecasts submitted by power supply borrowers in support of a loan from RUS. The financial forecast prepared by power supply borrowers shall demonstrate the effects that the addition of generation, transmission and any distribution facilities will have on the power supply borrower’s sales, costs, and revenues, and on the cost of power to the member distribution systems.
(b) The financial forecast shall cover a period of 10 years. RUS may request projections for a longer period of time if RUS deems necessary.
(c) Financial forecasts prepared in support of loan applications to finance additional generation capacity shall include a power cost study as set forth in § 1710.303.
(d) In addition to the requirements set forth in § 1710.300, financial forecasts prepared by power supply borrowers shall:
(1) Identify all plans for generation and transmission capital additions and system operating expenses on a 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 § 1710.300(d)(6).
(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.
§ 1710.303 Power cost studies—power supply borrowers.
(a) All applications for financing of additional generation capacity and the associated bulk transmission facilities shall be supported by a power cost study to demonstrate that the proposed generation and associated transmission facilities are the most economical and effective means of meeting the borrower’s power requirements. This study usually is a separate study but it may be integrated with the financial forecast required by § 1710.302.
(b) A power cost study shall include the following basic elements:
(1) A study of all reasonably available self-generation, purchased-power, load management, and energy conservation alternatives as set forth in §§ 1710.253 and 1710.254;
(2) A present-value analysis of the costs of the alternatives and their effects on total power costs, covering a period of at least 10 years beyond the projected in-service date of the facilities;
(3) A description of proposed new power-purchase contracts or revisions to existing contracts, and an analysis of the effects on power costs;
(4) Use of sensitivity analyses to determine the vulnerability of the alternatives to a reasonable range of assumptions about fuel costs, failure to achieve projected load growth, changes in operating and financing costs, and other major factors, if the financial forecast is used in support of a loan or loan guarantee that exceeds the smaller of $25 million or 10 percent of the borrower’s total utility plant. Individual sensitivity analyses need not be duplicated if they have been included in other materials submitted to RUS; and
(5) Assessment of the financial risks of the various alternatives, especially as between capital-intensive and 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.
§§ 1710.304-1710.349 [Reserved]
Subpart H—Energy Efficiency and Conservation Loan Program
§ 1710.400 Purpose.
(a) This subpart establishes policies and requirements that apply to loans and loan guarantees to finance Energy Efficiency and Conservation programs (EE Programs) undertaken by an eligible utility system to finance Demand side management, energy efficiency and conservation, or on-grid and off-grid renewable energy system programs that will result in the better management of their system load growth, a more beneficial load profile, or greater optimization of the use of alternative energy resources in their service territory. These programs may be considered an essential utility service.
(b)(1) The goals of an eligible Energy Efficiency project eligible for funding under this program and Subpart H include:
(i) Increasing energy efficiency at the end user level;
(ii) Modifying electric load such that there is a reduction in overall system demand;
(iii) Effecting a more efficient use of existing electric distribution, transmission and generation facilities;
(iv) Attracting new businesses and creating jobs in rural communities by investing in energy efficiency; and
(v) Encouraging the use of renewable energy fuels for either Demand side management or the reduction of conventional fossil fuel use within the service territory.
(2) Although not a goal, RUS recognizes that there will be a reduction of greenhouse gases with energy efficiency improvements.
§ 1710.401 RUS policy.
EE Programs under this subpart may be financed at the distribution level or by an electric generation and transmission provider. RUS encourages borrowers to coordinate with the relevant member systems regarding their intention to implement a program financed under this subpart. RUS also encourages borrowers to leverage funds available under this subpart with State, local, or other funding sources that may be available to implement such programs.
§ 1710.402 Scope.
This subpart adapts and modifies, but does not supplant, the requirements for all borrowers set forth elsewhere where the purpose of the loan is to finance an approved EE program. In the event there is overlap or conflict between this subpart and the provisions of this part 1710 or other parts of the Code of Federal Regulations, the provisions of this subpart will apply for loans made or guaranteed pursuant to this subpart.
§ 1710.403 General.
EE Programs financed under this subpart may be directed at all forms of energy consumed within a utility’s service territory, not just electricity, where the electric utility is in a position to facilitate the optimization of the energy consumption profile within its service territory and do so in a way that enhances the financial or physical performance of the rural electric system and enables the repayment of the energy efficiency loan.
§ 1710.404 Definitions.
For the purpose of this subpart, the following terms shall have the following meanings. In the event there is overlap or conflict between the definitions contained in § 1710.2, the definitions set forth below will apply for loans made or guaranteed pursuant to this subpart.
British thermal unit (Btu) means the quantity of heat required to raise one pound of water one degree Fahrenheit.
Certified energy auditor means:
(1) A certified energy auditor for commercial and industrial energy efficiency improvements shall mean an energy auditor who meets at least one of the following criteria:
(i) An individual possessing a current commercial or industrial energy auditor certification from a national, industry-recognized organization;
(ii) A Licensed Professional Engineer in the State in which the audit is conducted with at least 1 year experience and who has completed at least two similar type Energy Audits;
(iii) An individual with a four-year engineering or architectural degree with at least 3 years experience and who has completed at least five similar type Energy Audits; or
(iv) Beginning in calendar year 2015, an energy auditor certification recognized by the Department of Energy through its Better Buildings Workforce Guidelines project.
(2) A certified energy auditor for residential energy efficiency improvements shall mean an energy auditor that meets one of the following criteria:
(i) The workforce qualification requirements of the Home Performance with Energy Star Program, as outlined in Section 3 of the Home Performance with Energy Star Sponsor Guide; or
(ii) An individual possessing a current residential energy auditor or building analyst certification from a national, industry-recognized organization.
Cost effective means the aggregate cost of an EE Program is less than the financial benefit of the program over time. The cost of a program for this purpose shall include the costs of incentives, measurement and verification activity and administrative costs, and the benefits shall include, without limitation, the value of energy saved, the value of corresponding avoided generation, transmission or distribution and reserve investments as may be displaced or deferred by program activities, and the value of corresponding avoided greenhouse gas emissions and other pollutants.
Demand means the electrical load averaged over a specified interval of time. Demand is expressed in kilowatts, kilovolt amperes, kilovars, amperes, or other suitable units. The interval of time is generally 15 minutes, 30 minutes, or 60 minutes.
Demand savings means the quantifiable reduction in the load requirement for electric power, usually expressed in kilowatts (kW) or megawatts (MW) such that it reduces the cost to serve the load.
Eligible borrower means a utility system that has direct or indirect responsibility for providing retail electric service to persons in a rural area. This definition includes existing borrowers and utilities who meet current RUS borrower requirements.
Energy audit means an inspection and analysis of energy flows in a building, process, or system with the goal of identifying opportunities to enhance energy efficiency. The activity should result in an objective standard-based technical report containing recommendations for improving the energy efficiency. The report should also include an analysis of the estimated benefits and costs of pursuing each recommendation and the simple payback period.
Energy efficiency and conservation measures means equipment, materials and practices that when installed and used at a Consumer’s premises result in a verifiable reduction in energy consumption, measured in Btus, or demand as measured in Btu-hours, or both, at the point of purchase relative to a base level of output. The ultimate goal is the reduction of utility or consumer energy needs.
Energy efficiency and conservation program (EE Program) means a program of activities undertaken or financed by a utility within its service territory to reduce the amount or rate of energy used by Consumers relative to a base level of output.
HVAC means heating, ventilation, and air conditioning.
Load means the Power delivered to power utilization equipment performing its normal function.
Load factor means the ratio of the average load over a designated period of time to the peak load occurring in the same period.
Peak demand (or maximum demand) means the highest demand measured over a selected period of time, e.g., one month.
Peak demand reduction means a decrease in electrical demand on an electric utility system during the system’s peak period, calculated as the reduction in maximum average demand achieved over a specified interval of time.
Power means the rate of generating, transferring, or using energy. The basic unit is the watt, where one Watt is approximately 3.41213 Btu/hr.
Re-lamping means the initial conversion of bulbs or light fixtures to more efficient lighting technology but not the replacement of like kind bulbs or fixtures after the initial conversion.
SI means the International System of Units: the modern metric system.
Smart Grid Investments means capital expenditures for devices or systems that are capable of providing real time, two way (utility and Consumer) information and control protocols for individual Consumer owned or operated appliances and equipment, usually through a Consumer interface or smart meter.
Ultimate recipient means a Consumer that receives a loan from a borrower under this subpart.
Utility Energy Services Contract (UESC) means a contract whereby a utility provides a Consumer with comprehensive energy efficiency improvement services or demand reduction services.
Utility system means an entity in the business of providing retail electric service to Consumers (distribution entity) or an entity in the business of providing wholesale electric supply to distribution entities (generation entity) or an entity in the business of providing transmission service to distribution or generation entities (transmission entity), where, in each case, the entities provide the applicable service using self-owned or controlled assets under a published tariff that the entity and any associated regulatory agency may adjust.
Watt means the SI unit of power equal to a rate of energy transfer (or the rate at which work is done), of one joule per second.
§ 1710.405 Eligible energy efficiency and conservation programs.
(a) General. Eligible EE Programs shall:
(1) Be developed and implemented by an Eligible borrower and applied within its service territory;
(2) Consist of eligible activities and investments as provided in § 1710.406
(3) Provide for the use of State and local funds where available to supplement RUS loan funds;
(4) Incorporate the applicant’s policy applicable to the interconnection of distributed resources;
(5) Incorporate a business plan that meets the requirements of § 1710.407;
(6) Incorporate a quality assurance plan that meets the requirements of § 1710.408;
(7) Demonstrate that the program can be expected to be Cost effective;
(8) Demonstrate that the program will have a net positive or neutral cumulative impact on the borrower’s financial condition over the time period contemplated in the analytical support documents demonstrating that the net present value of program costs incurred by the borrower are positive, pursuant to § 1710.411;
(9) Demonstrate energy savings or peak demand reduction for the service territory overall; and
(10) Be approved in writing by RUS prior to the investment of funds for which reimbursement will be requested.
(b) Financial Structures. Eligible EE Programs may provide for direct recoupment of expenditures for eligible activities and investment from Ultimate Recipients as follows:
(1) Loans made to Ultimate Recipients located in a rural area where —
(i) The Ultimate Recipients may be wholesale or retail;
(ii) The loans may be secured or unsecured;
(iii) The loan receivables are owned by the Eligible Borrower;
(iv) The loans are made or serviced directly by the Eligible Borrower or by a financial institution pursuant to a contractual relationship between the Eligible Borrower and the financial institution;
(v) Due diligence is performed to confirm the repayment ability of the Ultimate Recipient;
(vi) Loans are funded only upon completion of the project financed or to reimburse startup costs that have been incurred;
(vii) The rate charged the Ultimate Recipient is less than or equal to the direct Treasury rate established daily by the United States Treasury pursuant to § 1710.51(a)(1) or § 1710.52, as applicable, plus the borrower’s interest rate from RUS and 1.5 percent . Exceptions will be made on a case-by-case basis to ensure repayment of the government’s loan and must be clearly articulated in the business plan RUS will not accept an exception request if the loan is feasible at 1.5 percent; and
(viii) Loans are not used to refinance a preexisting loan.
(2) A tariff that is specific to an identified rural Consumer, premise or class of ratepayer; or
(3) On bill repayment and other financial recoupment mechanisms as may be approved by RUS.
(c) Period of performance—(1) Performance standards. (i) Eligible EE Programs activities that are listed under § 1710.406(b) should be designed to achieve the applicable operating performance standards within one year of the date of installation of the facilities.
(ii) All activities other than those included in paragraph (c)(1)(i) of this section should be designed to achieve the applicable operating performance targets within the time period contemplated by the analytic support documents for the overall EE Program as approved by RUS.
(2) Cost effectiveness. Eligible EE Programs must demonstrate that Cost effectiveness as measured for the program overall will be achieved within ten years of initial funding, except in cases where the useful life of the technology on an aggregate basis can be demonstrated to be longer than the ten year period. RUS will evaluate the useful life assumption on a case-by-case basis.
§ 1710.406 Eligible activities and investments.
(a) General. Eligible program activities and investments:
(1) Shall be designed to improve energy efficiency and/or reduce peak demand on the customer side of the meter;
(2) Shall be Cost effective in the aggregate after giving effect to all activities and investments contemplated in the approved EE Program; and
(3) May apply to all Consumer classes.
(b) Eligible activities and investments. Eligible program activities and investments may include, but are not limited to, the following:
(1) Energy efficiency and conservation measures where assets financed at an Ultimate Recipient premises can be characterized as an integral part of the real property that would typically transfer with the title under applicable state law. Where applicable, it is anticipated that the loan obligation would also be expected to transfer with ownership of the metered account serving that property.
(2) Renewable Energy Systems, including —
(i) On or Off Grid Renewable energy systems;
(ii) Fuel cells;
(3) Demand side management (DSM) investments including Smart Grid Investments;
(4) Energy audits;
(5) Utility Energy Services Contracts;
(6) Consumer education and outreach programs;
(7) Power factor correction equipment on the Ultimate Recipient side of the meter;
(8) Re-lamping to more energy efficient lighting; and
(9) Fuel Switching as in:
(i) The replacement of existing fuel consuming equipment using a particular fuel with more efficient fuel consuming equipment that uses another fuel but which does not increase direct greenhouse gas emissions; or
(ii) The installation of non-electric fuel consuming equipment to facilitate management of electric system peak loads. Fuel switching to fossil or biomass fueled electric generating equipment is expressly excluded.
(10) Other activities and investments as approved by RUS as part of the EE Program such as, but not limited to, pre-retrofit improvements.
(c) Intermediary lending. EE Program loan funds may be used for direct re-lending to Ultimate Recipients where the requirements of § 1710.405(b) are met.
(d) Performance standards. Borrowers are required to use Energy Star qualified equipment where applicable or meet or exceed efficiency requirements designated by the Federal Energy Management Program.
§ 1710.407 Business plan.
An Eligible EE Program must have a business plan for implementing the program. The business plan is expected to have a global perspective on the borrower’s energy efficiency plan. Therefore, energy efficiency upgrades should be identified in aggregate. The business plan must have the following elements:
(a) Executive summary. The executive summary shall capture the overall objectives to be met by the Eligible EE Program and the timeframe in which they are expected to be achieved.
(b) Organizational background. The background section shall include descriptions of the management team responsible for implementing the Eligible EE Program.
(c) Marketing plan. The marketing section should identify the target Consumers, promotional activities to be pursued and target penetration rates by Consumer category and investment activity.
(d) Operations plan. The operations plan shall include but is not limited to:
(1) A list of the activities and investments to be implemented under the EE Program and the Btu savings goal targeted for each category;
(2) An estimate of the dollar amount of investment by the utility for each category of activities and investments listed under paragraph (d)(1) of this section;
(3) A staffing plan that identifies whether and how outsourced contractors or subcontractors will be used to deliver the program;
(4) A description of the process for documenting and perfecting collateral arrangements for Ultimate Recipient loans, if applicable; and
(5) The overall Btu savings to be accomplished over the life of the EE Program.
(e) Financial plan. The financial plan shall include but is not limited to:
(1) A schedule showing sources and uses of funds for the program;
(2) An itemized budget for each activity and investment category listed in the operations plan;
(3) An aggregate Cost effectiveness forecast;
(4) Where applicable, provision for Ultimate Recipient loan loss reserves. These loan loss reserves will not be funded by RUS. Loan loss reserves are not required when a utility will not be relending RUS funds.
(5) Identify expected Ultimate Recipient loan delinquency and default rates and report annually on deviations from the expected rates.
(f) Risk analysis. The business plan shall include an evaluation of the financial and operational risk associated with the program, including an estimate of prospective Consumer loan losses consistent with the loan loss reserve to be established pursuant to paragraph (e)(4) of this section.
(g) The borrowers are strongly encouraged to follow a bulletin or such other publication as RUS deems appropriate that contains and describes best practices for energy efficiency business plans. RUS will make this bulletin or publication publicly available and revise it from time-to-time as RUS deems it necessary.
§ 1710.408 Quality assurance plan.
An eligible EE program must have a quality assurance plan as part of the program. The quality assurance plan is expected to have a global perspective on the borrower’s energy efficiency plan. Therefore, energy efficiency upgrades should be identified in aggregate. Every effort is made to fund only EE programs that are administered in accordance with quality assurance plans meeting standards designed to achieve the purposes of this subpart. However, RUS and its employees assume no legal liability for the accuracy, completeness or usefulness of any information, product, service, or process funded directly or indirectly with financial assistance provided under this subpart. Nothing in the loan documents between RUS and the energy efficiency borrower shall confer upon any other person any right, benefit or remedy of any nature whatsoever. Neither RUS nor its employees makes any warranty, express or implied, including the warranties of merchantability and fitness for a particular purpose, with respect to any information, product, service, or process available from an energy efficiency borrower. The approval by RUS and its employees of an energy efficiency borrower’s quality assurance plan is solely for the benefit of RUS. Approval of the quality assurance plan does not constitute an RUS endorsement. The quality assurance plan must have the following elements:
(a) Quality assurance assessments shall include the use of qualified energy managers or professional engineers to evaluate program activities and investments;
(b) Where applicable, program evaluation activities should use the protocols for determining energy savings as developed by the U.S. Department of Energy in the Uniform Methods Project.
(c) Energy audits shall be performed for energy efficiency investments involving the building envelope at an Ultimate Recipient premises;
(d) Energy audits must be performed by certified energy auditors; and
(e) Follow up audits shall be performed within one year after installation on a sample of investments made to confirm whether efficiency improvement expectations are being met.
(f) In cases involving energy efficiency upgrades to a single system (such as a ground source heat pump) the new system must be designed and installed by certified and insured professionals acceptable to the utility.
(g) Industry or manufacturer standard performance tests, as applicable, shall be required on any system upgraded as a result of an EE Program. This testing shall indicate the installed system is meeting its designed performance parameters.
(h) In some programs the utility may elect to recommend independent contractors who can perform energy efficiency related work for their customers. In these cases, utilities shall monitor the work done by the contractors and confirm that the contractors are performing quality work. Utilities should remove substandard contractors from their recommended lists if the subcontractors fail to perform at a satisfactory level. RUS does not endorse or recommend any particular independent contractors.
(i) Contractors not hired by the utility may not act as agents of the utility in performing work financed under this subpart.
(j) The borrowers are strongly encouraged to follow a bulletin or other publication that RUS deems appropriate and contains and describes best practices for energy efficiency quality assurance plans. RUS will make this bulletin or publication publicly available and revise it from time-to-time as RUS deems it necessary.
§ 1710.409 Loan provisions.
(a) Loan term. The maximum term for loans under this subpart shall be 15 years unless the loans relate to ground source loop investments or technology on an aggregate basis that has a useful life greater than 15 years. Ground source loop investments as the term is used in this paragraph do not include ancillary equipment related to ground source heat pump systems.
(b) Loan feasibility. Loan feasibility must be demonstrated for all loans made under this subpart. Loans made under this subpart shall be secured.
(c) Reimbursement for completed projects. (1) A borrower may request an initial advance not to exceed five percent of the total loan amount for working capital purposes to implement an eligible EE Program;
(2) Except for the initial advance provided for in paragraph (c)(1) of this section, all advances under this subpart shall be used for reimbursement of expenditures relating to a completed activity or investment; and
(3) Advances shall be in accordance with RUS procedures.
(d) Loan amounts. (1) Cumulative loan amounts outstanding under this subpart will be determined by the Assistant Administrator of the Electric Program and based an applicant’s business plan; and
(2) Financing for administrative costs may not exceed 5 percent of the total loan amount.
(3) The Rural Utilities Service reserves the right to place a cap on both the total amount of funds an eligible entity can apply for, as well as a cap on the total amount of funds the Energy Efficiency and Conservation Program can utilize in the appropriations.
§ 1710.410 Application documents.
The required application documentation listed in this section is not all inclusive but is specific to Eligible borrowers requesting a loan under this subpart and in most cases is supplemental to the general requirements for loan applications provided for in this part 1710:
(a) A letter from the Borrower’s General Manager requesting a loan under this subpart.
(b) A copy of the statement establishing the EE Program that reflects an undertaking that funds collected in excess of then current amortization requirements for the related RUS loan will be redeployed for EE Program purposes or used to prepay the RUS loan.
(c) Current RUS-approved EE Program documentation that includes:
(1) A Business Plan that meets the requirements of § 1710.407;
(2) A Quality Assurance Plan that meets the requirements of § 1710.408;
(3) Analytical support documentation that meets the requirements of § 1710.411;
(4) A copy of RUS’ written approval of the EE Program.
(d) An EE program work plan that meets the requirements of § 1710.255;
(e) A statement of whether an initial working capital advance pursuant to § 1710.409(c)(1) is included in the loan budget together with a schedule of how these funds will be used.
(f) A proposed draft Schedule C pursuant to 7 CFR part 1718 that lists assets to be financed under this subpart as excepted property under the RUS mortgage, as applicable.
§ 1710.411 Analytical support documentation.
Applications for loans under this subpart may only be made for eligible activities and investments included in an RUS-approved EE Program. In addition to a business plan and operations plan, a request for EE program approval must include analytical support documentation that demonstrates the program meets the requirements of § 1710.303 and assures RUS of the operational and financial integrity of the EE Program. This documentation must include, but is not necessarily limited to, the following:
(a) A comparison of the utility’s projected annual growth in demand after incorporating the EE Program together with an updated baseline forecast on file with RUS, where each includes an estimate of energy consuming devices used by customers in the service territory and a specific time horizon as determined by the utility for meeting the performance objectives established by them for the EE Program;
(b) Demonstration that the required periods of performance under § 1710.405(c) can reasonably be expected to be met;
(c) A report of discussions and coordination conducted with the power supplier, where applicable, issues identified as a result, and the outcome of this effort.
(d) An estimate of the amount of direct investment in utility-owned generation that will be deferred as a result of the EE Program;
(e) A description of efforts to identify state and local sources of funding and, if available, how they are to be integrated in the financing of the EE Program; and
(f) Copies of sample documentation used by the utility in administering its EE Program.
(g) Such other documents and reports as the Administrator may require.
§ 1710.412 Borrower accounting methods, management reporting, and audits.
Nothing in this subpart changes a Borrower’s obligation to comply with RUS’s accounting, monitoring and reporting requirements. In addition thereto, the Administrator may also require additional management reports that provide the agency with a means of evaluating the extent to which the goals and objectives identified in the EE Plan are being accomplished.
§ 1710.413 Compliance with other laws and regulations.
Nothing in this subpart changes a Borrower’s obligation to comply with all laws and regulations to which it is subject.
§§ 1710.414-1710.499 [Reserved]
Subpart I—Application Requirements and Procedures for Loans
§ 1710.500 Initial contact.
(a) Loan applicants that do not have outstanding loans from RUS should contact the Rural Utilities Service via Email at [email protected], call RUS at (202) 720–9545 or write to the Rural Utilities Service Administrator, United States Department of Agriculture, 1400 Independence Ave. SW, STOP 1560, Room 4121, Washington, DC 20250–1560. Loan Applicants may also visit RUS’ website to locate a local General Field Representative at https://www.rd.usda.gov/contact-us/electric-gfr. 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, Deputy Assistant Administrator, Office of Loan Origination and Approval. Borrowers may consult with RUS field representatives and headquarters staff, as necessary.
(b) Before submitting an application for an insured loan the borrower shall ascertain from RUS the amount of supplemental financing required, as set forth in § 1710.110. If the borrower is applying for either a municipal rate loan subject to the interest rate cap or a hardship rate loan, the application must provide a preliminary breakdown of residential consumers either by county or by census tract. Final data must be included with the application. See § 1710.401(a)(8).
§ 1710.501 Loan application documents.
(a) All borrowers. Borrowers may be eligible to submit their loan application via RUS’ electronic application intake system instead of submitting a paper submission. Please consult your GFR in accordance with § 1710.500. All applications for electric loans shall include the documents listed in this paragraph (a).
(1) Loan application letter. A letter signed by the borrower’s manager indicating the actual corporate name, the borrowers RUS Designation, the borrowers RUS Loan Designation, and taxpayer identification number of the borrower and addressing the following items:
(i) The amount of loan and loan type. The sources and amounts of any supplemental or other financing. 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);
(ii) The Maturity Date/Term of the Loan in number of years (useful life to determine maximum);
(iii) A short description of the purpose of the loan, i.e., generation, distribution, transmission, energy efficiency, etc.;
(iv) Method of Amortization;
(v) The Borrower’s Unique Entity Identifier;
(vi) The Borrower’s Organization Number from its State Corporation Commission or similar entity;
(vii) The Borrower’s Exact Legal Name (please state the legal name and identify the legal document used to state the name or attach such document;
(viii) List of current counties and Tribal lands where real property is located;
(ix) Attach current property schedule;
(x) Identify any new counties and Tribal lands with property since last loan;
(xi) Authorized/registered place of business;
(xii) Debt Limit;
(xiii) Identify any State or Tribal regulatory approvals needed;
(xiv) List any subsidiaries;
(xv) Identify any material financial or other material change since last loan, including a list of any pending litigation and where there is insurance to cover such;
(xvi) Breakdown of loan funds by State and Tribal lands;
(xvii) Construction Work Plan (CWP), if not previously submitted through RD Apply or other method;
(xviii) Environmental Report (ER), if not previously submitted through RD Apply or other method;
(xix) Statement authorizing RUS to release appropriate information and data relating to the loan application to the FFB and any existing supplemental lenders.
(2) Special resolutions. Included any special resolutions required by Federal, State, or Tribal Authorities and any others as identified and required by the RUS General Field Representative (for example, use of contractors, corrective action plans, etc.). Resolutions of support from Tribal government or Tribal regulatory authority are required by any non-Tribal applicant intending to serve Tribal areas before any loan is approved by RUS.
(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. The projects and related costs, included on this form, shall be used to justify the loan amount and are not meant to be an exclusive list of those projects that could receive funds under this loan. In addition, to be included on this form, the project must have received written documentation of RUS concluding its environmental review. The advance of loan funds for projects shall be governed by 7 CFR part 1721. The date on page one (1) of the RUS Form 740c is the beginning date of the loan period. RUS 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 § 1710.115.
(iii) Reimbursement schedule. This schedule lists the date, amount, and identification number of each inventory of work orders and special equipment summary that form the basis for the borrower’s request for reimbursement of general funds on the RUS Form 740c. See § 1710.109. If the borrower is not requesting reimbursement, this schedule need not be submitted.
(iv) Location of consumers. If the application is for a municipal rate loan subject to the interest rate cap, or for a loan at the hardship rate, and the average number of consumers per mile of the total electric system exceeds 17, Form 740c must include, as a note, a breakdown of funds included in the proposed loan to furnish or improve service to consumers located in an urban area. See 7 CFR 1714.7(c) and 1714.8(d). This breakdown must indicate the method used by the borrower for allocating loan funds between urban and non-urban consumers.
(4) Financial and statistical report. RUS will use the Borrower’s year end filed Financial and Operating Report Electric Distribution (formerly known as the RUS Form 7) or the Financial and Operating Report Electric Power Supply (formerly known as the RUS Form 12) unless the borrower has failed to meet its applicable financial ratios, as required by its security instrument and loan contract. The reports are required to be filed electronically in the agency’s Data Collection System. If the borrower’s financial requirements have not been met, RUS will require a current Financial and Operating Report to be submitted with the loan application, which shall contain the most recent data available and shall not be more than 60 days old when received by RUS. In addition, for those borrowers not meeting their financial ratios, the following information shall also be provided as part of the loan application:
(i) Any other information required to be submitted by RUS;
(ii) A Plan to meet their Financial Ratios;
(iii) The Date of the Borrower’s last rate change and the amount/percentage of that rate change;
(iv) A list of any Subsidiaries along with a brief summary identifying the purpose of each subsidiary and identify the percentage interest in each if less than 100%;
(v) If the issues with the Borrower not meeting its financial ratios involves the subsidiary or equity investment losses a business plan and exit strategy shall be provided;
(vi) An updated Financial and Operating Report within 60 days of actual loan approval which will be requested by RUS and can be submitted later.
(5) Load Forecast Study. A current Load Forecast Study will be included in the loan application which is not more than 2 years old when the loan application is submitted unless the borrower is a member of a Power Supplier which only completes a Load Forecast once every 3 years. In that case the Load Forecast shall not be more than 3 years old when the loan application is submitted.
(6) Long Range Financial Forecast and assumptions. 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 in a form acceptable to RUS. The forecast shall include any sensitivity analysis and/or analysis of alternative scenarios only if requested by the RUS General Field Representative.
(7) 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, Tribal land, 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.
(8) Standard Form 100—Equal Employment Opportunity Employer Report EEO—1. This form, required by the Department of Labor, sets forth employment data for borrowers with 100 or more employees. A copy of this form, as submitted to the Department of Labor, is to be included in the application for an insured loan if the borrower has more than 100 employees. See § 1710.122.
(9) 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 2 CFR 417, and § 1710.123 of this part.
(10) Uniform Relocation Act assurance statement. This assurance, which need not be resubmitted if previously submitted, provides that the borrower shall comply with 49 CFR part 24, which implements the Uniform Relocation Assistance and Real Property Acquisition Policy Act of 1970, as amended by the Uniform Relocation Act Amendments of 1987 and 1991. See § 1710.124.
(11) Lobbying. The following information on lobbying is required pursuant to 2 CFR 418, and § 1710.125. Borrowers applying for both insured and guaranteed financing should consult RUS before submitting this information.
(12) 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.
(13) Assurance regarding Felony Conviction (AD Form 3030). This form must be included with each application to document the status regarding a felony criminal violation and status of any unpaid federal tax liability;
(14) RD Form 400–4, Assurance Agreement. This form provides assurance to USDA that recipients of federal financial assistance are in compliance with Title VI of the Civil Rights Act of 1964, 7 CFR part 15 and other agency regulations;
(15) Seismic safety certifications. This certification shall be included, if required under 7 CFR part 1792.
(16) Other forms. Other forms as required by law or as requested.
(b) New or returning borrowers. In addition to the items in paragraph (a) of this section, applications for loans submitted by new or returning borrowers shall include the items listed in this paragraph (b).
(1) A copy of the Borrower’s Current Bylaws;
(2) Identify the Borrower’s Type of Organizational Structure and a copy of their Articles of Incorporation;
(3) Provide evidence of where Borrower is registered to do business;
(4) Copies of the Borrower’s Audited GAAP financials for the past 1–3 years, if available or other financial information, as requested on a case by case basis;
(5) A list of any secured outstanding debt including the amount and name of lender;
(6) Evidence of Collateral and/or its ability to pledge such collateral;
(7) An Attorney Opinion for the Borrower including the counties served, a property schedule, the state of incorporation, any pending litigation, the corporate debt limit, the Borrower’s legal name and type of legal organization, and the borrower’s legal authority to pledge its collateral or other assets.
(8) Copies of the Borrower’s Power Supply Contracts and arrangements (including wholesale rate contracts);
(9) Competitive position information including its rates and rate disparity between neighboring utilities;
(10) Construction Work Plan and/or Engineering Power Cost Study, if not previously submitted;
(11) An Environmental Report related to the facilities for which financing is being requested, if not previously submitted.
(c) Power Supply Borrowers. In addition to the loan application, consisting of the documents required by paragraph (a) or (b) of this section, Power Supply Borrowers must also provide RUS with the following:
(1) Information on its Power Supply arrangements and/or wholesale power contracts including the maturity dates. Please note copies of the contracts may be requested on a case by cases basis;
(2) A Profile of the Power Supply Borrowers’ fuel supply arrangements;
(3) The Borrowers Load Resource Table;
(4) Information on its Transmission and Interconnection arrangements. Please note that copies of the contracts related to such arrangements may be requested on a case by case basis;
(5) The Power Supply Borrowers’ New/Returning membership chart profile and relationships as applicable.
(d) Submission of documents. (1) Generally, all information required by paragraphs (a), (b), and (c) of this section is submitted to RUS in a single application. Borrowers may be eligible to submit their loan application via RUS’ electronic application intake system instead of submitting hard copies of the loan applications. Please contact your respective General Field Representative or RUS Headquarters to determine if you are eligible to utilize the electronic system.
(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.
§§ 1710.502-1710.503 [Reserved]
§ 1710.504 Additional requirements.
Additional requirements for insured electric loans are set forth in 7 CFR part 1714.
§ 1710.505 Supplemental financing documents.
(a) The borrower is responsible for ensuring that the loan documents required for supplemental financing pursuant to § 1710.110 are executed in a timely fashion. These documents are subject to RUS approval.
(b) Security. Any security offered by the borrower to a supplemental lender is subject to RUS approval.
§ 1710.506 Loan approval.
(a) A loan is approved when the Administrator signs the administrative findings.
(b) If the loan is not approved, RUS will notify the borrower of the reason.
§ 1710.507 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.
Subpart J—Terms of Loans Common to Electric Loans and Guarantees
§ 1710.601 Advance of funds from 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 form. 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 this part concurrent loan guaranteed by RUS is available to the borrower under terms and conditions satisfactory to RUS.
§ 1710.602 Fund advance period.
(a) The fund advance period begins on the date of the loan note and will last no longer than five years, after September 30 of the fifth year after the fiscal year of obligation. The fiscal year of obligation is identified in loan documentation associated with each loan. The Administrator may extend the fund advance period on any loan if the borrower meets the requirements of paragraph (b) of this section. However, under no circumstances shall RUS ever make or approve an advance, regardless of the last day for an advance on the loan note or any extension by the Administrator, later than September 30 of the fifth year after the fiscal year of obligation if such date would result in the RUS obligating or permitting advance of funds contrary to the Anti-Deficiency Act.
(b) The Administrator may agree to an extension of the fund advance period for loans if the borrower demonstrates, to the satisfaction of the Administrator, that the loan funds continue to be needed for approved loan purposes (e.g., facilities included in a 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 make a request to RUS prior to the last date for advance as noted in the borrower’s loan documents and provide, 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) 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 requested in writing prior to the last date for advance as provided in the borrower’s loan documents.
(3) Any request received after the last date for advance shall be rejected.
(c) RUS will rescind the balance of any loan funds not advanced to a borrower as of the final date approved for advancing funds.
§ 1710.603 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) Fifty (50) percent of the RUS insured loan funds.
(2) One hundred (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.
§ 1710.604 Amortization of principal.
(a) 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 (b) 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.
(b) For advances made 2 years or more after the date of the note, the Administrator may, upon written request from the borrower, 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 Rural Electrification Act. Such deferral shall not extend the loan maturity period.
§ 1710.605 Rescission of loans.
(a) A borrower may request rescission of a loan with respect to any funds unadvanced by submitting a letter signed by the General Manager, Board President or other individual authorized by the Board of Directors to request such rescission.
(b) RUS may rescind loans pursuant to § 1710.602(c).
(c) Borrowers who prepay RUS loans at a discounted present value pursuant to subpart F of 7 CFR part 1786 are required to rescind the unadvanced balance of all outstanding electric notes pursuant to 7 CFR 1786.158(j).
PART 1714—PRE-LOAN POLICIES AND PROCEDURES FOR INSURED ELECTRIC LOANS
Subpart A—General
§ 1714.1 [Reserved]
§ 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.
§ 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 § 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 § 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 (§ 1714.6) will be determined pursuant to § 1714.4. Provisions for prepayment are set forth in § 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.
§ 1714.4 Interest rates.
(a) Municipal rate loans. Each advance of funds on a municipal rate loan shall 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 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 borrower must also indicate whether they intend to elect the prepayment option.
§ 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 Rural Housing Service at 7 CFR 1942.17(f)(1) and (4). Pursuant to the RUS 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.
§ 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 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.
§ 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 5-year income data from the American Community Survey (ACS) or, if needed, other Census Bureau data, RUS will compare, on a weighted average basis, the average per capita and median household income of the counties or census tracts served by the borrower with state figures.
(ii) If there is reason to believe that the ACS or other Census Bureau data does not accurately represent the economic conditions of the borrower’s consumers, the reasons will be documented and the borrower may furnish, or RD may obtain, additional information regarding such economic conditions. Information must consist of reliable data from local, regional, State, or Federal sources or from a survey conducted by a reliable impartial source. 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.
§ 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 § 1714.7(b)(2).
(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.
§ 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 § 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 loans with a prepayment provision will be increased as set forth in § 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.
§§ 1714.10-1714.49 [Reserved]
Subpart B [Reserved]
PART 1717—POST-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND GUARANTEED ELECTRIC LOANS
Subparts A–C [Reserved]
Subpart D—Mergers and Consolidations of Electric Borrowers
§ 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 § 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.
§ 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:
(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.
§ 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 § 1717.157 and/or § 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.
§ 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.
§ 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 48 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
(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.
§ 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.
§ 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.
§ 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 must be received by RUS as specified in §§ 1717.155 and 171.156. Documents listed in this section may be combined with the documents required by §§ 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 §§ 1717.154–1717.156.
§ 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.
§ 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.
§ 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 §§ 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 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.
§ 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–L [Reserved]
Subpart M—Operational Controls
§ 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 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.
§ 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.
§ 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.
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.
§ 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.
§ 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 CWP approved by RUS.
(c) RUS approval is not required for CWPs if the borrower does not intend to seek RUS financing for any of the facilities, equipment, or other purposes included in those plans. However, if requested by RUS, a borrower must provide an informational copy of such plans to RUS.
§ 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.
§ 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.
§ 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.
§ 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 is required to be notified of contracts to sell electric power to retail customers if the contract is for longer than 5 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. The requirement in this paragraph (b) 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 5 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 5 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 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]
§ 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.
§ 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.
§ 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 § 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.
§ 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.
§ 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.
§ 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.
§ 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;
(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.
§ 1717.616 Sale, lease, or transfer of capital assets.
(a) The term “disposition” in this part shall mean any sale, lease, or any other transaction in which the borrower transfers an interest in a capital asset to another entity or person.
(b) A borrower may, without the prior approval of RUS, sell, lease, transfer, or otherwise dispose of any capital asset if the following conditions are met:
(1) The borrower is not in default on any of its obligations to RUS;
(2) In the most recent year for which data is available, the borrower has met its coverage ratios as set forth in 7 CFR 1710.114(b) or other financial requirements as established by their mortgages, loan contracts, or other security agreements;
(3) The sale, lease, transfer, or disposition 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;
(4) Fair market value is obtained for the assets;
(5) No employee or board member of the organization has a direct personal financial interest in the disposition of the capital assets;
(6) The aggregate value of assets sold, leased, transferred, or disposed of in any 12-month period is less than 10 percent of the borrower’s net utility plant prior to the disposition, not to exceed $10,000,000.00; and
(7) If the disposition of the capital asset:
(i) Results in the borrower not retaining an interest in the asset; or
(ii) Constitutes a “capital lease” under 7 CFR 1767.15(s)(1) and the borrower does not retain the right to utilize the asset during the term of the lease, and the borrower disposes of the proceeds, less ordinary and reasonable expenses incident to such disposition, in a manner consistent with paragraph (e) of this section.
(c) The requirements for all dispositions include:
(1) The borrower shall receive fair market value for the disposition of capital assets;
(2) The sale shall be in the best interests of the creditors;
(3) All approvals required by law, by the articles of incorporation, by the bylaws of the seller, or by all the creditors, shall be obtained prior to delivery of the assets;
(4) In the case of dispositions involving exchanges or trades of a plant in place between an RUS borrower and a non-RUS borrower, the borrower must provide evidence, satisfactory to RUS, that the exchange or trade is equitable to the RUS borrower and that the plant acquired in the exchange or trade can be economically integrated into the borrower’s system; and
(5) Unless the seller, as an existing RUS borrower is dissolved, its electric system after the disposition will constitute a satisfactory operating unit and the disposition of the asset will not jeopardize the repayment of the seller’s RUS loan and other loans or impair the collateral serving as security for all RUS loans. If the purchaser is a RUS borrower, the same determinations shall also be made with respect to the purchaser’s operations and loan repayment.
(d) The methods of handling disposition include:
(1) Dispositions of capital assets generally shall be for cash except as otherwise approved by RUS in writing.
(2) If the disposition of the assets is not subject to RUS approval as provided in paragraph (b) of this section but the purchaser requires the government to release its lien on the assets subject to the disposition, the following shall apply:
(i) The borrower shall prepare either:
(A) A transmittal letter to RUS requesting a partial release of the lien with respect to the assets to be disposed; or
(B) RUS Form 369, Request for Approval to Sell Capital Assets, or its successor.
(ii) The partial release of lien should be prepared by the attorney for the borrower or the purchaser. It is the borrower’s responsibility to assure the accuracy and legal effectiveness of a proposed release. When a partial release of lien requires execution and acknowledgement by a creditor, such execution and acknowledgment by the other creditor should be obtained by the borrower.
(iii) If the borrower elects to submit a transmittal letter to request the release of lien, the letter should contain the following information:
(A) Insert address of property or assets being sold;
(B) Name and address of purchaser;
(C) Approximate original cost or book value;
(D) The consideration the borrower is receiving in exchange for the disposition of the assets’ prices;
(E) A statement that the borrower received fair market value for the property being disposed;
(F) A statement from the borrower that the net proceeds have been or will be deposited into the Construction Fund Trustee Account or will be applied as a prepayment on all debt secured under the mortgage or other security agreement applicable to the assets being disposed, equally and proportionally,
(iv) A statement from the borrower’s manager stating that there was no distribution of funds to any employees and/or board members. If any amount of funds arising from the disposition have been distributed to employees and/or board members, specific identification of the employees and/or board members, and reasons why funds were provided to those persons (if applicable) must be stated in the transmittal letter. Include borrower contact information, including email address, for questions.
(v) A statement of how or if the disposition will affect the borrower’s existing customers.
(3) If the disposition does not fall within the ambit of paragraph (b) of this section so that RUS Approval is required, the following then apply:
(i) If the Federal Government is the sole lien holder of the borrower’s capital assets, approval of the disposition by the Federal Government will be indicated on RUS Form 369, when returned to the seller.
(ii) If the Federal Government holds a lien jointly with supplemental lenders, joint approval for the disposition will be necessary and the borrower will forward the following:
(A) Information should be forwarded directly to RUS and one copy to all supplemental lenders;
(B) When approved by RUS, the information will be forwarded by RUS to the supplemental lenders (and a notice letter advising that RUS has forwarded this information to supplemental lenders will be issued by RUS to the borrower); and
(C) The supplemental lenders will be instructed, in the RUS transmittal memorandum, to execute the documents and return them to the seller. The supplemental lenders will also be instructed to notify RUS when the completed documents are returned to the seller.
(e) The disposition of proceeds will be handled as follows:
(1) The disposition of proceeds from the disposition of a capital asset shall be the same regardless of whether or not RUS approval of the sale is required.
(2) If the gross proceeds from the disposition of the assets total less than $50,000 the borrower shall deposit the proceeds in its general fund account and are to be used for purposes related to the utility business as determined by the management of the borrower.
(3) Proceeds from individual dispositions of property where the gross proceeds total $50,000 or more, should be distributed and accounted for as follows:
(i) Deposited into the Construction Fund Trustee Account. When funds are deposited into the Construction Fund Trustee Account, the borrower shall notify RUS in writing so that the budget records can be adjusted. The funds are to be used for the construction or acquisition of the borrower’s utility system;
(ii) Paid to RUS and any secured supplemental lenders if the borrower has concurrent loans outstanding, by application of such funds as a prepayment on the notes of all lenders pro-rata according to the aggregate unpaid principal amount of the notes then outstanding, as designated by the noteholders, and in accordance with the borrower’s loan documents;
(iii) If the borrower has no concurrent supplemental loans outstanding, applied to RUS as a payment to be applied to the note or notes issued with respect to loans made or guaranteed by RUS, or any portion of a note with respect to a loan made by RUS, and designated by the borrower or RUS; or
(iv) In the case of dispositions of SO
(v) In the case of dispositions of equipment, materials, or scrap, all proceeds (regardless of the amount) from the sale should be deposited into the General Fund Account to be used for the purchase of other property useful in the mortgagor’s utility business, not necessarily of the same kind as the property disposed, which is subject to the lien of the mortgage;
(vi) The Administrator may allow a borrower to deposit the proceeds of the disposition of the asset directly into the General Funds Account instead of the Construction Fund Trustee Account if the borrower has no `Balance in Reserve’ on its most recent loan advances 605 report and does not anticipate submitting any new loan applications to RUS. The borrower must receive written approval from RUS before it deposits any proceeds into its General Funds Account.
(f) The borrower must provide the following to RUS for any disposition of a capital asset that does not fall within the scope of paragraph (b) of this section and requires RUS approval:
(1) RUS Form 369 with original signature;
(2) If the disposition involves a condemnation, the borrower must attach a copy of the petition or complaint in the condemnation suit to the RUS Form 369. Items 10, 11, and 12 of the RUS Form 369 may be completed by referring to the attachment. Item 14 need not be completed. The RUS Form 369 and a copy of the petition or complaint in condemnation cases should be submitted to RUS promptly after the petition or complaint has been received by the borrower;
(3) If the purchaser will require the disposition of the asset be free and clear of liens, the partial release of the lien should be prepared by the attorney for the seller or purchaser. It will be the responsibility of the borrower and the borrower’s attorney to ensure the accuracy and legal effectiveness of a proposed partial release of the lien;
(4) If the disposition involves real estate or plant in place, in addition to the information required for all dispositions, the seller will provide a brief description of the property being disposed and a statement explaining why the asset is no longer needed for the borrower’s system. The borrower shall also provide the following information to RUS for the disposition of real estate and plant in place:
(i) Except in condemnation cases, a statement of agreement between the seller and the purchaser on the proposed selling price. When applicable, include adjustments such as capital additions and retirements, depreciation, taxes, distribution of membership fees, deposits and contributions, prepaid and delinquent bills and accounts, insurance, assignment of easements, the proposed closing date, and other pertinent information. Generally, the closing date selected should not be less than 90 days after the date the required information is forwarded to RUS;
(ii) A complete legal description or real property supported by key and detail maps showing the location of lines or other capital assets to be disposed;
(iii) A breakdown of consumers by classification showing number, mileage, average kWh usage, and revenues for the portion of lines being disposed;
(iv) An inventory of lines on a priced assembly or record unit basis, or, in the case of facilities other than lines, a detailed breakdown of separable units and their costs;
(v) Description and estimated costs of changes, if any, which must be made in the seller’s system in order to maintain satisfactory operations after the sale has been completed;
(vi) Other pertinent data such as the physical condition of the property to be disposed, a copy of the lease if facilities to be disposed of are on leased land, and the approval of applicable regulatory bodies where required;
(vii) The retail rates to be applied to the consumers on the lines being disposed (comparative rate schedules); and
(viii) If the purchaser is another RUS borrower or a borrower from a supplemental lender, a description and the estimated costs of the changes, if any, necessary to integrate the properties being acquired with the purchaser’s existing system for satisfactory operations.
(5) If the purchaser is to pay the seller in installments, such information should be noted on Item 9 of the RUS Form 369. A sales agreement between the seller and the purchaser, a note or other debt instrument in favor of the seller, and a security agreement in favor of the seller should be executed and collaterally assigned by the seller to the U.S. Government and the supplemental lenders, if applicable. The partial release of the lien will not be executed by RUS, if applicable, until the final installment payment has been received by the seller. The disposition of the proceeds from installment sales will be the same as from cash dispositions);
(6) Dispositions involving exchanges or trades of real estate or plant in place between a borrower and a non-RUS borrower will be considered on an individual case-by-case basis.
(g) Expenditures by the seller in conjunction with the dispositions of capital assets will be properly accounted for and all associated documents shall be retained for review when RUS conducts its next Loan Fund and Accounting Review.
§ 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;
(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.
§ 1717.618 Wholesale power contracts.
(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. 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 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.
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.
(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.
Subpart N—Investments, Loans, and Guarantees by Electric Borrowers
§ 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.
§ 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.
§ 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 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:
Operating TIER means Operating Times Interest Earned Ratio (OTIER) of the borrower’s electric system calculated as:
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.
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.
§ 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.
§ 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, 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 § 1717.655.)
§ 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 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 § 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 § 1717.657(c), or has approved a related transaction (e.g., a lien accommodation).
§ 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 § 1717.658.
(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 § 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 § 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.
§ 1717.657 Investments above the 15 percent level by certain borrowers not exempt under § 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 § 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 § 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 § 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 § 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 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.
§ 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:
(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.
§ 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]
§§ 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.
(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 § 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
(5) Other factors that may be relevant in individual cases, as determined by RUS.
(d) Environmental review requirements. The environmental review requirements of 7 CFR part 1970 apply to applications for subordinations.
(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.
(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 §§ 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.
(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.
§ 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 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 § 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 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.
§ 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 § 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, energy efficiency 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
(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 § 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.
§ 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 § 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.
§ 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 § 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 § 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 20 percent, after adding the principal 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.
§ 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 § 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 § 1717.854(c) and all applicable provisions of §§ 1717.852 and 1717.853;
(b) A statement 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) Environmental documentation, in accordance with 7 CFR part 1970;
(g) RUS Form 740c, Cost Estimates and Loan Budget for Electric Borrowers;
(h) A CWP or CWP amendment covering the proposed project, in accordance with 7 CFR part 1710, subpart F, and subject to RUS approval.
(i) The certification by the project architect for any buildings to be constructed, as required by § 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 2 CFR part 180, as adopted by USDA through 2 CFR part 417;
(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.
§ 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 § 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 §§ 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 § 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. 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;
(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. 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 load forecast, 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
(g) A discussion of the borrower’s compliance with RUS requirements on accounting, financial reporting, record keeping, and irregularities (see § 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.
§ 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 § 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:
(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 §§ 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 statement from the borrower 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 2 CFR part 417:
(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 § 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.
§ 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 § 1717.651, RUS recommends that such 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 for all 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 statement from the borrower 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 § 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 2 CFR part 180, as adopted by USDA through 2 CFR part 417;
(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 applicable provisions of this subpart have been met.
§ 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 § 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 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 § 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 § 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 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 § 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 § 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 § 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 § 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 § 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 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.
§ 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 § 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 statement from the borrower 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;
(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 2 CFR part 180, adopted by USDA through 2 CFR part 417;
(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 § 1717.855, § 1717.856, and § 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 § 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 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.
§§ 1717.861-1717.899 [Reserved]
Subpart S—Lien Accommodations for Supplemental Financing Required by 7 CFR 1710.110
§ 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 § 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.
§ 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, 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.
§ 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.
§ 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.
§ 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 § 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.
§§ 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]
Subpart Y—Settlement of Debt
§ 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 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.
§ 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 § 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.
§ 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 § 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 particular. Other factors the Administrator will consider are set forth in more detail in § 1717.1204.
§ 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.
§ 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 § 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;
(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
(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:
(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.
§ 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 § 1717.1204(c), which are subject to all of the requirements of said § 1717.1204.
§ 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.
§ 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.
§ 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 executed with borrowers, or under law or equity.
PART 1718—LOAN SECURITY DOCUMENTS FOR ELECTRIC BORROWERS
Subpart A—General
§§ 1718.1-1718.49 [Reserved]
Subpart B—Mortgage for Distribution Borrowers
§ 1718.50 Definitions.
Unless otherwise indicated, terms used in this subpart are defined as set forth in 7 CFR 1710.2.
§ 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.
§ 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.
§ 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.
§ 1718.54 Availability of model mortgage.
Single copies of the model mortgage (RUS Informational Publication 1718 B) are available from the Rural Utilities Service, United States Department of Agriculture, Washington, DC 20250–1500. This document may be reproduced.
Subpart C—Loan Contracts With Distribution Borrowers
§ 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.
§ 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.
§ 1718.102 Definitions.
For the purposes of this subpart:
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.
§ 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, 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.
§ 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.
PART 1719—RURAL ENERGY SAVINGS PROGRAM
Subpart A—General Provisions
§ 1719.1 Purpose.
This part establishes policies and procedures for the implementation of the Rural Energy Savings Program (RESP) under Section 6407 of the Farm Security and Rural Investment Act of 2002, as amended, by the Rural Utilities Service (RUS). It is the purpose of this part to help rural families and small businesses achieve cost savings by providing loans through eligible entities to qualified consumers to implement durable cost-effective energy efficiency measures.
§ 1719.2 Definitions.
The following definitions apply to subparts A and B of this part and must have the following meanings for purposes of the Rural Energy Savings Program:
Administrator means the Administrator of the Rural Utilities Service, an agency under the Rural Development mission area of the United States Department of Agriculture.
Applicant means an Eligible entity interested in applying for a RESP loan that is planning to submit a Letter of Intent.
Commercial technology means equipment, devices, applications, or systems that have a proven, reliable performance and replicable operating history specific to the proposed application. The equipment, device, application or system is based on established patented design or has been certified by an industry-recognized organization and subject to installation, operating, and maintenance procedures generally accepted by industry practices and standards. Service and replacement parts for the equipment, device, application or system must be readily available in the marketplace with established warranty applicable to parts, labor and performance.
Completed loan application means an application containing all information required by RUS to approve a loan and that is materially complete in form and substance satisfactory to RUS within the specified time.
Conditional commitment letter means the notification issued by the Administrator to a RESP Applicant advising it of the total loan amount approved for it as a RESP borrower, the acceptable security arrangement, and such controls and conditions on the RESP borrower’s financial, investment, operational and managerial activities deemed necessary by the Administrator to adequately secure the Government’s interest. This notification will also describe the accounting standards and audit requirements applicable to the transaction.
Conflict of interest means a situation or situations, event or series of events, that taken together or separately undermine an individual’s judgement, ability, or commitment to providing an accurate, unbiased, fair and reliable assessment, or determination about the cost effectiveness of the Energy efficiency measures, due to self-interest or if such judgement, ability, commitment or determination cannot be justified by the prevailing and sound application of the generally accepted standards and principles of the industry.
Deemed savings means the per-unit energy savings values that can be claimed from installing specific measures under specific operating situations. Savings are based on stipulated values stemming from historical and verified data, derived from research of historical savings values from typical projects.
Deemed savings calculations means standardized algorithms to calculate energy savings applicable to well-defined energy efficiency measures that have documented and consistent savings values.
Eligible entity means an entity described in § 1719.4.
Energy audit means an analysis of the current energy usage or costs of a Qualified consumer with the goal of identifying opportunities to enhance energy efficiency. The activity should result in an objective standard-based technical report containing recommendations on the Energy efficiency measures to reduce energy costs or consumption of the Qualified consumer and an analysis of the estimated benefits and costs of pursuing each recommendation in a payback period not to exceed the loan term to the Qualified consumer. The analysis must meet professional and industry standards and be commensurate to the complexity of the project.
Energy efficiency measures (EE measures) means for or at property served by an Eligible entity, structural improvements and investments in cost-effective, commercial technologies to increase energy efficiency (including cost-effective on- or off-grid renewable energy or energy storage systems).
Energy efficiency program (EE Program) means a program set up by an Eligible entity to provide financing to Qualified consumers so that they can implement durable cost-effective Energy efficiency measures.
Financial feasibility means an Eligible entity’s capacity to generate enough revenues to cover its expenses, sufficient cash flow to service its debts and obligations as they come due, and meet the financial ratios set forth in the applicable loan documents.
Government means the Federal Government.
GAAP means the generally accepted accounting principles in the United States of America as issued by the Financial Accounting Standards Board (FASB) in the Accounting Standards Codification (ASC).
Implementation Work Plan or EE Program Implementation Work Plan (IWP) means an Implementation work plan that meets the requirements listed in § 1719.5(b)(3)(i)(F).
Invitation to proceed means the written notification issued by RUS to the Eligible entity acknowledging that the Letter of Intent was received and reviewed, describing the next steps in the application process, and inviting the Eligible entity to submit a complete loan application.
Key performance indicators mean the set of measures that help an entity to determine if it is reaching its performance and operational goals. These indicators can be both financial and non-financial.
Letter of Intent means a signed letter issued by an Applicant notifying RUS of its intent to apply for a RESP loan and addressing all the elements identified in § 1719.5(b)(2).
Loan to a Qualified consumer means a transaction by which an RUS borrower makes RESP funds available to a Qualified consumer for the purpose of implementing Energy efficiency measures at a property or for the property of a Qualified consumer to increase energy efficiency on the condition that the RUS borrower will be able to collect the funds made available to the Qualified consumer.
Manufactured home means a structure that is transportable, built on a permanent chassis and designed to be used as a dwelling that meets the U.S Department of Housing and Urban Development definition set forth in 24 CFR 3280.2 or a successor rule.
Measurement and Verification (M&V) means the process of quantifying the energy and cost savings resulting from the improvements in an energy-consuming system or systems.
Multi-tier Agreement means an agreement entered into by the RESP applicant that complies with the Rural Development’s Environmental Policies and Procedures, pursuant to 7 CFR part 1970 or its successor regulation.
Qualified consumer means a consumer served by an Eligible entity that has the ability to repay a loan made by a RESP borrower under the RESP program, as determined by the Eligible entity.
RESP applicant means an Eligible entity that has received a written Invitation to proceed from RUS to apply for a RESP loan.
RESP borrower means an Eligible entity with an approved RESP loan as evidenced by duly executed RESP loan documents.
Rural, for purposes of 7 U.S.C. 8107a(a), means any area that has a population of 50,000 or less inhabitants or any other area designated eligible by statute.
Small business means an entity that is in accordance with the Small Business Administration’s (SBA) small business size standards found in 13 CFR part 121.
Special advance means an advance, not to exceed 4 percent of the total approved loan amount, that a RESP borrower may request to defray the startup costs of establishing a new EE Program.
Start-up costs mean amounts paid or incurred for:
(1) Creating or implementing an active EE program; or
(2) Investing in the integration of an active EE Program. Start-up costs may include, but are not limited to, amounts paid or incurred in the analysis or survey of potential markets, products such as software and hardware, labor supply, consultants, salaries and other working capital directly related to the creation or enhancement of an EE Program consistent with RESP.
Technical Resource Manual (TRM) means a resource document that includes information used in program planning and reporting of EE Programs. A TRM may include savings values for measures, engineering algorithms to calculate savings, impact factors to be applied to calculated savings, foundational documentation, specified assumptions, and such other pertinent information to support the calculation of measure and program savings and the application of such values and algorithms in appropriate applications.
§ 1719.3 Policy and Federal Register Notices.
(a) Eligible entities (see § 1719.2 and § 1719.4) are permitted to participate in the Rural Energy Saving Program on the condition that loan funds will be used to make loans to Qualified consumers for the purpose of implementing EE measures.
(b) The Agency will issue annual
(c) In making loans under this Part, the Administrator may consider a proposed EE Program’s effect on existing RUS borrowers and the integrity of the RUS portfolio and deny or limit approval of a specific RESP loan application on that basis if it is determined that such requested loan would have a negative effect on existing RUS or RESP borrowers or the RUS loan portfolio.
(d) The Administrator may, on a case-by-case basis, grant an exception to any requirement or provision of this subpart provided that such an exception is in the best financial interests of the Federal government. Exercise of this authority cannot be in conflict with applicable law.
(e) With regard to the rules of grammatical construction, unless the context otherwise indicates, “includes” and “including” are not limiting, and “or” is not exclusive.
Subpart B—Application, Submission and Administration of RESP Loans
§ 1719.4 Eligibility.
Under this subpart, Eligible entities for the RESP include:
(a) Any public power district, public utility district, or similar entity, or any electric cooperative described in section 501(c)(12) or 1381(a)(2) of the Internal Revenue Code of 1986, that borrowed and repaid, prepaid, or is paying an electric loan made or guaranteed by the Rural Utilities Service (or any predecessor agency);
(b) Any entity primarily owned or controlled by one (1) or more entities described in paragraph (a) of this section; or
(c) Any other entity that is an eligible borrower of the Rural Utilities Service, as determined under 7 CFR 1710.101.
§ 1719.5 Application process and required information.
(a) General. The following are general provisions for the application process:
(1) The RUS, from time to time and subject to appropriations, will notify the public specifying funding priorities, funding availability, and deadlines.
(2) Complete applications for loans to Eligible entities will be processed pursuant to the provisions in this Part and on a first-come-first served basis until the funding appropriated to the program is fully obligated.
(3) The submittal of a Letter of Intent is required to participate in the program. The letters of intent will be queued as they are received. If it advances program and policy goals, RUS may consider loan applications from Eligible entities that have submitted Letters of Intent under prior funding announcements but that were not invited to proceed with a loan application.
(4) Upon review of the Letter of Intent, RUS may issue an Invitation to proceed with a loan application. RUS reserves the right to notify the Applicant in the queue that the amount of financing RUS will consider for a loan is below the level sought in the Letter of Intent. In making this consideration, RUS will consider overall RUS program objectives or budgetary constraints. An Invitation to proceed with the loan application issued by RUS is not to be deemed as an offer by RUS.
(5) A RESP applicant will have up to ninety (90) days to complete the documentation for a complete loan application. The ninety (90) day timeframe will begin on the date the RESP applicant receives RUS’ Invitation to proceed. If the deadline to submit the completed loan application falls on Saturday, Sunday, or a Federal holiday, the application is due the next business day.
(6) The Administrator may grant an extension of time to complete the documentation required for an application if, in the Administrator’s sole judgment, the interest of the program would be advanced by the extension.
(7) RUS may limit the number of applications it will consider in the same funding cycle from the same Applicant or combine applications from a single entity.
(b) Application process. The application process consists of the following two steps:
(1) An Applicant seeking financing must submit a Letter of Intent to be considered under this Part.
(2) The Letter of Intent must include the following information:
(i) Legal name and status of the entity seeking financing under this Part and its address and principal place of business.
(ii) The Applicant’s tax identification number, SAM Managed Identifier (SAMMI), Dun and Bradstreet (DUNS) number, and such similar information as it may be subsequently amended or required for federal funding.
(iii) A statement indicating if the Applicant is a current or a former RUS borrower.
(iv) A description of the service territory.
(v) Value of the net assets, including any information as to whether the Applicant has been placed in receivership, liquidation, or under a workout agreement or whether the Applicant has declared bankruptcy or has had a decree or order issued for relief in any bankruptcy, insolvency or other similar action over the last 10 years. The Applicant must submit a copy of its balance sheet and income statements for the last 3 years. If applicable, the Applicant must provide the balance sheet and income statements for the last 3 years of the entity or entities providing equity or security for the RESP loan together with an explanation of the legal relationship among the entities.
(vi) Identification of a point of contact and provide contact information.
(vii) Description of the program or projects expected to be financed with the RESP loans funds. This description must not exceed five (5) pages (size 8.5 x 11). RUS reserves the right not to consider Letters of Intent where the project description exceeds five (5) pages. The description should include the following:
(A) Description of the service to be provided to Qualified consumers.
(B) Identity of the staff or contractors that will be implementing the EE Program and their credentials.
(C) A summarized version of the expected IWP addressing the following elements:
(1) The marketing strategy.
(2) The relending process.
(3) A brief description of the processes, procedures, and capabilities to quantify and verify the reduction in energy consumption or decrease in the energy costs of the Qualified consumers.
(4) A list of eligible EE measures expected to be implemented. An Applicant with an existing EE Program in place by April 8, 2014, may describe the EE measures, its IWP, and its M&V plan for the existing program in its Letter of Intent to expedite the application process.
(viii) The Applicant must provide evidence of its key performance indicators for the 5 complete years prior to the submission of the loan application if the total loan amount exceeds $5 million.
(3) Instructions on how to submit the loan application package will be included in the RUS Invitation to proceed to the RESP applicant. RUS will timely schedule an initial conference call with the RESP applicant to discuss the elements of the loan application.
(i) Content of the application package includes the following:
(A) A signed cover letter from the RESP applicant’s General Manager or highest-ranking officer requesting RESP loan funds to make loans to Qualified consumers for the purpose of implementing EE measures.
(B) A signed copy of the board resolution or applicable authorizing document approving and establishing the EE Program and authorizing the Eligible entity to take a RESP loan.
(C) The RESP applicant must provide the Applicant’s articles of incorporation or other applicable organizational documents currently in effect, as filed with the appropriate state office, setting forth the RESP applicant’s corporate purpose; and the RESP Applicant must also provide the bylaws or other applicable governing documents currently in effect, as adopted by the RESP applicant’s applicable governing body. RESP applicants that are active RUS borrowers may comply with this requirement by notifying RUS in writing that there are no material changes to the documents already on file with RUS.
(D) A copy of the duly executed Multi-Tier Action Environmental Compliance Agreement (Multi-Tier Agreement) consistent with Rural Development’s Environmental Policies and Procedures, 7 CFR part 1970 or its successor regulation. A copy of the Multi-tier Agreement will be provided to the RESP applicant with the Invitation to proceed and the requirements of § 1970.55 will be discussed with the RESP applicant in the initial conference call. Activities and investments listed in the IWP must match the activities and investments identified in the Multi-tier Agreement executed between RUS and the RESP applicant. Additional RUS environmental review will be required if the RESP applicant pursues additional or different activities other than the ones listed in the Multi-tier Agreement. If funded, a RESP borrower would be responsible for performing and documenting environmental reviews consistent with § 1970.55.
(E) A financial forecast approved by the applicable governing body of the RESP applicant in support of its loan application. The financial forecast must cover a period of at least 10 years and must demonstrate that the RESP applicant’s operation is economically viable and that the proposed loan is financially feasible. RUS may request additional information or projections for a longer period, if RUS deems such supplemental data necessary based on the financial structure of the RESP Applicant or necessary to make a determination regarding loan feasibility. A RESP applicant must, after submitting a loan application, promptly notify RUS of any changes in its circumstances that materially affect the information contained in the loan application. The financial forecast and related projections submitted in support of a loan application must include:
(1) Current and projected cash flows.
(2) A pro forma balance sheet, statement of operations, and general funds summary projected for each year during the forecast period. The requested RESP loan must be included in the financial forecast. Revenue from the interest charged to the Qualified consumer must also be included together with an explanation of the expected use of such proceeds.
(3) The financial goals established for margins, debt service coverage, equity, and levels of general funds to be invested in the EE Program. The financial forecast must use the accrual method of accounting for analyzing costs and revenues and, as applicable, compare the economic results of the various alternatives on a present value basis.
(4) A full explanation of the assumptions, supporting data, and analysis used in the forecast, including the methodology used to project revenues, operating expenses, and any other factors having a material effect on the balance sheet and the financial ratios such as equity and debt service coverage. RUS may require additional data and analysis on a case-by-case basis to assess the probable future competitiveness of the RESP applicant.
(5) Current and projected nonoperating income and expense.
(6) An itemized budget and schedule for the activities to be implemented with the RESP funds and a discussion on the expected delinquency and default rates and how the loan loss reserve will be set up. The RESP applicant is expected to forecast the amount of loans to be made to Qualified consumers over a 10-year timeframe. If the RESP applicant determines to charge interest, the RESP applicant must describe how it is going to use the funds generated from the interest to be received from the loans to the Qualified consumers.
(7) A sensitivity analysis may be required by RUS on a case-by-case basis.
(F) The RESP applicant must produce, to the satisfaction of the Administrator, an Implementation Work Plan or EE Program Implementation Work Plan (IWP), duly approved by the applicable governing body of the Eligible entity. The IWP will cross reference the Financial Forecast and must address the following core elements:
(1) The RESP applicant will identify the Qualified consumers by customer classes that will benefit from the proceeds of a loan made under this Part and explain the promotional activities that will be executed to carry out the energy efficiency relending program. The RESP applicant should also include the target penetration rates by market segment and expected investments in marketing the relending program. In doing so, it is expected that racial and ethnic demographics for the service area would be provided.
(2) The RESP applicant will describe the activities and investments (list of EE measures) to be implemented in the EE Program and the expected energy savings.
(i) The RESP applicant must include a schedule for implementation with an itemized list of anticipated costs for each task.
(ii) The RESP applicant must specify whether a Special advance will be requested and, if so, must detail the expected use of such loan proceeds.
(iii) In describing the EE Program, the RESP applicant must describe the intake process, including but not limited to, the underwriting criteria, if applicable, and the quantifiable elements considered in recommending energy retrofits or investments to reduce the Qualified consumer’s energy cost or consumption. It is also expected that a description of the process for documenting and perfecting collateral arrangements with Qualified Consumers, when applicable, be also included in the narrative.
(iv) The RESP applicant will also identify the staff that will be carrying out the EE Program and will describe the tasks that will be performed by such individuals together with their expertise and credentials. Should the RESP applicant decide to outsource implementation of the EE Program, the credentials and expertise of the third party implementing the outsourced tasks must be described. Consideration must be given to the third party’s ability and expertise in implementing an EE Program at the scale pursued with the RESP funding. The statement of qualifications must show the party’s experience carrying out the financial and technical components of an EE Program at the desired scale. A RESP applicant with an existing EE Program as of April 8, 2014, may submit the IWP plan previously established to fulfill this requirement.
(3) The RESP applicant must include an evaluation of the financial and operational risk associated with the EE Program. When applicable, the RESP applicant should include an estimate of the prospective consumer loan losses consistent with the loan loss reserve.
(4) A Measurement and Verification (M&V) plan that meets the requirements of § 1719.10. In the alternative, a RESP applicant may provide an M&V plan approved by a state or local regulatory entity.
(G) The RESP applicant must provide a statement of compliance with the federal statutes as provided in § 1719.11.
§ 1719.6 Agency review.
(a) General. Loans made under this program will be made only when the Administrator finds and certifies that in his or her judgment there is reasonably adequate security and the loan will be repaid within the time agreed.
(b) Eligibility for other loans. RUS will not include any debt incurred by a borrower under this program in the calculation of the debt-equity ratios of the borrower for purposes of eligibility for loans under the Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.).
(c) Letter of intent. RUS will consider complete Letters of intent in the order they are received. In reviewing Letters of intent, RUS will be assessing:
(1) Applicant eligibility. Applicant’s eligibility to participate in the program.
(2) Project eligibility. Eligibility of the proposed EE Program or project.
(3) Financial status. The financial status of the RESP applicant to determine the Applicant’s likelihood to complete a loan application and successfully repay a RESP loan.
(d) Loan application. Prudent lending practices require that the Administrator make certain findings prior to approving a RESP loan. RESP applicants must provide the evidence, in form and substance satisfactory to the Administrator, to be able to make such findings. In making loans under this Section, the Administrator will consider, including, but not limited to, the following factors:
(1) Loan feasibility. The RESP applicant’s ability to repay the loan in full as scheduled and all other obligations of the borrower will be met.
(2) RESP applicant’s character. The RESP applicant’s past performance and determination to satisfy its obligations; evidenced by such factors as credit history, previous experience addressing adversity, and manner of conducting business.
(3) RESP applicant’s equity. The financial resources retained by the RESP applicant to provide a cushion against unexpected losses.
(4) Overall condition of RESP applicant and project. Verification that the proposed EE Program meets all the requirements of the Rural Energy Savings Program and an assessment of those factors that may affect the RESP applicant’s ability to repay the RESP loan or implement the EE Program as proposed.
(5) Loan security. The RESP applicant’s assets pledged to secure the loan. Collateral will be assessed for each applicant taking into consideration asset value, lien position, credit risk and borrower’s profile. Collateral pledged should be adequate to protect the Government’s interest. RUS reserves the right to require an asset appraisal.
(6) EE program implementation and measurement and verification. RESP applicant’s IWP must be based on reasonable assumptions and adequate supporting data and the M&V plan reasonably complies with § 1719.10. However, the Administrator, in his or her sole discretion, may deem this requirement satisfied upon finding that the IWP and M&V plan from an existing EE Program as of April 8, 2014 is consistent with the purpose of the Rural Energy Savings Program. A RESP applicant with an existing EE Program as of April 8, 2014, may submit the M&V plan previously established to fulfill this requirement.
§ 1719.7 Conditional commitment letter and loan closing.
(a) Conditional commitment letter. A successful RESP loan applicant will receive a Conditional commitment letter from the Administrator notifying the RESP applicant of the total loan amount approved by RUS; any additional controls on the its financial, investment, operational and managerial activities; acceptable security arrangements; and such other conditions deemed necessary by the Administrator to adequately secure the Government’s interest, ensure repayment, and abide by the RESP requirements as outlined in this Part. This written notification is a conditional RESP loan offer.
(1) The requirements for coverage ratios will be set forth in the Conditional commitment letter.
(2) Receipt of a Conditional commitment letter from the Administrator does not authorize the RESP applicant to commence performance under the approved loan.
(b) Intent to meet conditions. The RESP applicant must acknowledge receipt of the Conditional commitment letter and notify RUS in writing within 60 days or otherwise specified in the Conditional commitment letter that it has reviewed and understood the conditions set forth in the Conditional commitment letter and that it is the intent of the RESP applicant to meet all the conditions. The RESP applicant must promptly notify RUS should circumstances or its intent of meeting the conditions change. The Administrator may consider requests to amend the conditions and amend the conditions in a subsequent Conditional commitment letter, when it advances program and policy goals and is in the best interest of the Government.
(c) Loan closing. The loan will be closed in accordance with RUS instructions.
(1) Upon receipt of the acceptance of the loan offer from the RESP applicant, RUS, working with its legal counsel, will draft the loan documents which will include the loan conditions and other applicable legal requirements.
(2) The loan documents will be forwarded to the RESP applicant by RUS for execution by the RESP applicant’s signatories and returned to RUS prior to a mutually acceptable closing date. RUS reserves the right to unilaterally set a closing date to advance program and policy goals.
(3) The loan closing date will be used to determine the RESP loan maturity date which under no circumstances will exceed 20 years.
(4) An opinion of counsel is required at closing and must be in form and substance acceptable to the Administrator. A form opinion of counsel will be included in the closing instructions.
(d) Post-closing activities. All RUS requirements and conditions for lending set forth in the loan agreement must be met before the loan will be advanced. RUS will notify the RUS borrower when it is authorized to commence activities to be funded by the RESP loan.
§ 1719.8 Loan provisions.
(a) Financial ratios. The Administrator will set financial coverage ratios based on the risk profile of the RESP applicant and specific loan terms. Those financial ratios will be included in the RESP borrower’s loan documents with RUS.
(1) Unless otherwise notified, existing RUS borrowers will be subject to their current debt service coverage ratios as provided in their previously executed loan contracts with RUS.
(2) The minimum coverage ratio required for RESP borrowers, whether applied on annual or average basis is 1.05 Debt Service Coverage (DSC) unless specifically waived by the Administrator.
(3) DSC for RESP borrowers that are not existing RUS borrowers under the Rural Electrification Act will be defined as (Net Income or Total Margins) + (Interest Charges on Long Term Debt) + (Principal payments from RESP relending activities) + (Depreciation and Amortization Expenses)/Total Debt Service Billed.
(4) In reviewing and approving a RESP loan, the Administrator may increase the coverage ratio required to be met by an individual RESP borrower if the Administrator determines that higher ratios are required to ensure the repayment of the loan made by RUS, or reduce the coverage ratios if the Administrator determines that the lower ratios are in the best interest of the Government. The coverage ratios will be set forth in the loan documents.
(b) Collateral. RUS generally requires that borrowers provide it with a first priority 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. Collateral that is used to secure a loan must ordinarily be free from liens or security interests other than those permitted by RUS or existing security documents.
(1) For existing RUS borrowers, the Administrator may, in his or her sole discretion, rely on existing security arrangements with RUS.
(2) When a RESP borrower is unable, by reason of preexisting encumbrances, or otherwise, to furnish a first priority lien on its entire system, the Administrator may accept other forms of security, including but not limited to a parent guarantee, state guarantee, an irrevocable letter of credit, surety bond, pledge of revenues, or other security if the Administrator determines such credit support is reasonably adequate to protect the government’s interests and otherwise acceptable in form and substance.
(3) RUS may in certain circumstances agree to share its priority lien position with another lender provided the RESP loan is adequately secured and the security arrangements are acceptable to RUS. In such circumstances, RUS will consider entering into joint security arrangements with other lenders on a pari passu basis.
(c) Equity contributions. To be eligible for a RESP loan, a newly created Eligible entity or an entity primarily owned or controlled by one (1) or more entities as described in § 1719.4 must meet a minimum equity contribution in the proposed EE Program requirement at the time of the loan closing. The eligible entity will be required to continue to maintain the minimum equity contribution for the life of the loan or other time period as determined by the Administrator and as set forth in the loan documents. The minimum acceptable equity contribution for each RESP borrower will be determined by the Administrator as set forth below and will be included in the Conditional commitment letter and the loan documents as a condition and covenant to the RESP loan.
(1) The required equity contribution and related terms will be determined by the Administrator for the individual RESP applicant based upon the its risk profile and available collateral for the RESP loan.
(2) RUS reserves the right to require additional equity contributions from existing RUS or RESP borrowers when it is in the best interest of the Government.
(3) If the RESP applicant under this section is unable to achieve a minimal acceptable contribution, as set forth in the Conditional commitment letter, the Administrator may consider the following to meet such shortfall to the minimum acceptable equity contribution:
(i) The infusion of additional capital into the EE Program by an Investor to meet the shortfall to the minimum acceptable equity contribution. RUS may require that the additional capital be deposited into a RESP applicant’s special account subject to a deposit account control agreement with RUS prior to loan closing.
(ii) An unconditional, irrevocable letter of credit, in form and substance satisfactory to the Administrator, in the amount necessary to meet the shortfall to the minimum acceptable equity contribution. RUS must be an unconditional payee under the letter of credit and the letter of credit must be in place prior to loan closing and remain in place until the loan is repaid unless specified otherwise in the loan documents.
(iii) General obligation bonds or special revenue bonds issued by tribal, state or local governments in the amount necessary to meet the shortfall to the minimum acceptable equity contribution. If the minimum acceptable equity position is satisfied in full or part with general obligation bonds or special revenue bonds, any lien securing the bonds must be subordinate to the lien of the Government securing the RESP loan.
(iv) Any other requirements or mechanisms approved by the Administrator to meet the shortfall to the minimum acceptable equity contribution.
(d) Loan advances. RUS will disburse loan funds to the RESP borrower in accordance with the terms and conditions of the executed loan documents.
(1) Excluding the Special Advance, all loan funds will be disbursed either as an advance in anticipation of loans to be made by the RESP borrower to the Qualified consumers; or as a reimbursement for eligible program costs, including loans already made to Qualified consumers. No disbursements will be made until the RESP borrower has complied with the loan conditions set forth in the loan documents. Any disbursement of loan funds to a RESP borrower within a 12-month consecutive period must not exceed 50 percent of the approved loan amount.
(i) The RESP borrower must provide to the Qualified consumers all RESP loan funds that the RESP borrower receives within one year of receiving them from RUS. If the RESP borrower does not re-lend the RESP loan funds within one year, the unused RESP loan funds, and any interest earned on those RESP loan funds, must be returned to the Government and will be applied to the RESP borrower’s debt.
(ii) The RESP borrower will not be eligible to receive additional RESP loan funds from RUS until providing evidence, in form and substance satisfactory to the Administrator, that RESP loan funds from a previous advance have been fully relent to Qualified consumers or returned to the Government.
(iii) RUS will disburse the RESP loan funds as an advance in anticipation of loans to be made by the RESP borrower to the Qualified consumers only if the RESP borrower has established written procedures that will minimize the time elapsing between the transfer of RESP loan funds from RUS to the RESP borrower and its corresponding disbursement to the Qualified consumer.
(iv) A RESP borrower’s request for an advance in anticipation of loans to Qualified consumers should be limited to the minimum amounts needed and timed to be in accordance with the actual immediate cash needs to carry out the EE Program.
(2) The RESP borrower may elect to request a Special advance to defray the appropriate start-up costs of establishing a new EE Program or modify an existing EE Program.
(i) The Special advance must not exceed 4 percent of the total approved loan amount.
(ii) Repayment of the Special advance must be required during the 10-year period beginning on the date on which the Special advance is made.
(iii) The RESP borrower may elect to defer the repayment of the Special advance to the end of the 10-year period.
(iv) All Special advances must be made during the first 10-years of the term of the loan.
(v) All amounts advanced on the loan by RUS to the RESP borrower, including the Special advance, must be paid prior to the final maturity which must not exceed 20 years.
(vi) The Special advance maximum amount must be requested by the Borrower and approved by RUS prior to loan closing.
(e) Loans to Qualified Consumers. RUS borrowers loans to Qualified Consumers will be subject to the following terms and for the purposes listed below.
(1) RESP borrower’s loans to its Qualified consumers must be for the purpose of implementing EE measures.
(2) Loans to Qualified consumers may bear interest not to exceed 5 percent.
(3) Each loan made by the RESP borrower to a Qualified consumer may not exceed a term of 10 years.
(4) The EE measures financed with a RESP loan proceeds must be for the purpose of decreasing energy (not just electricity) usage or costs of the Qualified consumer by an amount that ensures, to the maximum extent practicable, that a loan term of not more than 10 years will not pose an undue financial burden on the Qualified consumer.
(5) RESP loan proceeds must not be used to fund purchases of, or modifications to, personal property unless the personal property is or becomes attached to real property (including a manufactured home) as a fixture.
(6) Loans made to Qualified consumers must be repaid through charges added to the recurring service bill for the property for, or, at which the EE measures have been or will be implemented. This requirement does not prohibit the voluntary prepayment of the loan by the owner of the property; or the use of any additional repayment mechanisms that are demonstrated to have appropriate risk mitigation measures, as determined by the RESP borrower, or required if the Qualified consumer is no longer a customer of the RESP Borrower.
(7) Loans made by a RESP borrower to a Qualified consumer using RESP loan funds must require an Energy audit by the RESP borrower to determine the impact of the proposed EE measures on the energy costs and consumption of the Qualified consumer. For purposes of this section, an energy audit performed by a contractor or agent of the RESP borrower would be deemed as performed by the RESP borrower.
(8) The RESP borrower must comply with all applicable federal, state, and local laws and regulations in making loans to Qualified consumers. Approval by RUS and its employees of a loan under this section does not constitute a Government endorsement. The Government and its employees assume no legal liability for the accuracy, completeness or usefulness of any information, product, service, or process funded directly or indirectly with financial assistance provided under RESP. Nothing in the loan documents between RUS and the RESP borrower will confer upon any other person any right, benefit or remedy of any nature whatsoever. Neither the Government nor its employees make any warranty, express or implied, including the warranties of merchantability and fitness for a particular purpose, with respect to any information, product, service, or process available from a RESP borrower or its agents.
(f) Loan term and repayment. RUS loans to an eligible borrow will be subject to the following terms and repayment conditions set forth in this section.
(1) The RESP loans under this section will bear no interest (0 percent) and have a maturity not exceeding 20 years.
(2) The amortization schedule must be based on a loan term that does not exceed 20 years from the date on which the loan is closed.
(3) Except for the Special advance, the repayment of each advance must be amortized for a period not to exceed 10 years.
(4) The Administrator may include additional conditions on the repayment schedule if, in his or her sole discretion, it is in the best interest of the Government.
(5) The RESP borrower is responsible for fully repaying the RESP loan to RUS according to the loan documents regardless of repayment by its Qualified consumers.
(6) The RESP borrower may use the revenues from the interest charged to the Qualified consumer to establish a loan loss reserve, and to offset personnel and EE Program costs.
(7) Loans under this Section will not bear interest (0 percent), however, indebtedness not paid when due will be subject to interest, penalties, administrative costs and late fees as provided in the loan documents.
§ 1719.9 Eligible activities and energy efficiency measures.
(a) A RESP Borrower may provide financing to Qualified consumers to implement or invest in one or more set of EE measures such as those listed in this section.
(b) A RESP borrower may be able to provide financing to Qualified consumers for EE measures not listed in this section, if it can justify, to the satisfaction of the Administrator, that the proposed EE measure is consistent with the RESP statute, is cost effective, and the technology is commercially available. The Administrator must make the determination prior to the borrower implementing the EE measure.
(c) A RESP applicant with an existing EE Program as of April 8, 2014, may submit the list of the EE measures used in its program to RUS for validation and approval. The Administrator will make a finding as to whether such EE measures are consistent with the purpose of RESP.
(d) A RESP borrower, subject to the Administrator’s written approval, may modify the list of EE measures if those measures are consistent with the statutory purpose of RESP.
(e) RESP loan proceeds must finance EE measures for the purpose of decreasing energy usage or costs of the Qualified consumer by an amount that ensures, to the maximum extent practicable, that the loan term will not pose an undue financial burden on the Qualified consumer.
(f) Eligible EE measures and investments include, but are not limited, to:
(1) Lighting:
(i) Lighting fixture upgrades to improve efficiency.
(ii) Lighting control technologies.
(iii) Daylighting systems.
(iv) Energy-efficient lighting technologies.
(2) Space conditioning, including Heating, Ventilation, and Air Conditioning (HVAC):
(i) Central Air Systems—Energy Star ® qualified equipment.
(ii) Room air conditioners.
(iii) Boilers.
(iv) Heat pumps.
(v) Ducts and duct sealing.
(vi) Furnaces—Energy Star® qualified equipment.
(vii) Thermostats.
(viii) Economizers.
(ix) Air handlers.
(x) Automated controls.
(3) Building Envelope Improvements:
(i) Improved insulation—adding insulation beyond existing levels, or above existing building codes.
(ii) Moisture barrier improvements and air sealing.
(iii) Caulking and weather stripping of doors and windows.
(iv) Windows upgrades—Energy Star® qualified windows.
(v) Door upgrades—including man-doors, overhead doors with integrated insulation and energy efficient windows.
(4) Motor Systems:
(i) Pumps, coupling and low-friction pipes.
(ii) Capacitors.
(iii) Variable frequency drives.
(iv) Induction motors repairs or replacements for energy efficiency.
(v) High efficiency motors—motors with a rated efficiency beyond the Energy Policy Act standards.
(vi) Permanent magnet motors.
(vii) Reluctance motors.
(5) Waste Heat Recovery:
(i) Recuperators.
(ii) Regenerators.
(iii) Waste heat boilers.
(iv) Combined heat and power (CHP) and Waste heat to power (WHP).
(6) Compressed Air Systems.
(7) Water heaters.
(8) Fuel switching.
(9) Irrigation or water system and waste disposal system efficiency improvements.
(10) On or off-grid renewable energy systems if consistent with the statutory purpose of this section.
(11) Energy storage devices if permanently installed to reduce energy cost or usage of the Qualified consumer.
(12) Energy efficient appliance upgrades if attached to real property as fixtures.
(13) Energy audits.
(14) Necessary and incidental activities and investments directly related to the implementation of an Energy efficiency measure.
§ 1719.10 Measurement and verification and quality control.
(a) General. A RESP applicant must provide a Measurement and Verification (M&V) plan, satisfactory to the Administrator, to ensure the effectiveness of the energy efficiency loans made to its Qualified Consumers and that there is no conflict of interest in carrying out the EE Program.
(1) RUS acknowledges the broad nature of energy efficiency projects and diverse scope of EE Programs that can be carried out under RESP. A RESP applicant, and its designees, must exercise professional judgment in developing their M&V plans. The nature, scope, and complexity of the EE measures and activities will dictate the level of effort needed for quantifying and verifying the savings. The effort expended should be commensurate with the project capital investment and the risk of miscalculating the savings.
(2) A RESP applicant with an existing EE Program as of April 8, 2014, may submit for consideration the M&V plan previously established to fulfill this requirement.
(3) RUS may reject a loan application or refuse to disburse loan proceeds to an RESP borrower that fails to demonstrate that the Energy audits or M&V plan have been adequately implemented and performed by qualified individuals.
(4) The M&V plan should be based on generally accepted principles and use the best practices of the industry, reliable data, reasonable assumptions and verifiable analytical methodologies.
(5) The M&V plan must describe the organized activities that the RESP applicant will implement to facilitate the adoption of the Energy efficiency measures that will result in energy use or cost savings to the Qualified consumer.
(6) Energy savings should be determined by comparing measured energy unit values (consumption or demand) before and after the implementation of the EE measures, making appropriate adjustments for changes in conditions.
(7) The computation of the savings formula is as follow:
(b) M&V Techniques for measuring, calculating and reporting savings. The RESP borrower may address the M&V requirements by applying any of the following techniques recognized in the International Performance Measurement and Verification Protocol.
(1) The Retrofit Isolation with Key Parameter Measurement Option (RIKPM) alternative is based on a combination of measured and estimated factors. Measurements will be taken at the component or system level for both the baseline and the retrofit equipment and should include the key performance parameters that define the energy use of the energy conservation measure. Savings will be determined by calculating the baseline and reporting period energy use predicated on the measured and estimated values. Estimated values will have to be supported by historical or manufacturer’s data.
(2) The Retrofit Isolation with All Parameter Measurement Option (RIAPM) option will be based on short-term, periodic or continuous measurements of baseline and post-retrofit energy use (or proxies of energy use) taken at the component or system level. Savings will be based on the analysis of the baseline and reporting-period energy use or proxies of energy use.
(3) The Whole Facility Measurement Option (WFMO) will be based on continuous measurement of the energy use (such as utility billing data) at the whole facility or sub-facility level during the baseline and post-retrofit periods. Savings will be established from the analysis of the baseline and reporting-period energy data.
(4) The Calibrated Simulation Option (CSO) is an alternative where computer simulations can be used to model energy performance of a whole facility (or sub-facility). Models must be calibrated with actual hourly or monthly billing data from the facility. In this option, savings will be determined by comparing a simulation of the baseline (after having calibrated the model) with either a simulation of the performance period or actual utility data.
(c) Use of deemed savings. A RESP applicant may elect to meet the M&V plan requirements by applying deemed savings values and calculations. If choosing this option, the RESP applicant’s M&V plan must:
(1) Describe the process to stipulate with the Qualified consumer the values and assumptions for determining the energy savings.
(2) Identify the TRMs upon which the deemed savings values and assumptions are based. In the alternative, identify such other technical M&V studies reasonably applicable to the conditions of the RESP applicant’s service area or such other detailed M&V studies performed by similar entities to determine deemed savings for identical or similar energy programs or energy efficiency measures.
(3) Describe the mechanism to ensure that deemed savings values and related calculations will be maintained and kept up to date.
(4) The approval by RUS of a M&V plan under this section is solely for the benefit of RUS. Approval of a plan pursuant to this section does not constitute an RUS endorsement of the M&V plan or an EE Program. RUS and its employees assume no legal liability for the accuracy, completeness or usefulness of any information, product, service, or process funded directly or indirectly with financial assistance provided under RESP.
(d) Quality control. The RESP borrower must produce a detailed explanation, in form and substance satisfactory to the Administrator, describing the methods and processes to verify that the installation of the EE measures for the EE program, for which those measures have been implemented were properly executed.
(1) The RESP borrower and the Qualified consumer must agree on the EE measures to be implemented based on a quantifiable and verifiable assessment of the impacts that such measures will have in reducing the Qualified consumer’s energy cost or consumption.
(2) A RESP borrower may elect to engage a third-party contractor to carry out the assessments required in this Section and install the EE measures as long as there is no Conflict of interest.
(3) RESP borrower employees and third-party contractors engaged to carry out activities in the EE Program must be qualified and have adequate expertise to perform energy audits, retrofit installations, and do the quality control assessments according to the applicable industry best-practices. Individual’s credentials and expertise should be accredited through one of the following options:
(i) Possessing a current Home Energy Professional Certification or a similar certification from a nationally, industry-recognized organization that is consistent with the Job Task Analyses Guidelines issued by the US Department of Energy’s National Renewable Energy Laboratory or its successor.
(ii) Possessing a current certification issued by an organization recognized by the U.S. Department of Energy in accordance with the Better Buildings Workforce Guidelines or its successor.
(iii) Producing evidence, in form and substance satisfactory to the Administrator, that the individual possesses proficiency in the knowledge, skills and abilities needed to perform the tasks and critical work functions relevant to the duties assigned in the EE Program.
(4) A RESP borrower that elects to carry out the EE Program with a contractor, must validate and document the following:
(i) The contractor has adequate capacity and resources to engage with customers, conduct whole-property assessments, performance testing, diagnostic reasoning, and fulfill all data collection and reporting requirements. This includes, but is not limited to, having access to satisfactory diagnostic equipment, tools, qualified staff, data systems and software, and administrative support.
(ii) The contractor is current and in good standing with all applicable registration and licensing requirements for their specific jurisdiction and trade.
(iii) The contractor employs individuals (either its own employees or subcontractors) that are qualified to install or physically oversee the installation of home improvements in compliance with local building codes and industry-accepted protocols.
(5) A RESP borrower is responsible for actions or omissions departing from the required standards under this Section by third party partners or contractors employed in connection with an EE Program funded under this Section.
(6) The RESP loan documents are solely for the benefit of RUS and the RESP Borrower and nothing in the loan documents between RUS and the RESP borrower will confer upon any third party any right, benefit or remedy of any nature whatsoever. Neither RUS nor its employees makes any warranty, express or implied, including the warranties of merchantability and fitness for a particular purpose, with respect to any information, product, service, or process available from a RESP borrower or its agents.
§ 1719.11 Compliance with USDA departmental regulations, policies and other federal laws.
(a) Equal opportunity and nondiscrimination. RUS will ensure that equal opportunity and nondiscriminatory requirements are met in accordance with the Equal Credit Opportunity Act and 7 CFR part 15. In accordance with federal civil rights law and U.S. Department of Agriculture (USDA) civil rights regulations and policies, the USDA, its agencies, offices, and employees, and institutions participating in or administering USDA programs are prohibited from discriminating based on race, color, national origin, religion, sex, gender identity (including gender expression), sexual orientation, disability, age, marital status, family/parental status, income derived from a public assistance program, political beliefs, or reprisal or retaliation for prior civil rights activity, in any program or activity conducted or funded by USDA (not all bases apply to all programs).
(b) Civil rights compliance. Recipients of federal assistance hereunder must comply with the Americans with Disabilities Act of 1990, Title VI of the Civil Rights Act of 1964, and Section 504 of the Rehabilitation Act of 1973. In general, recipients should have available the Agency racial and ethnic data showing the extent to which members of minority groups are beneficiaries of federally assisted programs. The Agency will conduct compliance reviews in accordance with 7 CFR part 15. Awardees will be required to complete Form RD 400–4, “Assurance Agreement,” for each federal award received.
(c) Discrimination complaints. Persons believing, they have been subjected to discrimination prohibited by this section may file a complaint personally, or by an authorized representative with USDA, Director, Office of Adjudication, 1400 Independence Avenue SW, Washington, DC 20250. A complaint must be filed no later than 180 days from the date of the alleged discrimination, unless the time for filing is extended by the designated officials of USDA or the Agency.
(d) Appeal Rights. Applicants and RESP applicants have appeal or review rights for RUS decisions made under this part.
(1) Programmatic decisions based on clear and objective statutory or regulatory requirements are not appealable; however, such decisions are reviewable for appealability by the National Appeals Division (NAD).
(2) An Applicant and a RESP applicant can appeal any RUS decision that directly and adversely impacts it. Appeals will be conducted by USDA NAD and will be handled in accordance with 7 CFR part 11.
(e) Federal Debt and Settlement of Debt. It is the policy of the Administrator that, whenever possible, all debt owed to the Government shall be collected in full in accordance with the terms of the borrower’s loan documents. Debt owed to RUS constitutes federal debt and is subject to collection under the Debt Collection Improvement Act. RUS can use all remedies available to it to collect the debt from the borrower, including offset in accordance with part 3 of this title. In addition, it is the intent of the Administrator, notwithstanding § 1717.1200(b) of this chapter, that debt settlements under this Part will be governed by the provisions set forth in 7 CFR part 1717, subpart Y or its successor Agency policies or regulations.
§ 1719.12 Reporting.
(a) General. RESP borrowers must file periodic performance and financial reports as provided in the loan documents.
(b) Frequency of reporting. Performance and financial reports will be filed semiannually for the first 10 years of the RESP loan and annually thereafter through the term of the loan. However, RUS may require additional, or more frequent, reporting when necessary to preserve the quality and integrity of the program portfolio or advance policy goals.
(c) Reporting elements. RUS will identify the reporting requirements, in form and substance, in the loan documents based on the RESP borrower and EE Program profile. The RESP borrower’s reports to RUS will include, but will not be limited to, the following information:
(1) Number and amount of loans to qualified consumers.
(2) Types of investments in EE measures and eligible activities.
(3) EE Program portfolio performance.
(4) Evidence of compliance with Multi-Tier Action Environmental Compliance Agreement.
(5) Status and amount of Loan Loss Reserve (when applicable).
§ 1719.13 Auditing and accounting requirements.
(a) Accounting requirements. RESP borrowers must follow RUS accounting requirements as set forth in the loan documents.
(1) Existing RUS borrowers must continue recording and reporting transactions pursuant to the RUS Uniform Systems of Accounts—Electric, 7 CFR part 1767. Such borrowers will continue to follow the accounting and reporting requirements set forth in the previously executed loan documents for RUS outstanding loans.
(2) New and RESP only borrowers must adopt and follow a GAAP based system of accounts acceptable to RUS, as well as compliance with the requirements of 2 CFR part 200 (for RESP Awardees, the term “grant recipient” in 2 CFR part 200 will also mean “loan recipient.”)
(3) All RESP borrowers must promptly notify RUS should a state regulatory authority with jurisdiction over it require it to apply accounting methods or principles different from the ones specified in the loan documents.
(4) RUS will consider borrowers’ reasonable proposals to streamline reporting and accounting requirements only when such proposals afford RUS adequate mechanisms to ensure the full and timely repayment of the loan, as determined by RUS.
(5) The Administrator may modify the accounting requirements for RESP borrowers if, in his or her judgement, it is necessary to satisfy the statutory purpose of the program, streamline procedures, or advance policy goals.
(6) Nothing in this policy shall be construed as a limitation or waiver of any other federal statute or requirement or the Administrator’s authority and discretion to implement the RESP in such a way that the Government’s interest is adequately preserved.
(b) Auditing requirements. RESP borrowers will be required to prepare audits as follows:
(1) If the borrower is a for-profit entity, an electric or telecommunications cooperative, or any other entity not covered by the definition of “non-Federal entity” in 2 CFR 200.1, the borrower shall provide an independent audit report in accordance with 7 CFR part 1773 and the award agreement. The certified public accountant (CPA) is selected by the awardee and must be approved by RUS as set forth in 7 CFR 1773.5.
(2) If the borrower is a non-Federal entity, as defined in 2 CFR 200.1, the borrower shall provide an audit in accordance with subpart F of 2 CFR part 200.
(3) RESP borrowers must comply with all reasonable RUS requests to support ongoing monitoring efforts. The RESP borrowers must afford RUS, through their representatives, a reasonable opportunity, at all times during business hours and upon prior notice, to have access to and the right to inspect any or all books, records, accounts, invoices, contracts, leases, payrolls, timesheets, cancelled checks, statements, and other documents, electronic or paper of every kind belonging to or in possession of the RESP borrowers or in any way pertaining to its property or business, including its parents, affiliates, and subsidiaries, if any, and to make copies or extracts therefrom.
(4) The Administrator may modify the audit requirements for RESP borrowers if, in his or her judgement, it is necessary to satisfy the statutory purpose of the program or advance policy goals.
(5) Nothing in this policy shall be construed as a limitation or waiver of any other federal statute or requirement or the Administrator’s authority and discretion to implement the RESP in such a way that the Government’s interest is adequately preserved.
PART 1720—GUARANTEES FOR BONDS AND NOTES ISSUED FOR UTILITY INFRASTRUCTURE PURPOSES
§ 1720.1 Purpose.
This part prescribes policies and procedures implementing a guarantee program for bonds and notes issued for utility infrastructure purposes authorized by section 313A of the Rural Electrification Act of 1936 (7 U.S.C. 940c–1).
§ 1720.2 [Reserved]
§ 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 guarantee, guarantee agreement, Pledge Agreement, and all other instruments and documentation pertaining to the issuance of the guaranteed bonds.
Criticized loan means a loan that has borrower risk ratings that have been categorized as “special mention,” substandard,” “doubtful”, or “loss”, or any comparable categorization as described in the guaranteed lender’s most recent audited financial statements.
Eligible instrument means a note or bond of a borrower payable or registered to, or to the order of, the guaranteed lender and for which:
(1) No default has occurred in the payment of principal or interest in accordance with the terms of such note or bond that is continuing beyond the contractual grace period (if any) provided in such note or bond for such payment;
(2) No “event of default”, as defined in such note or bond (or in any instrument creating a security interest in favor of the guaranteed lender, in respect of such note or bond), shall exist that has resulted in the exercise of any right or remedy described in such note or bond (or in any such instrument);
(3) Such note or bond is not classified by the guaranteed lender as “non-performing, criticized or impaired” (or any comparable classification, as determined by RUS) under generally accepted accounting principles in the United States or this part;
(4) Such note or bond is free and clear of all liens other than the lien created by the guaranteed lender’s pledge of such security to RUS under the Pledge Agreement;
(5) Such note or bond is not a restructured loan;
(6) Such note or bond is not unsecured debt; and
(7) The amount of generation or transmission loans does not exceed the maximum amount allowed by RUS based on RUS’s sole determination of certain factors including, but not limited to, account risk, collateral quality, and collateral quantity.
Eligible loan means a loan that a guaranteed lender extends to a borrower for up to 100 percent of the cost of eligible utility infrastructure purposes consistent with the RE Act.
Federal Financing Bank (FFB) refers to the Government corporation and instrumentality of the United States of America under the general supervision of the Secretary of the Treasury established by the Federal Financing Bank Act of 1973 (12 U.S.C. 2281 et seq.).
Guarantee means the written agreement between the Secretary and a guaranteed lender, pursuant to which the Secretary guarantees full repayment of the principal, interest, and call premium, if any, on a 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.
Leveraging data means the cumulative change in the guaranteed lender’s outstanding loans since the filing of the guaranteed lender’s last Form 10–Q or Form 10–K or financial statements, as applicable.
Loan means any credit instrument that the guaranteed lender extends to a borrower for any utility infrastructure 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, loans as set forth in section 201 of the RE Act for telephone lines, facilities, and systems, and loans as set forth in Title VI of the RE Act for broadband 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.
Pledge Agreement means the written agreement among the Secretary, the guaranteed lender, and a collateral agent, which sets forth the terms and conditions of the guaranteed lender’s pledge of eligible instruments as collateral.
Pledged collateral means the following items pledged to RUS by the guaranteed lender as security for the guaranteed lender’s repayment of a guaranteed bond:
(1)(i) The pledged instruments and the certificates representing the pledged instruments;
(ii) All payments of principal or interest, cash, instruments, and other property from time to time received, receivable, or otherwise distributed in respect of, in exchange for, and all other proceeds received in respect of, the pledged instruments;
(iii) All rights and privileges of the guaranteed lender with respect to the pledged instruments; and
(iv) All other proceeds of any of the foregoing; and
(2) Any property, including cash and certain permitted investments, that are pledged by the guaranteed lender as security for the repayment of a guaranteed bond.
Pledged instruments means the eligible instruments pledged by the guaranteed lender to RUS as security for the repayment of a guaranteed bond.
Program or 313A Program means the guarantee program for bonds and notes issued for utility infrastructure 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.).
Utility infrastructure means equipment, systems, facilities, or other assets used to deliver electric, telephone, or broadband related services to consumers or to entities serving consumers.
§ 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 utility infrastructure purposes eligible for assistance under this chapter, or to refinance, subject to certain limitations, bonds or notes previously issued by the guaranteed lender for such purposes to a borrower that has at any time received, or is eligible to receive, a loan under the RE Act;
(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 the level proscribed by the agency in its funding notice or below investment grade or comparable level 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 the level proscribed by RUS in its funding notice or to investment grade 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 secured by a perfected lien equal to the principal amount outstanding. Collateral shall be in the form of specific and identifiable unpledged securities equal to the value of the guaranteed amount plus sufficient margin to cover potential costs, fees, and expenses which may arise in the event of a default. In the case of a guaranteed lender’s default, the U.S. Government’s 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 the sole right to the pledged instruments. The Secretary has discretion to require additional collateral at any time should circumstances warrant.
(c) The final maturity of the guaranteed bonds shall not exceed 30 years.
(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 payments on 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.
§ 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 utility infrastructure 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. If an applicant has no outstanding RUS guarantees or has outstanding aggregate guarantees of less than $25 million, the Administrator may prescribe in advance by notice an alternate method for the guaranteed lender to demonstrate creditworthiness.
(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.
§ 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 financial statement and cash flow projection or business plan including detailed assumptions 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 or such other evidence of creditworthiness as required by the Administrator under § 1720.5(b)(2);
(7) Evidence of a credit rating, from a rating agency, on its senior secured debt, its corporate credit rating, or such other evidence of creditworthiness as required by the Administrator under § 1720.5(b)(2); 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;
(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.
§ 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 or state 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;
(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; and
(7) The geographic or economic distribution of funds made available through this program or use of such funds to advance rural development infrastructure goals.
(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 § 1720.5(b)(2) as to whether the bond or note to be issued would be below investment grade without the guarantee, or such other evidence of creditworthiness as may be required by the Administrator under § 1720.5(b)(2).
(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.
§ 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.
(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) Outside legal counsel to the applicant, satisfactory to the Secretary, must furnish an opinion satisfactory to the Secretary that the Pledge Agreement creates in RUS’s favor a valid perfected and enforceable security interest in the eligible securities pledged to RUS under the Pledge Agreement;
(7) No material adverse change occurs between the date of the application and date of execution of the guarantee;
(8) The applicant shall provide evidence of an investment grade rating from a Rating Agency for the proposed guaranteed bond without regard to the guarantee;
(9) The applicant will 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
(10) 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 guaranteed 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.
(c) The Secretary may condition the release of funds related to a guarantee bond on the guaranteed lender’s provision of additional or supplemental information related to agency underwriting, regulatory compliance, program policy objectives, or collateral valuation.
§ 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 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.
§ 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.
§ 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 facilities, assets, books, and accounts of the guaranteed lender or the collateral agent to ascertain compliance with the provisions of the RE Act and the bond documents.
§ 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 with detailed assumptions over the ensuing five years;
(4) Credit assessment issued by a rating agency, or such other evidence of creditworthiness as may be required by the Administrator under § 1720.5(b)(2);
(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, or such other evidence of creditworthiness as may be required by the Administrator under § 1720.5(b)(2); and
(6) Other such information requested by the Secretary.
(b) As long as any guaranteed bonds remain outstanding, the guaranteed lender will provide the Secretary with the following items each quarter within seven (7) business days of the guaranteed lender’s quarter end:
(1) A list of pledged collateral which includes borrowers’ billing information, and other information reasonably requested by RUS.
(2) A list of the guaranteed lender’s criticized loans within 30 days of the end of each calendar quarter.
(c) The bond documents shall specify such bond monitoring, and financial and internal audit reporting requirements relating to the pledged collateral as deemed appropriate by the Secretary.
(d) Leveraging data must be submitted to RUS within five (5) business days after the guaranteed lender publishes its 10–K or 10–Q form or financial statements, as applicable.
(e) The use of the proceeds of the guaranteed bonds for the construction of new projects is subject to the environmental review requirements in accordance with 7 CFR part 1970. Prior to the guaranteed lender using the proceeds of the guaranteed bonds to make loans to borrowers for the construction of new projects, the guaranteed lender must provide sufficient details about the proposed construction to RUS so it can comply with the environmental requirements of 7 CFR part 1970. The guaranteed lender is prohibited from using the proceeds of guaranteed bonds to fund loans to borrowers for new construction projects without RUS’s written acknowledgment that the environmental requirements of 7 CFR part 1970 have been met with respect to each such project.
§ 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.
§ 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.
§ 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.
§ 1720.16 Environmental review requirements.
Guarantees made under this subpart are subject to the environmental review requirements in accordance with 7 CFR part 1970.
PART 1721—POST-LOAN POLICIES AND PROCEDURES FOR INSURED ELECTRIC LOANS
Subpart A—Advance of Funds
§ 1721.1 Advances.
(a) Purpose and amount. With the exception of minor projects which are addressed in paragraph (b) of this section and generation projects which need to be included on a RUS Form 740c or an amendment to a RUS Form 740c, loan funds will be advanced for projects which are included in a RUS approved construction work plan (CWP), Energy Efficiency and Conservation Program work plan (EEWP), or approved amendment to either, have received written documentation of RUS concluding its environmental reviews and have complied with all Contracting and Bidding Procedures included in 7 CFR part 1726. 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 must 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 a RUS approved borrower’s CWP or CWP amendment, the Borrower shall describe the project and do one of the following to satisfy RUS’ environmental review requirements in accordance with 7 CFR part 1970:
(1) If applicable, state that the project is a categorical exclusion of a type described in § 1970.53 of this title; or
(2) If applicable, state that the project is a categorical exclusion of a type that normally requires the preparation of an environmental report (see § 1970.54 of this title) and then submit the environmental report with the request for funds to be approved for advance.
(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.
Subpart B—Extensions of Payments of Principal and Interest
§ 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.
§ 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 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.
§ 1721.102 Definitions.
The definitions contained in 7 CFR 1710.2 are applicable to this subpart unless otherwise stated.
§ 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.
§ 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 § 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;
(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 § 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.
§ 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 principle deferments for an ERC loan program must submit a letter from the Borrower’s General Manager requesting an extension of principle payments for the purpose of offering an ERC loan program to its members and describing the details of the program.
(c) Deferments for renewable energy projects. A Borrower requesting principle deferments for its renewable energy project must submit a letter from the Borrower’s General Manager requesting an extension of principle payments for the purpose of offering an ERC loan program to its members and describing the details of the program.
(d) Deferments for distributed generation projects. A Borrower requesting principle deferments for distributed generation projects must submit a letter from the Borrower’s General Manager requesting an extension of principle payments for the purpose of offering an ERC loan program to its members and describing the details of the program and approval is also subject to any applicable terms and conditions of the Borrower’s loan contract, mortgage, or indenture.
(e) Deferments for contribution-in-aid of construction. A Borrower requesting principle deferments for contribution-in-aid of construction must submit the following:
(1) A letter from the Borrower’s General Manager requesting an extension of principle payments for the purpose of offering an ERC loan program to its members and describing the details of the program.
(2) A summary of the calculations used to determine the average cost per residential customer. (See § 1721.104(e)(2)).
§ 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)).
§ 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.
§ 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 body for extending the maturity of existing debt and for the additional debt service payment incurred.
§ 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
Subpart A—General
§ 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. Borrowers have three options:
(1) Submit the actual contract used for review and approval;
(2) Submit a certification that the required contract was used for the electric project or;
(3) Submit a certification that the contract was not used but the essential and identical provisions specifically listed in the certification were used in the contract for constructing the electric facilities.
§ 1724.2 Waivers.
The Administrator may waive, for good cause on a case-by-case basis, requirements and procedures of this part.
§ 1724.3 Definitions.
Terms used in this part have the meanings set forth in § 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 § 1710.2 of this chapter, the following terms have the following meanings for the purposes of this part:
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 § 1710.110 of this chapter, loans to reimburse funds already expended by the borrower, and loans to replace interim financing.
§ 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.
§ 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 Loan Origination & Approval.
(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).
(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.
§ 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.
§ 1724.7 Debarment and suspension.
Borrowers shall comply with the requirements on debarment and suspension in connection with procurement activities set forth in 2 CFR part 180, as adopted by USDA through 2 CFR part 417, particularly with respect to lower tier transactions, e.g., procurement contracts for goods or services.
§ 1724.8 Restrictions on lobbying.
Borrowers shall comply with the restrictions and requirements in connection with procurement activities as set forth in 2 CFR part 418.
§ 1724.9 Environmental review requirements.
Borrowers must comply with the environmental review requirements in accordance with 7 CFR part 1970. or any successor regulations that implement the provisions of the National Environmental Policy Act.
§ 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.
§§ 1724.11-1724.19 [Reserved]
Subpart B—Architectural Services
§ 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.
§ 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, may 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. 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.
§§ 1724.22-1724.29 [Reserved]
Subpart C—Engineering Services
§ 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 (including the development of an EE Program eligible for financing pursuant to subpart H of part 1710 of this chapter, 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 § 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.
§ 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, may 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.
(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.
§ 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.
§§ 1724.33-1724.39 [Reserved]
Subpart D—Electric System Planning
§ 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 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 at https://www.rd.usda.gov/resources/regulations/bulletins.
§§ 1724.41-1724.49 [Reserved]
Subpart E—Electric System Design
§ 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.
§ 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 or a licensed professional engineer may certify that the design data, plans and profiles drawings for the electric system facilities meets all applicable RUS electric design requirements, specifications, local, state and national requirements and that RUS listed materials were used.
(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
(ii) No significant NESC revisions have occurred.
(c) Substations. (1) All substation design data must be approved by RUS or a licensed professional engineer may certify that the design data, plans and profiles drawings for the electric system facilities meets all applicable RUS electric design requirements, specifications, local, state and national requirements and that RUS listed materials were used.
(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 but does not include cybersecurity measures.
(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.
§ 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.
§ 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 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.
§ 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 design approval or RUS certification 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 design approval or RUS certification 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, which may include the Construction Work Plan or amendment thereto that contains the proposed new substation, 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 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 $5,000,000 or more, provided however that the terms of any indenture or other agreement between RUS and the borrower supersede the requirement of RUS approval contained herein. 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 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 § 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, but does not include cybersecurity 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 $1,500,000 or more; provided however that the terms of any indenture or other agreement between RUS and the borrower supersede the requirement of RUS approval contained herein. 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.
§ 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
(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 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.
(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.
(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.
§§ 1724.56-1724.69 [Reserved]
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 § 1724.55(a)(2).
| Category 1 | Low | Significant | High |
|---|---|---|---|
| Direct Loss of Life 2 | None expected (due to rural location with no permanent structures for human habitation) | Uncertain (rural location with few residences and only transient or industrial development) | Certain (one or more extensive residential, commercial or industrial development). |
| Lifeline Losses 3 | No disruption of services—repairs are cosmetic or rapidly repairable damage | Disruption of essential facilities and access | Disruption of critical facilities and access. |
| Property Losses 4 | Private agricultural lands, equipment and isolated buildings | Major public and private facilities | Extensive public and private facilities. |
| Environmental Losses 5 | Minimal incremental damage | Major mitigation required | Extensive mitigation cost or impossible to mitigate. |
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
§ 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, § 1724.74(c), that borrowers are required to use in accordance with the provisions of this part. A borrower may deviate from the Required Contract Form provided the borrower certifies to RUS that the non-standard form incorporates the provisions of the Required Contract Form that are contained in the RUS Certification Form found at https://www.rd.usda.gov/resources/directives/electric-sample-documents. Further, a borrower may utilize a contract other than a Required Contract Form if it is allowed to do so by an indenture or any other agreement between the borrower and RUS. In addition, RUS promulgates standard contract forms identified in the List of Guidance Contract Forms contained in § 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.
§ 1724.71 Borrower contractual obligations.
(a) Loan agreement. As a condition of a loan or loan guarantee under the RE Act, distribution borrowers are normally required to enter into RUS loan agreements pursuant to which the borrower agrees 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 standard distribution 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 § 1724.74(c), except as provided in § 1724.70(b). Power Supply borrowers typically execute an indenture and loan contract as well. The terms and conditions of any indenture and loan contract executed by a Power Supply borrower shall govern its obligations with respect to the use of contract forms.
(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, except as provided in § 1724.70(bc). 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 except as provided in § 1724.70(b).
(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.
§ 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 § 1724.74(c), List of Required Contract Forms.
§ 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
§ 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 § 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.
§§ 1724.75-1724.99 [Reserved]
PART 1726—ELECTRIC SYSTEM CONSTRUCTION POLICIES AND PROCEDURES
Subpart A—General
§§ 1726.1-1726.9 [Reserved]
§ 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.
§ 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.
§ 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.
§ 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.
§ 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 environmental review requirements in accordance with 7 CFR part 1970.
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 § 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.
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 § 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 § 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 the cost of which is $150,000 or less, 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 § 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 § 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 § 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.
§ 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.
§ 1726.16 Debarment and suspension.
Borrowers are required to comply with certain requirements on debarment and suspension in connection with procurement activities set forth in 2 CFR part 180, as adopted by USDA through 2 CFR part 417, particularly with respect to lower tier transactions, e.g., procurement contracts for goods or services.
§ 1726.17 Restrictions on lobbying.
Borrowers are required to comply with certain restrictions and requirements in connection with procurement activities as set forth in 2 CFR part 418.
§ 1726.18 Pre-loan 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 environmental review requirements in accordance with 7 CFR part 1970, have been met.
§ 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.
§ 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.)
§ 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.
§ 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.
§ 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 § 1726.16 and § 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 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.
§ 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.
§ 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.
§ 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.
§ 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, 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
§§ 1726.28-1726.34 [Reserved]
§ 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 electronically to RUS, unless otherwise directed.
(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, one copy of each contract that is subject to RUS approval under subparts B through F of this part. Any contract submitted by the borrower contract 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 §§ 1726.202 and 1726.203).
(3) One copy of an executed contractor’s bond on RUS approved bond forms as required in the contract form and one copy of the bid bond or copy 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) Evidence of clear title to the site for substations and headquarters construction contracts, if not previously submitted.
(6) 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, one copy of each contract amendment which is subject to RUS approval under § 1726.24(b). Each contract amendment submittal to RUS must be accompanied by 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:
(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 bidding procedures and contract award for each contract were in conformance with the requirements of Part 1726, Electric System Construction Policies and Procedures;
(B) 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;
(C) If RUS has approved plans and specifications for the contract, the contract was awarded on the basis of those plans and specifications; and
(D) 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 s