Last updated on March 14th, 2023 at 04:10 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 grantee is a for-profit entity, an RUS Electric or Telecommunication borrower or any other entity not covered by paragraph (b) of this section, the recipient shall provide an independent audit report in accordance with 7 CFR part 1773, “Policy on Audits of RUS Borrowers” and the grant agreement.
(b) If the grantee is a State or local government, or a non-profit corporation (other than an RUS Electric or Telecommunication Borrower), the recipient shall provide an audit in accordance with subpart F of 2 CFR part 200, as adopted by USDA through 2 CFR part 400.
§ 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.
Merger means the combining, pursuant to state law, of borrower or nonborrower organizations into an existing survivor organization that takes over the assets and assumes the liabilities of the merged organizations.
Mortgage means any and all instruments creating a lien on or security interest in the borrower’s assets in connection with loans or guarantees under the RE Act.
Municipal rate loan means a loan made at a municipal interest rate pursuant to 7 CFR 1714.5.
ODSC means Operating Debt Service Coverage of the electric system calculated as:
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. The requirements set forth in this section apply to borrowers that receive a loan approved by RUS on or after February 10, 1992. Nothing in this section, however, shall reduce the coverage ratio requirements of a borrower that has contractually agreed with RUS to a higher requirement.
(b) Coverage ratios. (1) Distribution borrowers. The minimum coverage ratios required of distribution borrowers whether applied on an annual or average basis, are a TIER of 1.25, DSC of 1.25, OTIER of 1.1, and ODSC of 1.1. OTIER and ODSC shall apply to distribution borrowers that receive a loan approved on or after January 29, 1996.
(2) The minimum coverage ratios required of power supply borrowers, whether applied on an annual or average basis, are a TIER of 1.05 and DSC of 1.00.
(3) When new loan contracts are executed, the Administrator may, case by case, increase the coverage ratios of distribution and power supply borrowers above the levels cited in paragraphs (b)(1) and (b)(2), respectively, of this section if the Administrator determines that the higher ratios are required to ensure reasonable security for and/or the repayment of loans made or guaranteed by RUS. Also, the Administrator may, case by case, reduce said coverage ratios if the Administrator determines that the lower ratios are required to ensure reasonable security for and/or the repayment of loans made or guaranteed by RUS. Policies for coverage ratios following certain mergers, consolidations, and transfers of systems substantially in their entirety are in 7 CFR 1717.155.
(4) If a distribution borrower has in service or under construction a substantial amount of generation and associated transmission plant financed at a cost of capital substantially higher than the cost of funds under section 305 of the RE Act, then the Administrator may establish, in his or her sole discretion, blended levels for TIER, DSC, OTIER, and ODSC based on the respective shares of total utility plant represented by said generation and associated transmission plant and by distribution and other transmission plant.
(c) Requirements for loan feasibility. To be eligible for a loan, borrowers must demonstrate to RUS that they will, on a pro forma basis, earn the coverage ratios required by paragraph (b) of this section in each of the years included in the borrower’s long-range financial forecast prepared in support of its loan application, as set forth in subpart G of this part.
(d) Requirements for maintenance of coverage ratios – (1) Prospective requirement. Borrowers must design and implement rates for utility service to provide sufficient revenue (along with other revenue available to the borrower in the case of TIER and DSC) to pay all fixed and variable expenses, to provide and maintain reasonable working capital and to maintain on an annual basis the coverage ratios required by paragraph (b) of this section. Rates must be designed and implemented to produce at least enough revenue to meet the requirements of this paragraph under the assumption that average weather conditions in the borrower’s service territory will prevail in the future, including average system damage and outages due to weather and the related costs. Failure to design and implement rates pursuant to the requirements of this paragraph shall be an event of default upon notice provided in accordance with the terms of the borrower’s mortgage or loan contract.
(2) Retrospective requirement. The average coverage ratios achieved by a borrower in the 2 best years out of the 3 most recent calendar years must meet the levels required by paragraph (b) of this section. If a borrower fails to achieve these average levels, it must promptly notify RUS in writing. Within 30 days of such notification or of the borrower being notified in writing by RUS, whichever is earlier, the borrower, in consultation with RUS, must provide a written plan satisfactory to RUS setting forth the actions that will be taken to achieve the required coverage ratios on a timely basis. Failure to develop and implement a plan satisfactory to RUS shall be an event of default upon notice provided in accordance with the terms of the borrower’s mortgage or loan contract.
(3) Fixed and variable expenses, as used in this section, include but are not limited to: all taxes, depreciation, maintenance expenses, and the cost of electric power and energy and other operating expenses of the electric system, including all obligations under the wholesale power contract, all lease payments when due, and all principal and interest payments on outstanding indebtedness when due.
(e) Requirements for advance of funds. (1) If a borrower applying for a loan has failed to achieve the coverage ratios required by paragraph (b) of this section during the latest 12 month period immediately preceding approval of the loan, or if any of the borrower’s average coverage ratios for the 2 best years out of the most recent 3 calendar years were below the levels required in paragraph (b) of this section, RUS may withhold the advance of loan funds until the borrower has adopted an annual financial plan and operating budget satisfactory to RUS and taken such other action as RUS may require to demonstrate that the required coverage ratios will be maintained in the future and that the loan will be repaid with interest within the time agreed. Such other action may include, for example, increasing system operating efficiency and reducing costs or adopting a rate design that will achieve the required coverage ratios, and either placing such rates into effect or taking action to obtain regulatory authority approval of such rates. If failure to achieve the coverage ratios is due to unusual events beyond the control of the borrower, such as unusual weather, system outage due to a storm or regulatory delay in approving rate increases, then the Administrator may waive the requirement that the borrower take the remedial actions set forth in this paragraph, provided that such waiver will not threaten loan feasibility.
(2) With respect to any outstanding loan approved by RUS on or after February 10, 1992, if, based on actual or projected financial performance of the borrower, RUS determines that the borrower may not achieve its required coverage ratios in the current or future years, RUS may withhold the advance of loan funds until the borrower has taken remedial action satisfactory to RUS.
§ 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 and furnish to RUS, at least once during each 12-month period, a full and complete report of its financial condition, operations, and cash flows, on a comparative basis, along with a report on internal control over financial reporting and on compliance in other matters, both reports in form and substance satisfactory to RUS, audited and certified by an independent certified public accountant, satisfactory to RUS according to the requirements set forth in 7 CFR 1773.5.
(1) Audits must follow governmental auditing standards issued by the Comptroller General of the United States (GAGAS) and the provisions of 2 CFR part 200, subpart F – Audit Requirements if applicable.
(2) RESP borrowers with outstanding RUS loans will be subject to the auditing requirements set forth in their existing RUS loan documents. RUS Policy on Audits of RUS Borrowers as provided in 7 CFR part 1773 will govern audits under this paragraph.
(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 submit to RUS the following information and documentation:
(A) The contract name and number;
(B) The amendment number;
(C) The amendment date;
(D) The dollar amount of the increase or the decrease of the amendment;
(E) Borrower certification that:
(1) The amendment was approved in accordance with the policy of the board of directors;
(2) If a RUS approved form of contract is required by this part, the terms and conditions of the RUS approved form of contract has not been altered; and
(3) No restriction has been placed on the borrower’s right to assign the contract to RUS or its successors.
§ 1726.36 Documents subject to RUS approval.
Unless otherwise indicated, the borrower shall make all contracts and amendments that are subject to RUS approval effective only upon RUS approval.
§ 1726.37 OMB control number.
The collection of information requirements in this part have been approved by the Office of Management and Budget and assigned OMB control number 0572-0107.
§§ 1726.38-1726.49 [Reserved]
Subpart B – Distribution Facilities
§ 1726.50 Distribution line materials and equipment.
(a) Contract forms. (1) The borrower shall use RUS Form 198, Equipment Contract, for purchases of equipment where the total cost of the contract is more than $1,000,000.
(2) The borrower may, in its discretion, use RUS Form 198, Equipment Contract, or a written purchase order equal to $1,000,000 or less for purchases of equipment, and for all materials.
(b) Standards and specifications. Distribution line materials and equipment must meet the minimum requirements of RUS standards as determined in accordance with the provisions of part 1728 of this chapter, Electric Standards and Specifications for Materials and Construction. The borrower must obtain RUS approval prior to purchasing any unlisted distribution line material or equipment of the types listed in accordance with the provisions of part 1728 of this chapter.
(c) Procurement procedures. It is the responsibility of each borrower to determine the procurement method that best meets its needs for the purchase of material and equipment to be used in distribution line construction.
(d) Contract approval. Contracts for purchases of distribution line materials and equipment are not subject to RUS approval and need not be submitted to RUS unless specifically requested by RUS on a case by case basis.
§ 1726.51 Distribution line construction.
(a) Contract forms. The borrower must use RUS Form 790, or 830, as outlined in this paragraph (a), for distribution line construction, except for minor modifications or improvements.
(1) The borrower may use RUS Form 790, Electric System Construction Contract – Non-Site Specific Construction, under the following circumstances:
(i) For contracts for which the borrower supplies all materials and equipment; or
(ii) For non-site specific construction contracts accounted for under the work order procedure; or
(iii) If neither paragraph (a)(1)(i) or (a)(1)(ii) of this section are applicable, the borrower may use RUS Form 790 for contracts, up to a cumulative total of $500,000 or one percent of net utility plant (NUP), whichever is greater, per calendar year of distribution line construction, exclusive of the cost of owner furnished materials and equipment.
(2) The borrower must use RUS Form 830, Electric System Construction Contract – Project Construction, for all other distribution line construction.
(b) Procurement procedures. (1) It is the responsibility of each borrower to determine the procurement method that best meets its needs to award contracts in amounts of up to a cumulative total of $750,000 or three percent of NUP (not to exceed $6,000,000), whichever is greater, per calendar year of distribution line construction (including minor modifications or improvements), exclusive of the cost of owner furnished materials and equipment. Borrowers may award Cost-Plus/Hourly contracts as part of these borrower responsibility limits up to a cumulative total of $250,000 or one percent of NUP (not to exceed $2,000,000), whichever is greater, per calendar year of distribution line construction (including minor modifications or improvements), exclusive of the cost of owner furnished materials and equipment.
(2) The borrower shall use formal competitive bidding for all other distribution line contract construction unless the RUS specifically approves an alternative method. The dollar amounts of contracts bid using the formal competitive bidding procedure do not apply to the cumulative total stipulated in paragraph (b)(1) of this section.
(3) An amendment which increases the scope of the contract by adding a project is not considered competitively bid, therefore, the dollar amount of that amendment does apply to the cumulative total stipulated in paragraph (b)(1) of this section.
(c) Contract approval. Contracts for distribution line construction are not subject to RUS approval and need not be submitted to RUS unless specifically requested by RUS on a case by case basis.
§§ 1726.52-1726.74 [Reserved]
Subpart C – Substation and Transmission Facilities
§ 1726.75 General.
As used in this part, “substations” includes substations, switching stations, metering points, and similar facilities.
§ 1726.76 Substation and transmission line materials and equipment.
(a) Contract forms. (1) The borrower shall use RUS Form 198, Equipment Contract, for purchases of equipment where the total cost of the contract is $1,000,000 or more.
(2) The borrower may, in its discretion, use RUS Form 198, Equipment Contract, or a written purchase order for purchases of equipment of less than $1,000,000 and for all materials.
(b) Standards and specifications. Substation and transmission line materials and equipment must meet the minimum requirements of RUS standards as determined in accordance with the provisions of part 1728 of this chapter, Electric Standards and Specifications for Materials and Construction. The borrower must obtain RUS approval prior to purchasing of any unlisted substation or transmission line material or equipment of the types listed in accordance with the provisions of part 1728 of this chapter.
(c) Procurement procedures. It is the responsibility of each borrower to determine the procurement method that best meets its needs for purchase of material and equipment to be used in substation and transmission line construction.
(d) Contract approval. Contracts for purchases of substation and transmission line materials and equipment are not subject to RUS approval and need not be submitted to RUS unless specifically requested by RUS on a case by case basis.
§ 1726.77 Substation and transmission line construction.
(a) Contract forms. The borrower must use RUS Form 830, Electric System Construction Contract – Project Construction, for construction of substations, except for minor modifications or improvements.
(b) Procurement procedures. (1) It is the responsibility of each borrower to determine the procurement method that best meets its needs to award contracts in amounts of up to a cumulative total of $750,000 or three percent of NUP (not to exceed $6,000,000), whichever is greater, per calendar year of substation and transmission line construction (including minor modifications or improvements), exclusive of the cost of owner furnished materials and equipment. Borrowers may award Cost-Plus/Hourly contracts as part of these borrower responsibility limits up to a cumulative total of $250,000 or one percent of NUP (not to exceed $2,000,000), whichever is greater, per calendar year of substation and transmission line construction (including minor modifications or improvements), exclusive of the cost of owner furnished materials and equipment.
(2) The borrower shall use formal competitive bidding for all other contract construction unless RUS specifically approves an alternative method. The dollar amount of contracts bid using the formal competitive bidding procedure do not apply to the cumulative total stipulated in paragraph (b)(1) of this section.
(3) An amendment which increases the scope of the contract by adding a project is not considered competitively bid, therefore, the dollar amount of that amendment does apply to the cumulative total stipulated in paragraph (b)(1) of this section.
(c) Contract approval. Individual contracts in the amount of $750,000 or more or three percent of NUP (not to exceed $6,000,000), whichever is greater, exclusive of the cost of owner furnished materials and equipment, are subject to RUS approval.
§§ 1726.78-1726.124 [Reserved]
Subpart D – Generation Facilities
§ 1726.125 Generating plant facilities.
This section covers the construction of all portions of a generating plant, including plant buildings and the generator step-up transformer. Generally, the transmission switchyard will be covered under this section during initial construction of the plant. Subpart C of this part covers subsequent modifications to transmission switchyards. Warehouses and equipment service type buildings are covered under subpart E of this part.
(a) Contract forms. (1) The borrower shall use RUS Form 198, Equipment Contract, for the purchase of generating plant equipment in the amount of $5,000,000 or more and for any generating plant equipment contract requiring RUS approval.
(2) The borrower shall use RUS Form 200, Construction Contract – Generating, for generating project construction contracts in the amount of $5,000,000 or more and for any generating project construction contract requiring RUS approval.
(3) The borrower may, in its discretion, use other contract forms or written purchase order forms for those contracts in amounts of less than $5,000,000 and that do not require RUS approval.
(b) Procurement procedures. (1) It is the responsibility of each borrower to determine the procurement method that best meets its needs to award contracts in amounts of less than $5,000,000 each.
(2) If the amount of the contract is $5,000,000 or more or if the contract requires RUS approval, the borrower must use formal or informal competitive bidding to award the contract.
(3) Where formal or informal competitive bidding is not applicable, or does not result in a responsive bid, multiparty negotiation may be used only after RUS approval is obtained.
(c) Contract approval. During the early stages of generating plant design or project design, RUS will, in consultation with the borrower and its consulting engineer, identify the specific contracts which require RUS approval based on information supplied in the plant design manual. The following are typical contracts for each type of generating project which will require RUS approval. Although engineering services are not covered by this part, they are listed in this paragraph (d) to emphasize that RUS approval is required for all major generating station engineering service contracts in accordance with applicable RUS rules. For types of projects not shown, such as nuclear and alternate energy projects, RUS will identify the specific contracts which will require RUS approval on a case by case basis.
(1) Fossil generating stations. Engineering services, steam generator, turbine generator, flue gas desulfurization system, particulate removal system, electric wiring and control systems, mechanical equipment installation (including turbine installation and plant piping), power plant building (foundation and superstructure), site preparation, coal unloading and handling facilities, main step-up substation, cooling towers, and dams or reservoirs.
(2) Diesel and combustion turbine plants. Engineering services, prime mover and generator, building (foundation and superstructure), and electrical control systems.
(3) Hydro installations. Engineering services, turbine/generator, civil works and powerhouse construction, electrical control system, and mechanical installation.
§§ 1726.126-1726.149 [Reserved]
Subpart E – Buildings
§ 1726.150 Headquarters buildings.
This section includes headquarters buildings such as warehouses and equipment service type buildings. Generating plant buildings are covered under subpart D of this part.
(a) Contract forms. The borrower must use RUS Form 257, Contract to Construct Buildings, for all contracts for construction of new headquarters facilities, and additions to, or modifications of existing headquarters facilities (except for minor modifications or improvements).
(b) Procurement procedures. A borrower may use Multiparty Lump Sum Quotations to award contracts in amounts of up to a cumulative total of $1,500,000 or three percent of NUP (not to exceed $10,000,000), whichever is greater, per calendar year of headquarters construction (including minor modifications or improvements). The borrower shall use formal competitive bidding for all other headquarters contract construction unless RUS specifically approves an alternative method.
(c) Contract approval. Contracts for headquarters construction are not subject to RUS approval and need not be submitted to RUS unless specifically requested by RUS on a case by case basis.
§§ 1726.151-1726.174 [Reserved]
Subpart F – General Plant
§ 1726.175 General plant materials.
This section covers items such as office furniture and equipment; transportation equipment and accessories, including mobile radio systems, stores and shop equipment, laboratory equipment, tools and test equipment.
(a) Contract forms. The borrower may, in its discretion, use RUS Form 198, Equipment Contract, or a written purchase order.
(b) Procurement procedures. It is the responsibility of each borrower to determine the procurement method that best meets its needs for purchase of general plant material and equipment.
(c) Contract approval. Contracts for the purchase of general plant items are not subject to RUS approval and need not be submitted to RUS unless specifically requested by RUS on a case by case basis.
§ 1726.176 Communications and control facilities.
This section covers the purchase of microwave, fiber, power line carrier, and other communications technologies or systems, including load control and supervisory control and data acquisition (SCADA) systems, automated meter reading/automated metering infrastructure (AMR/AMI), or other smart grid technologies. Mobile radio systems are covered as general plant materials in § 1726.175.
(a) Power line carrier systems. Power line carrier equipment will frequently be purchased as part of a substation and will be included in the complete substation plans and specifications. When purchased in this manner, the requirements of subpart C of this part, Substation and Transmission Facilities, will apply. If obtained under a contract for only a power line carrier system, the requirements of paragraph (b) of this section apply.
(b) Load control systems, communications systems, and SCADA systems – (1) Contract forms. The borrower must use RUS Form 786, Electric System Communication and Control Equipment Contract. This form may be modified to be a “purchase only” contract form.
(2) Procurement procedures. (i) It is the responsibility of each borrower to determine the procurement method that best meets its needs to award contracts not requiring RUS approval in amounts of up to a cumulative total of $750,000 or one percent of NUP (not to exceed $5,000,000), whichever is greater, per calendar year of communications and control facilities construction (including minor modifications or improvements), exclusive of the cost of owner furnished materials and equipment.
(ii) The borrower must use multiparty negotiation for all other communications and control facilities contract construction, including all contracts requiring RUS approval. The amount of contracts bid using the multiparty negotiation procedure do not apply to the cumulative total stipulated in paragraph (b)(2)(i) of this section.
(iii) An amendment which increases the scope by adding a project is not considered competitively bid, therefore, the amount of that amendment does apply to the cumulative total stipulated in paragraph (b)(2)(i) of this section.
(3) Contract approval. Individual contracts in amounts of $750,000 or more or one percent of NUP (not to exceed $5,000,000 for all borrowers), whichever is greater, exclusive of the cost of owner furnished materials and equipment, are subject to RUS approval.
§§ 1726.177-1726.199 [Reserved]
Subpart G – Procurement Procedures
§ 1726.200 General requirements.
The borrower must use the procedures described in this subpart where such procedures are required under subparts B through F of this part. The borrower must ensure that arrangements prior to announcement of the award of the contract are such that all bidders are treated fairly and no bidder is given an unfair advantage over other bidders.
§ 1726.201 Formal competitive bidding.
Formal competitive bidding is used for distribution, transmission, and headquarters facilities, and may be used for generation facilities. The borrower must use the following procedure for formal competitive bidding:
(a) Selection of qualified bidders. The borrower (acting through its engineer, if applicable) will compile a list of qualified bidders for each proposed contract. The borrower will send invitations to bid only to persons or organizations on its QBL for the specific project (see § 1726.23).
(b) Invitations to bid. The borrower (acting through its engineer, if applicable) is responsible for sending out invitations to prospective bidders, informing them of scheduled bid openings and taking any other action necessary to procure full, free and competitive bidding. The borrower should send out a sufficient number of invitations in order to assure adequate competition and so that at least three bids will be received. Subject to the foregoing criteria, the determination of how many and which bidders will be permitted to bid will be the responsibility of the borrower.
(c) Evaluation basis. Any factors, other than lowest dollar amount of the bid, which are to be considered in evaluating the proposals of qualified bidders (e.g., power consumption, losses, etc.) must be stated in the “Notice and Instructions to Bidders.” The borrower will not evaluate a bidder’s performance record, safety record, and similar factors when evaluating a bid from a qualified and invited bidder. Such factors are to be considered when determining whether to include a particular bidder on the qualified bidders list.
(d) Handling of bids received. The borrower or the engineer, as applicable, will indicate, in writing, the date and time of receipt by the borrower or the engineer on the outside envelope of each bid and all letters and other transmittals amending or modifying the bids. Any bid received at the designated location after the time specified must be returned to the bidder unopened.
(e) Bid openings. Bid openings are generally conducted by the engineer in the presence of bidders and a representative of the borrower and the borrower’s attorney. Each bona fide bid must be opened publicly and reviewed for any irregularities, errors, or exceptions. It must be verified that any addendum or supplement to the specification has been acknowledged by the bidder. The adequacy of bid bonds or certified checks must be verified at this time.
(f) Conditions affecting acceptability of bids. The borrower must take the following specified action if any of the following exist:
(1) Fewer than three bona fide bids received. If fewer than three bona fide bids are received for the contract project, the borrower must determine that all reasonable measures have been taken to assure competition prior to awarding the contract. This determination must be documented and such documentation submitted to RUS where required by subpart A of this part. The borrower may, however, elect to reject all bids, make changes in the specification or the qualified bidders list or both and invite new bids.
(2) Significant error or ambiguity in the specification. If a significant error or ambiguity in the specification is found which could result in the bidders having varying interpretations of the requirements of the bid, the borrower must either issue an addendum to each prospective bidder correcting the error or ambiguity before bids are received, or reject all bids and correct the specification. If a significant error or ambiguity in the specification is discovered after the bids are opened, the borrower must reject all bids, correct the specification and invite new bids.
(3) Minor errors or omissions in the specification. If minor errors or omissions in the specification are found, the borrower must issue an addendum to each prospective bidder correcting the error or omission prior to opening any bids. After bid opening, the error or omission must be corrected in the executed contract.
(4) Minor errors or irregularities in bid. The borrower may waive minor errors or irregularities in any bid, if the borrower determines that such minor errors or irregularities were made through inadvertence. Any such minor errors or irregularities so waived must be corrected on the bid in which they occur prior to the acceptance thereof by the borrower.
(5) Non-minor error or irregularity in bid. If a bid contains a non-minor error or irregularity, the bid must be rejected and the bid price must not be disclosed.
(6) Unbalanced bid. If a bid contains disproportionate prices between labor and materials or between various construction units, the borrower may reject the bid.
(7) No acceptable price quoted. If none of the bidders quote an acceptable price, the borrower may reject all bids.
(g) Evaluating bids. The borrower (acting through the engineer, if applicable) must conduct the evaluation of bids on the basis of the criteria set out in the “Notice and Instructions to Bidders.” The contract, if awarded, must be awarded to the bidder with the lowest evaluated responsive bid.
(h) Announcement of bids. If possible, the borrower will announce bids at the bid opening. However, where extensive evaluation is required, the borrower may elect to adjourn and make formal written announcement to all bidders at a later time. Any discrepancy in a rejected bid must be indicated in the bid announcement.
(i) Award of contract. Upon completion of the bid evaluations and based upon the findings and recommendations of the borrower’s management and engineer, the borrower’s board of directors will either:
(1) Resolve to award the contract to the lowest evaluated responsive bidder; or
(2) Reject all bids.
(j) Certification by the borrower and its engineer. The borrower shall certify and the engineer shall certify as follows: “The procedures for formal competitive bidding, as described in 7 CFR 1726.201, were followed in awarding this contract.” The certification executed by and on behalf of the borrower and its engineer shall be submitted to RUS in writing where required by subpart A of this part.
§ 1726.202 Informal competitive bidding.
Informal competitive bidding may be used for equipment purchases and generation construction. The borrower must use the following procedure for informal competitive bidding:
(a) Selection of qualified bidders. The borrower (acting through its engineer, if applicable) will compile a list of qualified bidders for each proposed contract. The borrower will send invitations to bid only to persons or organizations on its qualified bidder list for the specific project (see § 1726.23).
(b) Invitations to bid. The borrower (acting through its engineer, if applicable) is responsible for sending out invitations to prospective bidders, informing them of scheduled bid openings and any other action necessary to procure full, free and competitive bidding. In any event, however, sufficient invitations need to be sent out to assure competition and that at least three bids will be received. Subject to the criteria in the preceding sentence, the determination of how many and which bidders will be permitted to bid will be the responsibility of the borrower.
(c) Notice and instructions to bidders. The borrower must indicate in the “Notice and Instructions to Bidders” section of the bid documents that bids will be opened privately. The borrower may elect to conduct clarifying discussions with the bidders. If such clarifying discussions are held, at least the three apparent low evaluated bidders must be given an equal opportunity to resolve any questions related to the substance of the bidder’s proposal and to arrive at a final price for a responsive bid.
(d) Evaluation basis. Any factors, other than lowest dollar amount of the bid, which are to be considered in evaluating the proposals of qualified bidders (e.g., power consumption, losses, etc.) must be stated in the “Notice and Instructions to Bidders.” The borrower will not evaluate a bidder’s performance record, safety record, and similar factors when evaluating a bid from a qualified and invited bidder. Such factors are to be considered when determining whether to include a particular bidder on the qualified bidders list.
(e) Handling of bids received. The borrower or the engineer, as applicable, will indicate, in writing, the date and time of receipt by the borrower or the engineer on the outside envelope of each bid and all letters and other transmittals amending or modifying the bids. Any bid received at the designated location after the time specified must be returned to the bidder unopened.
(f) Bid opening. The contracting committee will conduct the bid opening in private. The contracting committee will open each bona fide bid which has been received prior to the deadline, and review it for any irregularities, errors, or exceptions. It must be verified that any addendum to the specification has been acknowledged by each bidder. The adequacy of bid bonds or certified checks must also be verified.
(g) Conditions affecting acceptability of bids. The borrower must take the following specified action if any of the following exist:
(1) Fewer than three bona fide bids received. If fewer than three bona fide bids are received for the contract project, the borrower must determine that all reasonable measures have been taken to assure competition prior to awarding the contract. This determination must be documented and such documentation submitted to RUS where required by subpart A of this part. The borrower may, however, elect to reject all bids, make changes in the specification or the qualified bidders list or both and invite new bids.
(2) Significant error or ambiguity in the specification. If a significant error or ambiguity in the specification is found which could result in the bidders having varying interpretations of the requirements of the bid, the borrower must either issue an addendum to each prospective bidder correcting the error or ambiguity before bids are received, or reject all bids and correct the specification. If a significant error or ambiguity in the specification is discovered after the bids are opened, the borrower must reject all bids, correct the specification and invite new bids.
(h) Clarification of proposals. The contracting committee may elect not to hold any clarifying discussions and recommend awarding the contract to the low responsive bidder. Otherwise, the contracting committee must give at least each of the three apparent lowest evaluated bidders an equal opportunity to participate in discussions for the purpose of resolving questions regarding the specification and contract terms and to arrive at a final price. Neither prices of other bids nor relative ranking of any bidder are to be revealed under any circumstances. Such discussions may be held by telephone or similar means provided at least each of the three apparent lowest evaluated bidders have an equal opportunity to participate. Upon completion of the clarifying discussions, the contracting committee will determine the lowest evaluated responsive bid. If no bids are responsive after the contracting committee has completed clarifying discussions, no contract award can be made under the informal bidding procedure.
(i) Award of the contract. Upon completion of the bid evaluations, the contracting committee will promptly report all findings and recommendations to the borrower’s board of directors. The board will either:
(1) Resolve to award the contract to the lowest evaluated responsive bidder; or
(2) Reject all bids.
(j) Certifications by the contracting committee. The chairperson of the contracting committee shall certify as follows: “The procedures for informal competitive bidding as described in 7 CFR 1726.202 were followed in awarding this contract.” The certification executed by the chairperson of the contracting committee shall be submitted to RUS in writing where required by subpart A of this part.
§ 1726.203 Multiparty negotiation.
Multiparty negotiation may only be used where permitted under subpart F of this part or where prior RUS approval has been obtained. The borrower must use the following procedure for multiparty negotiation:
(a) Selection of qualified bidders. The borrower (acting through its engineer, if applicable) will compile a list of qualified bidders for each proposed contract. The borrower will send invitations to bid only to persons or organizations on its qualified bidder list for the specific project (see § 1726.23).
(b) Invitations to bid. The borrower (acting through its engineer, if applicable) is responsible for sending out invitations to prospective bidders, informing them of scheduled bid openings and any other action necessary to procure full, free and competitive bidding. In any event, however, sufficient invitations need to be sent out to assure competition and so that at least three bids will be received. Subject to the criteria in the preceding sentence, the determination of how many and which bidders will be permitted to bid will be the responsibility of the borrower.
(c) Notice and instructions to bidders. The borrower must indicate in the “Notice and Instructions to Bidders” section of the bid documents that bids will be opened privately. The borrower may elect to conduct negotiations with the bidders. If such negotiations are held, at least the three apparent low evaluated bidders must be given an equal opportunity to resolve any questions related to the substance of the bidder’s proposal and to arrive at a final price.
(d) Evaluation basis. Any factors, other than lowest dollar amount of the bid, which are to be considered in evaluating the proposals of qualified bidders (e.g., power consumption, losses, etc.) must be stated in the “Notice and Instructions to Bidders.” The borrower will not evaluate a bidder’s performance record, safety record, and similar factors when evaluating a bid from a qualified and invited bidder. Such factors are to be considered when determining whether to include a particular bidder on the qualified bidders list.
(e) Handling of bids received. The borrower or the engineer, as applicable, will indicate, in writing, the date and time of receipt by the borrower or the engineer on the outside envelope of each bid and all letters and other transmittals amending or modifying the bids. Any bid received at the designated location after the time specified must be returned to the bidder unopened.
(f) Bid opening. The contracting committee will conduct the bid opening in private. The contracting committee will open each bona fide bid which has been received prior to the deadline, and review it for any irregularities, errors, or exceptions. It must be verified that any addendum to the specification has been acknowledged by each bidder. The adequacy of bid bonds or certified checks must also be verified.
(g) Conditions affecting acceptability of bids. The borrower must take the following specified action if any of the following exist:
(1) Fewer than three bona fide bids received. If fewer than three bona fide bids are received for the contract project, the borrower must determine that all reasonable measures have been taken to assure competition prior to awarding the contract. This determination must be documented and such documentation submitted to RUS where required by subpart A of this part. The borrower may, however, elect to reject all bids, make changes in the specification or the qualified bidders list or both and invite new bids.
(2) Significant error or ambiguity in the specification. If a significant error or ambiguity in the specification is found which could result in the bidders having varying interpretations of the requirements of the bid, the borrower must either issue an addendum to each prospective bidder correcting the error or ambiguity before bids are received, or reject all bids and correct the specification. If a significant error or ambiguity in the specification is discovered after the bids are opened, the borrower must reject all bids, correct the specification and invite new bids.
(h) Negotiations. The contracting committee may elect not to hold any negotiations and recommend award of the contract. Otherwise, the contracting committee must give at least each of the three apparent lowest evaluated bidders an equal opportunity to participate in negotiations for the purpose of resolving questions regarding the specification and contract terms and to arrive at a final price. Neither prices of other bids nor relative ranking of any bidder are to be revealed under any circumstances. Such discussions may be held by telephone or similar means provided at least each of the three apparent lowest evaluated bidders have an equal opportunity to participate. Upon completion of the negotiations, the contracting committee will determine the bid that is in the borrower’s best interest.
(i) Award of the contract. Upon completion of the bid evaluations, the contracting committee will promptly report all findings and recommendations to the borrower’s board of directors. The board will either:
(1) Resolve to award the contract to the selected bidder; or
(2) Reject all bids.
(j) Certifications by the contracting committee. The chairperson of the contracting committee shall certify as follows: “The procedures for multiparty negotiation as described in 7 CFR 1726.203 were followed in awarding this contract.” The certification executed by the chairperson of the contracting committee shall be submitted to RUS in writing where required by subpart A of this part.
§ 1726.204 Multiparty unit price quotations.
The borrower or its engineer must contact a sufficient number of suppliers or contractors to assure competition and so that at least three bids will be received. On the basis of written unit price quotations, the borrower will select the supplier or contractor based on the lowest evaluated cost.
§ 1726.205 Multiparty lump sum quotations.
The borrower or its engineer must contact a sufficient number of suppliers or contractors to assure competition and so that at least three bids will be received. On the basis of written lump sum quotations, the borrower will select the supplier or contractor based on the lowest evaluated cost.
§§ 1726.206-1726.249 [Reserved]
Subpart H – Modifications to RUS Standard Contract Forms
§ 1726.250 General.
RUS provides standard forms of contract for the procurement of materials, equipment, and construction and for contract amendments and various related forms for use by RUS borrowers. See § 1726.304 for a listing of these forms and how to obtain them. The standard forms of contract shall be used by the borrowers in accordance with the provisions of this part. RUS will give prior approval to certain modifications to these forms without changing the applicable requirements for RUS approval. Such approved modifications are set forth in this subpart. These are the only modifications given prior RUS approval.
(a) General. Where the borrower encounters reluctance among manufacturers, suppliers, and contractors to bid a firm price on transmission equipment or generation equipment, materials or construction, modifications may be made in the RUS standard form of contracts. These modifications, if applicable, may include, as an alternative to the standard form, provisions for adjusting a base price either upward or downward as determined by changes in specified indexes between the time of the bid and the time the work is performed or materials are procured by the contractor for such work. A large number of labor and materials indexes are published monthly by the Bureau of Labor Statistics (BLS). The borrower (acting through its engineer, if applicable) will select the indexes for the particular item to be used in the price adjustment clause. Suppliers’ corporate indexes may not be used. Labor and materials indexes are reported in the BLS’s monthly publications entitled “Employment and Earnings” and “Producer Prices and Price Indexes.” These publications may be ordered through the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402, or any of the BLS regional offices.
(b) Material and equipment contracts. The approved provisions needed to reflect the modifications to provide for price escalation in the material or equipment contract forms for generation facilities are as follows:
(1) Insert new paragraphs in the Notice and Instructions to Bidders as follows:
“Proposals are invited on the basis of firm prices (or prices with a stated maximum percentage escalation) or on the basis of nonfirm prices to be adjusted as provided for below or on both bases. The owner may award the contract on either basis.
Nonfirm prices. The prices are subject to adjustment upward or downward based on change in the Bureau of Labor Statistics labor and material indexes.
A proportion of ____ percent [the borrower will enter the appropriate percentage amount] of the contract price shall be deemed to represent labor cost and shall be adjusted based on changes in the Bureau of Labor Statistics, Average Hourly Earnings Rate____ [the borrower will enter the appropriate BLS index] from the month in which the bids are opened to the month in which the labor is incorporated in the equipment or materials. The adjustment for labor costs shall be obtained by applying the percentage of increase or decrease in such index, calculated to the nearest one-tenth of one percent, to the percentage of the contract prices deemed to represent labor costs. A portion of ____ percent [the borrower will enter the appropriate percentage amount] of the contract price shall be deemed to represent material costs and shall be adjusted based on changes in the Bureau of Labor Statistics, material index ____ [the borrower will enter the appropriate BLS index] for the period and in a manner similar to the labor cost adjustment.”
(2) Insert the following in the contract documents under the “Proposal” section:
(3) For equipment that uses a large quantity of insulating oil, the borrower may insert the following in the contract documents under the “Proposal” section:
“The price for insulating oil shall be adjusted upward or downward based on the change in the Bureau of Labor Statistics Refined Petroleum Rate (057) from the month in which the bids are opened to the month in which the oil is purchased by the equipment supplier. Contracts shall be evaluated based on an estimated cost of ____ cents per gallon [the borrower will enter the appropriate cost] for oil. Such adjustment, if any, shall not change the contract amount for purpose of applying any other adjustments to the contract prices.”
(c) Construction contracts. The approved provisions needed to reflect the modifications to provide for price escalation in the construction contract forms for generation facilities are as follows:
(1) Insert new paragraphs in the “Notice and Instructions” to Bidders as follows:
“Proposals are invited on the basis of firm prices (or prices with a stated maximum percentage escalation) or on the basis of nonfirm prices to be adjusted as provided for below or on both bases. The owner may award the contract on either basis.
Nonfirm Prices – The prices are subject to adjustment upward or downward based on changes in the Bureau of Labor Statistics labor and material indexes.
A proportion of ____ percent [the borrower will enter the appropriate percentage amount] of the contract price shall be deemed to represent shop labor costs and shall be adjusted based on changes in the Bureau of Labor Statistics, Average Hourly Earnings Rate ____ [the borrower will enter the appropriate BLS index] from the month in which bids are opened to the month in which the work is accomplished. The adjustment for shop labor costs shall be obtained by applying the percentage increase or decrease in such index, to the percentage of each partial payment deemed to represent shop labor costs. A portion of ____ percent [the borrower will enter the appropriate percentage amount] of the contract prices shall be deemed to represent material costs and shall be adjusted based on changes in the Bureau of Labor Statistics, Producer Price Index, ____ [the borrower will enter the appropriate BLS index] for the period and in a manner similar to the shop labor costs adjustment. A portion of ____ percent [the borrower will enter the appropriate percentage amount] of the contract price shall be deemed to represent field labor costs and shall be adjusted based on changes in the Bureau of Labor Statistics, Average Hourly Earnings Rate ____ [the borrower will enter the appropriate BLS index], for the period and in a manner similar to the shop labor costs adjustment.”
(2) Insert the following in the contract documents under the “Proposal” section:
This section applies only to transmission equipment purchases and generation contracts. Where the borrower anticipates difficulty in obtaining responsive bids on RUS standard contract forms due to a lack of limitation with respect to special and consequential damages, and where the borrower believes that such a modification will encourage competition through the receipt of an alternative bid which limits the bidder’s liability for special and consequential damages, the borrower may make the following approved phrase modifications in the RUS standard contract form on which the borrower solicits bids:
(a) Insert new paragraphs in the “Notice and Instructions to Bidders” as follows:
“Proposals are invited on the basis of alternative Liability Clause Numbers 1 and 2. The Owner will determine on which Liability Clause basis the award will be made. Any other liability clauses in the proposal or any other modifications will be considered not responsive and unacceptable. These Liability Clauses are defined as follows:
Liability Clause Number 1. This will include unmodified all of the standard terms and conditions of the form of contract furnished by the Owner and attached hereto.
Liability Clause Number 2. This will include the following paragraph, in addition to all of the standard terms and conditions, otherwise unmodified, of the form of contract furnished by the Owner and attached hereto:
“Except for the Bidder’s willful delay or refusal to perform the contract in accordance with its terms, the Bidder’s liability to the Owner for special or consequential damages on account of breach of this contract shall not exceed in total an amount equal to ____ percent [the borrower will insert an appropriate percentage between 0 and 100 percent, inclusive] of the contract price.”
(b) Insert the following in the contract documents under the “Proposal” section:
(c) Insert the following in the acceptance section of the standard contract form:
“This contract is based on Liability Clause Number________.”
When construction is to be performed over an extended period of time, but large quantities of material are to be purchased by the contractor at the beginning of the project (e.g., cable for URD installations), the borrower may allow alternative bids providing for payment to the contractor of 90 percent of the cost of such materials within 30 days of delivery of those materials at the job site. The borrower will retain the right to award the contract with or without the alternative payment provision, however, the contract still must be awarded on the basis of the lowest evaluated responsive bid for the alternative accepted.
§ 1726.254 [Reserved]
(a) As an alternative to the indemnification provision required in RUS standard construction contract forms in those jurisdictions requiring specific language concerning the requirement that the indemnitor indemnify the indemnitee for the indemnitee’s own negligence, the borrower may add the words “otherwise this provision shall apply to any alleged negligence or condition caused by the Owner” so that the first paragraph reads as follows:
“i. To the maximum extent permitted by law, Bidder shall defend, indemnify, and hold harmless Owner and Owner’s directors, officers, and employees from all claims, causes of action, losses, liabilities, and expenses (including reasonable attorney’s fees) for personal loss, injury, or death to persons (including but not limited to Bidder’s employees) and loss, damage to or destruction of Owner’s property or the property of any other person or entity (including but not limited to Bidder’s property) in any manner arising out of or connected with the Contract, or the materials or equipment supplied or services performed by Bidder, its subcontractors and suppliers of any tier. But nothing herein shall be construed as making Bidder liable for any injury, death, loss, damage, or destruction caused by the sole negligence of Owner, otherwise this provision shall apply to any negligence or condition caused by the Owner.”
(b) As an alternative to the indemnification provision required in RUS standard construction contract forms in those jurisdictions that have a legal prohibition against one party indemnifying another for the other’s negligence, the borrower may replace the words “defend, indemnify, and hold harmless” with the words “ shall pay on behalf of” so that the first paragraph reads as follows:
“i. To the maximum extent permitted by law, Bidder shall pay on behalf of Owner and Owner’s directors, officers, and employees from all claims, causes of action, losses, liabilities, and expenses (including reasonable attorney’s fees) for personal loss, injury, or death to persons (including but not limited to Bidder’s employees) and loss, damage to or destruction of Owner’s property or the property of any other person or entity (including but not limited to Bidder’s property) in any manner arising out of or connected with the Contract, or the materials or equipment supplied or services performed by Bidder, its subcontractors and suppliers of any tier. But nothing herein shall be construed as making Bidder liable for any injury, death, loss, damage, or destruction caused by the sole negligence of Owner, otherwise this provision shall apply to any negligence or condition caused by the Owner.”
(c) If the alternative indemnification provision in paragraph (a) or (b) of this section is chosen by the borrower, the language of paragraph (a) or (b) of this section would be inserted in lieu of paragraph (i) of the section indicated in the RUS standard construction contract forms as follows:
(1) RUS Form 198, Equipment Contract, article IV, section 1(d).
(2) RUS Form 200, Construction Contract – Generating, article IV, section 1(d).
(3) RUS Form 257, Contract to Construct Buildings, article IV, section 1(d).
(4) RUS Form 786, Electric System Communications and Control Equipment Contract, article IV, section 1(d).
(5) RUS Form 790, Electric System Construction Contract – Non-Site Specific Construction, article IV, section 1(g).
(6) RUS Form 830, Electric System Construction Contract – Project Construction, article IV, section 1(g).
§§ 1726.256-1726.299 [Reserved]
Subpart I – RUS Standard Forms
§ 1726.300 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 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, § 1726.304(c), that borrowers are required to use in accordance with the provisions of this part. In addition, RUS promulgates standard contract forms contained in § 1726.304(d) that the borrowers may but are not required to use in the construction of their electric systems. Borrowers are not required to use these guidance contract forms in the absence of an agreement to do so.
§ 1726.301 Borrower contractual obligations.
(a) Loan agreement. As a condition of a loan or loan guarantee under the Rural Electrification Act, 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 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 Contract Forms, § 1724.304(c).
(b) Compliance. If a borrower is required by this part or by its loan agreement with RUS to use a listed standard form of contract, the borrower shall use the listed contract form in the format available from RUS, either paper or electronic format. Exact electronic reproduction is acceptable. The approved RUS standard forms of contract shall not be retyped, changed, modified, or altered in any manner not specifically authorized in this part or approved by RUS in writing on a case-by-case basis. Any modifications approved by RUS on a case-by-case basis must be clearly shown so as to indicate the modification difference from the standard form of contract.
(c) Amendment. Where a borrower has entered into a contract in the form required by this part, no change may be made in the terms of the contract, by amendment, waiver or otherwise, without the prior written approval of RUS.
(d) Waiver. RUS may waive for good cause, on a case by case basis, the requirements imposed on a borrower pursuant to this part. Borrowers seeking a waiver by RUS must provide RUS with a written request explaining the need for the waiver. Waiver requests should be made prior to issuing the bid package to bidders.
(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.
§ 1726.302 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 standard forms of contract are available from: Rural Utilities Service, Program Development and Regulatory Analysis, U.S. Department of Agriculture, Stop 1522, 1400 Independence Avenue, SW., Washington DC 20250-1522, telephone number (202) 720-8674. The listed standard forms of contract are also available on the RUS Web site at: http://www.usda.gov/rus/electric/forms/index.htm. The listed standard forms of contract can be found in § 1724.304(c), List of Required Contract Forms.
§ 1726.303 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
§ 1726.304 List of electric program standard contract forms.
(a) General. This section contains a list of RUS electric program standard contract forms. 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 sets forth the list of guidance contract forms, i.e., those forms of contracts provided as guidance to borrowers in the construction of their systems. See § 1726.302(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 issues the bid package to bidders.
(c) List of required contract forms.
(1) RUS Form 168b, Rev. 2-04, Contractor’s Bond. This form is used to obtain a surety bond and is used with RUS Forms 200, 257, 786, 790, and 830.
(2) RUS Form 168c, Rev. 2-04, Contractor’s Bond (less than $1 million). This form is used in lieu of RUS Form 168b to obtain a surety bond when contractor’s surety has accepted a Small Business Administration guarantee.
(3) RUS Form 187, Rev. 2-04, Certificate of Completion, Contract Construction. This form is used for the closeout of RUS Forms 200, 257, 786, and 830.
(4) RUS Form 198, Rev. 4-04, Equipment Contract. This form is used for equipment purchases.
(5) RUS Form 200, Rev. 2-04, Construction Contract – Generating. This form is used for generating plant construction or for the furnishing and installation of major items of equipment.
(6) RUS Form 213, Rev. 2-04, Certificate (“Buy American”). This form is used to document compliance with the “Buy American” requirement.
(7) RUS Form 224, Rev. 2-04, Waiver and Release of Lien. This form is used for the closeout of RUS Forms 198, 200, 257, 786, 790, and 830.
(8) RUS Form 231, Rev. 2-04, Certificate of Contractor. This form is used for the closeout of RUS Forms 198, 200, 257, 786, 790, and 830.
(9) RUS Form 238, Rev. 2-04, Construction or Equipment Contract Amendment. This form is used for amendments.
(10) RUS Form 254, Rev. 2-04, Construction Inventory. This form is used for the closeout of RUS Form 830. Minor electronic modifications are acceptable for RUS Form 254.
(11) RUS Form 257, Rev. 2-04, Contract to Construct Buildings. This form is used to construct headquarters buildings and other structure construction.
(12) RUS Form 307, Rev. 2-04, Bid Bond. This form is used to obtain a bid bond.
(13) RUS Form 786, Rev. 2-04, Electric System Communications and Control Equipment Contract (including installation). This form is used for delivery and installation of equipment for system communications.
(14) RUS Form 790, Rev. 2-04, Electric System Construction Contract – Non-Site Specific Construction. This form is used for limited distribution construction accounted for under work order procedure.
(15) RUS Form 792b, Rev. 2-04, Certificate of Construction and Indemnity Agreement. This form is used for the closeout of RUS Form 790.
(16) RUS Form 830, Rev. 2-04, Electric System Construction Contract – Project Construction. This form is used for distribution and transmission line project construction.
(d) List of guidance contract forms. RUS does not currently publish any guidance forms for electric borrowers.
§§ 1726.305-1726.399 [Reserved]
Subpart J – Contract Closeout
§ 1726.400 Final contract amendment.
As needed, a final contract amendment will be prepared and processed in accordance with § 1726.24(b) prior to or in conjunction with the closeout of the contract.
§ 1726.401 Material contract closeout.
(a) Delivery inspection. The borrower (acting through its engineer, if applicable) will verify that all materials are delivered in proper quantities, in good condition, and in compliance with applicable specifications.
(b) Closeout documents. The borrower (acting through its engineer, if applicable) will obtain from the supplier a “Buy American” certificate, RUS Form 213, any manufacturer’s guarantee(s) and, if applicable, a copy of RUS Form 224, Waiver and Release of Lien. Closeout documents for materials contracts need not be submitted to RUS unless specifically requested by RUS on a case by case basis.
(c) Final payment. Upon completion of the actions required under paragraphs (a) and (b) of this section, the borrower shall make final payment to the supplier in accordance with the provisions of the material contract or written purchase order.
§ 1726.402 Equipment contract closeout.
This section is applicable to contracts executed on RUS Form 198.
(a) Final inspection and testing of equipment. The borrower (acting through its engineer, if applicable) will perform the final inspection and testing of equipment as appropriate for the specific equipment. The borrower (acting through its engineer, if applicable) will schedule such inspection and testing at a time mutually agreeable to the borrower, engineer, and the supplier or manufacturer. Within thirty (30) days after completion of the inspection and testing, the borrower (acting through its engineer, if applicable) will prepare a report of the inspection and testing, obtain a copy of the report from the engineer, and submit a copy to the supplier or manufacturer. This report must include a detailed description of the methods of conducting the test(s), observed data, comparison of guaranteed and actual performance, and recommendations concerning acceptance. The borrower will obtain from the engineer a written certification stating that the equipment has been installed, placed in satisfactory operation and tested, and meets the contract requirements. Where more than one-hundred and eighty (180) days have elapsed since the delivery of the equipment and the equipment has not been installed or tested, the contract may be closed out upon certification by the engineer that the equipment has been inspected and appears to be in accordance with the contract requirements.
(b) Closeout documents. (1) The borrower (acting through its engineer, if applicable) will obtain the following executed documents:
(i) Certification by the project engineer in accordance with paragraph (a) of this section.
(ii) All guarantees or warranties.
(iii) A “Buy American” certificate, RUS Form 213, from the supplier or manufacturer.
(2) Closeout documents for materials contracts need not be submitted to RUS unless specifically requested by RUS.
(c) Final payment. Upon completion of the actions required under paragraphs (a) and (b) of this section, the borrower will make final payment to the supplier or manufacturer in accordance with the provisions of the equipment contract.
§ 1726.403 Project construction contract closeout.
This section is applicable to contracts executed on RUS Forms 200, 257, 786, and 830.
(a) Final test of equipment supplied under a construction contract. If equipment is supplied under a construction contract, the borrower (acting through its architect or engineer, if applicable) will perform the final inspection and testing of equipment as appropriate for the specific equipment. The borrower (acting through its architect or engineer, if applicable) will schedule such inspection and testing at a time mutually agreeable to the borrower, architect or engineer, and the contractor. Within thirty (30) days after completion of the inspection and testing, the borrower (acting through its architect or engineer, if applicable) will prepare a report of the inspection and testing, obtain a copy of the report from its architect or engineer, and submit a copy to the contractor. This report must include a detailed description of the methods of conducting the test(s), observed data, comparison of guaranteed and actual performance, and recommendations concerning acceptance. The borrower will obtain from its architect or engineer a written certification stating that the equipment has been installed, placed in satisfactory operation and tested, and meets the contract requirements. Where more than one-hundred and eighty (180) days have elapsed since the delivery of the equipment and the equipment has not been installed or tested, the contract may be closed out upon certification by its architect or engineer that the equipment has been inspected and appears to be in accordance with the contract requirements.
(b) Final inspection of construction. The borrower will require the contractor to notify the architect or engineer when construction is complete. The borrower (acting through the architect or engineer, if applicable) will schedule such final inspection at a time mutually agreeable to the borrower, architect or engineer, contractor, and the respective RUS General Field Representative (GFR), if the GFR has notified the borrower or its architect or engineer of a desire to observe the final inspection. The borrower (acting through its architect or engineer, if applicable) will perform a final inspection of the construction and notify the contractor of any required changes or corrections.
(c) Closeout documents. (1) Upon satisfactory completion of construction (including all changes and corrections by the contractor), the borrower (acting through its architect or engineer, if applicable) will obtain executed copies of the following documents:
(i) RUS Form 187, Certificate of Completion, Contract Construction.
(ii) RUS Form 213, “Buy American” certificate.
(iii) RUS Form 224, Waiver and Release of Lien, from each manufacturer, supplier, and contractor which has furnished material or services or both in connection with the construction.
(iv) RUS Form 231, Certificate of Contractor.
(v) RUS Form 254, Construction Inventory, including all supporting documents, such as RUS Forms 254a-c, construction change orders, and amendments for contracts executed on RUS Form 830.
(vi) Certification by the project architect or engineer in accordance with § 1726.403(a), if applicable.
(vii) Final design documents, as outlined in part 1724 of this chapter.
(2) Distribution of closeout documents. (i) The borrower will retain one copy of each of the documents identified in paragraph (c)(1) of this section in accordance with applicable RUS requirements regarding retention of records.
(ii) For contracts subject to RUS approval, the borrower will submit either a certification or the following closeout documents for RUS approval:
(A) RUS Form 187, Certificate of Completion, Contract Construction.
(B) RUS Form 231, Certificate of Contractor.
(C) RUS Form 254, Construction Inventory, including all supporting documents, such as RUS Forms 254a-c and construction change orders, for contracts executed on RUS Form 830.
(iii) For contracts not subject to RUS approval, the closeout is not subject to RUS approval. The borrower will send one copy of RUS Form 187 to RUS for information prior to or in conjunction with the applicable RUS Form 219, Inventory of Work Orders. The remaining closeout documents need not be sent to RUS unless specifically requested by RUS.
(d) Final payment. (1) The borrower will make final payment to the contractor upon completion of approval of all closeout documents by the parties to the contract, in accordance with the terms of the construction contract.
(2)(i) Upon receipt of final payment by the contractor, the borrower will obtain from the contractor a certification of receipt of final payment in the following form:
“The undersigned acknowledges receipt of the final contract payment of $____ as satisfaction in full of all claims of the undersigned under the construction contract between the undersigned and ____ (borrower), dated as amended, and as complete performance by the latter of all obligations to be performed by it pursuant thereto. The total amount received under this contract is shown above.”
(ii) The certification in paragraph (d)(2)(i) of this section is to be executed for the contractor by: The sole owner, a partner, or an officer of the corporation.
§ 1726.404 Non-site specific construction contract closeout.
This section is applicable to contracts executed on RUS Form 790.
(a) Final test of equipment supplied under a construction contract. If equipment is supplied under a construction contract, the borrower (acting through its engineer, if applicable) will perform the final inspection and testing of equipment as appropriate for the specific equipment. The borrower (acting through its engineer, if applicable) will schedule such inspection and testing at a time mutually agreeable to the borrower, its engineer, and the contractor. Within thirty (30) days after completion of the inspection and testing, the borrower (acting through its engineer, if applicable) will prepare a report of the inspection and testing, obtain a copy of the report from its engineer, and submit a copy to the contractor. This report must include a detailed description of the methods of conducting the test(s), observed data, comparison of guaranteed and actual performance, and recommendations concerning acceptance. The borrower will obtain from the engineer a written certification stating that the equipment has been installed, placed in satisfactory operation and tested, and meets the contract requirements. Where more than one-hundred and eighty (180) days have elapsed since the delivery of the equipment and the equipment has not been installed or tested, the contract may be closed out upon certification by the engineer that the equipment has been inspected and appears to be in accordance with the contract requirements.
(b) Final inspection of construction. The borrower will require the contractor to notify its engineer when construction of a section of the project is complete. The borrower (acting through its engineer, if applicable) will schedule such final inspection at a time mutually agreeable to the borrower, its engineer, contractor, and the respective GFR, if the GFR has notified the borrower or its engineer of a desire to observe the final inspection. The borrower (acting through its engineer, if applicable) will perform a final inspection of the construction of that section of the project and notify the contractor of any required changes or corrections.
(c) Closeout documents. (1) Upon satisfactory completion of construction of a section of the project (including all changes and corrections by the contractor), the borrower (acting through its engineer, if applicable) will obtain executed copies of the following documents:
(i) RUS Form 792b, Certificate of Contractor and Indemnity Agreement
(ii) RUS Form 213, “Buy American” certificate.
(iii) Certification by the project engineer in accordance with paragraph (a) of this section, if applicable.
(iv) Final design documents, as outlined in part 1724 of this chapter.
(2) Distribution of closeout documents. (i) The borrower will retain one copy of each of the documents identified in paragraph (c)(1) of this section in accordance with applicable RUS requirements regarding retention of records.
(ii) For contracts not subject to RUS approval, the closeout is not subject to RUS approval and the closeout documents need not be sent to RUS unless specifically requested by RUS.
§ 1726.405 Inventory of work orders (RUS Form 219).
Upon completion of the contract closeout, the borrower shall complete RUS Form 219, Inventory of Work Orders, in accordance with part 1717, Post-Loan Policies and Procedures Common to Insured and Guaranteed Electric Loans, of this chapter.
PART 1728 – ELECTRIC STANDARDS AND SPECIFICATIONS FOR MATERIALS AND CONSTRUCTION
§ 1728.10 General purpose and scope.
(a) The requirements of this part are based on contractual provisions between RUS and the organizations which receive financial assistance from RUS.
(b) RUS will establish certain specifications and standards for materials, equipment, and construction units that will be acceptable for RUS financial assistance for the electric program. Materials and equipment purchased by the electric borrowers or accepted as contractor-furnished material must conform to RUS standards and specifications where they have been established and, if included in RUS Bulletin 43-5, “List of Materials Acceptable for Use on Systems of RUS Electrification Borrowers” (List of Materials), must be selected from that list or must have received technical acceptance from RUS. RUS, through its Technical Standards Committees, will evaluate certain materials, equipment and construction units, and will determine acceptance.
§ 1728.20 Establishment of standards and specifications.
(a) National and other standards. RUS will utilize standards of national standardizing groups, such as the American National Standards Institute (ANSI), American Wood Preservers’ Association (AWPA), the various national engineering societies and the National Electrical Safety Code (NESC), to the greatest extent practical. When there are no national standards or when RUS determines that the existing national standards are not adequate for rural electric systems, RUS will prepare standards for material and equipment to be used on systems of electric borrowers. RUS standards and specifications will be codified or listed in § 1728.97, Incorporation by Reference of Electric Standards and Specifications. RUS will also prepare specifications for materials and equipment when it determines that such specifications will result in reduced costs, improved materials and equipment, or in the more effective use of engineering services.
(b) Deviations from Standards. No member of the RUS staff will be permitted to authorize deviations from the standard specifications, or to establish or change the technical standards, or to authorize the use of items that have not received acceptance by the Technical Standards Committees, except as provided for under § 1728.70, or by authorization and/or delegation of authority by the Administrator of RUS.
(c) Category of Items. Items appearing in the List of Materials are listed by categories of generic items which are used in RUS construction standards incorporated by reference in § 1728.97. RUS will establish and define these categories and will establish all criteria for acceptability within these categories.
§ 1728.30 Inclusion of an item for listing or technical acceptance.
(a) Scope. RUS, through its Technical Standards Committees “A” and “B” will determine the acceptability of certain standards, standard specifications, standard drawings, and items of materials and equipment to be used in transmission, distribution and general plant (excluding office equipment, tools, and work equipment, and consumer-owned electric wiring facilities).
(b) Addresses of Committees. The address of Technical Standards Committee “A” is: Chairman, Technical Standards Committee “A” (Electric), Rural Utilities Service, U.S. Department of Agriculture, Washington, DC 20250-1500. The address of Technical Standards Committee “B” is: Chairman, Technical Standards Committee “B” (Electric), Rural Utilities Service, U.S. Department of Agriculture, Washington, DC 20250-1500.
(c) Review by Technical Standards Committee “A”. All proposals for listing a product in the List of Materials must be addressed to Technical Standards Committee “A.” This committee will consider all proposals made by sponsors of specifications, drawings, materials, or equipment in categories for which RUS has established criteria for acceptability. A sponsor may be a manufacturer, supplier, contractor or any other person or organization which has made an application for listing or has requested an action by the committee. Committee “A” will consider all relevant information presented in determining whether an item should be accepted by Technical Standards Committee “A.” Formal rules of evidence and procedure shall not apply to proceedings before this committee.
(d) Action by Technical Standards Committee “A”. (1) Committee “A” may take one of the following actions:
(i) Accept an item for listing without conditions (domestic items only),
(ii) Reject an item (domestic or nondomestic),
(iii) Accept an item for listing with conditions (domestic items only),
(iv) Table an item for a time period sufficient to allow the sponsor to be notified and furnish additional information (domestic or nondomestic),
(v) Grant technical acceptance with or without conditions for a period of one year from the date of notification by RUS (nondomestic items only).
(2) All committee decisions regarding the actions listed above must be unanimous. If the vote is not unanimous, the item shall be referred to Technical Standards Committee “B.” Written notice of Technical Standards Committee “A’s” decision, stating the basis for the decision, will be provided to the sponsor.
(3) Items accepted without conditions by the Technical Standards Committees will be considered to be accepted on a general basis. No restrictions as to quantity or application will be placed on items which have received general acceptance. Items accepted subject to certain conditions, such as limited use to gain service experience, or limited use appropriate to certain areas and conditions, will be considered to be accepted on a conditional basis. The conditions will be cited as a part of the listing provided for in § 1728.60, or as part of the technical acceptance for nondomestic items.
(e) Appeal to Technical Standards Committee “B”. A sponsor may request a review of an adverse decision by Technical Standards Committee “A” within ten (10) days of notification of such decision by submitting a letter requesting such review to Technical Standards Committee “B” (Electric).
(f) Action by Technical Standards Committee “B”. Committee “B” may take any of the actions listed for Committee “A” in § 1728.30(d). However, for a Committee “B” action to be effective it must be by majority vote. Failure to obtain a majority on one of the proposed actions shall mean that the product will not be listed or accepted. Committee “B’s” determination shall be based on the record developed before Committee “A” and such additional information as Committee “B” may request. Formal rules of procedure and evidence shall not apply to proceedings before Committee “B.” Written notice of Committee “B’s” decision, stating the basis of the decision, will be provided to the sponsor.
(g) Appeal to the Administrator. In the event of an adverse decision by Committee “B,” the sponsor may, within ten (10) days of notification of such decision, request a review of this decision by submitting a letter to the Administrator requesting such a review.
(h) Change in Design. RUS acceptance of an item will be conditioned on the understanding that no design changes (material or dimensions) affecting the quality, strength, or electrical characteristics of the item shall be made without prior concurrence of Technical Standards Committee “A.”
§ 1728.40 Procedure for submission of a proposal.
(a) Written Request. Consideration of an item of material or equipment will be obtained by the sponsor through the submission of a written request in an original and five copies addressed to the Chairman, Technical Standards Committee “A” (Electric). The letter must include the catalog number or other identifying number or code as well as a description of the item. In the event that an item being submitted is also intended for consideration by Technical Standards Committee “A” (Telephone), a separate request must be made to the telephone committee. (See part 1755 of this chapter).
(b) Technical and Performance Data. Six copies of the specification of manufacture, drawings and test data must be submitted to the committee. Six copies of the performance history shall also be submitted unless RUS determines that such performance history is not reasonably available.
(c) Sample. One sample of the item must be submitted to the Chairman, Technical Standards Committee “A,” unless RUS waives the requirements of the sample. In case of large, bulky or extremely heavy samples, the sponsor should contact the Chairman, Technical Standards Committee “A” (Electric), at the above address, before any sample is shipped.
(d) Action on Proposal. RUS will inform a sponsor of the action taken on the sponsor’s proposal.
§ 1728.50 Removal of an item from listing or technical acceptance.
(a) Removal Actions. An item of material or equipment may be removed from the listing or technical acceptance in accordance with the following procedures upon determination that the item is unsatisfactory or has been misrepresented to the owner or RUS.
(b) Notification by the Committee. The sponsor of an item of material or equipment will be notified in writing of a proposal to remove such item from the listing or technical acceptance.
(c) Supplemental Information. Within ten (10) days of receipt of such notification, the sponsor may submit to Committee “A” a letter expressing the sponsor’s intent to submit written supplemental technical information relevant to Committee “A’s” determination. The sponsor must submit such information within twenty (20) days from the submission of its letter to Committee “A.” Committee “A” will have the discretion of making a decision following the expiration of the time periods provided in this paragraph.
(d) Review by the Technical Standards Committee “A”. Committee “A” will consider all relevant information presented in determining whether an item should be removed from the listing or technical acceptance. Formal rules of evidence and procedure shall not apply to proceedings before Technical Standards Committee “A.”
(e) Action by the Technical Standards Committee “A”. Committee “A” may take one of the following actions:
(1) Order the immediate removal of the item from the listing, or technical acceptance,
(2) Condition the item’s continued listing, or technical acceptance,
(3) Recommend a basis of settlement which will adequately protect the interest of the Government, or
(4) Delay the effectiveness of its decision for a time period sufficient to allow the sponsor to appeal to Technical Standards Committee “B.”
(f) Additional Opportunity to Present Information. At the request of the sponsor, RUS may afford additional opportunity for consideration of relevant information. Such additional opportunity may include, without limitation, a meeting between RUS and the sponsor in such a forum that RUS may determine. In making this decision, RUS will consider, among other things, the best interests of RUS, its borrowers, and the sponsor, and the best manner to develop sufficient information relating to the proposed action.
(g) Appeal to the Technical Standards Committee “B”. Within ten (10) days of notification of Committee “A’s” decision, a sponsor may appeal in writing to Technical Standards Committee “B” to review Committee “A’s” decision, specifying the reasons for such a request. Committee “B’s” determination, in response to such request, shall be based on the record developed before Committee “A” and such additional information as Committee “B” may request. Formal rules of procedure and evidence shall not apply to proceedings before Committee “B.”
(h) Action by Technical Standards Committee “B”. Committee “B,” by majority vote, may take one of the following actions:
(1) Order the immediate removal of the item from listing, or technical acceptance,
(2) Condition the item’s continued listing, or technical acceptance,
(3) Recommend a basis of settlement which adequately protects the interests of the Government, or
(4) Delay the effectiveness of its decision for a time period sufficient to allow the sponsor to appeal to the Administrator of RUS.
(i) Appeal to the Administrator. Within ten (10) days of the receipt of Committee “B’s” decision, a sponsor may appeal to the Administrator to review Committee “B’s” decision. If an appeal is made, the sponsor shall submit a written request to the Administrator, Rural Utilities Service, Room 4053, South Building, U.S. Department of Agriculture, Washington, DC 20250-1500 specifying the reasons to request reconsideration. The Administrator will have the option to decline the request, in which case the decision of Committee “B” shall stand. If a review is granted, the determination by the Administrator or the Administrator’s designee shall be based on the record developed before Committee “A” and Committee “B” and such additional information as the Administrator may request. Formal rules of procedure and evidence shall not apply to the actions of the Administrator.
(j) Action by the Administrator. The Administrator may take one of the following actions:
(1) Order the immediate removal of the item from the listing, or technical acceptance,
(2) Condition its continued listing, or technical acceptance, or
(3) Recommend a basis of settlement which adequately protects the interests of the Government.
§ 1728.60 List of materials and equipment.
(a) General. Those items of material or equipment accepted by Technical Standards Committee “A” or “B,” with the exception of technically accepted nondomestic items, will be listed in the List of Materials. Items which do not qualify as domestic products may be accepted on a technical basis only (technical acceptance) for a period of one year as provided in § 1728.30(c)(1) and will not be included in the List of Materials.
(b) Publishing and Revisions. RUS will reissue the List of Materials every year, dated July, and issue supplements, if needed, dated October, January, and April of every year. An RUS office copy, which is the official current copy, of the List of Materials, will be updated every time changes are made by the Technical Standards Committees.
(c) Dual Listings. RUS, through its Technical Standards Committees, will accept for listing only one item of a particular type of material or equipment for each manufacturer. If a manufacturer submits an item to perform the identical function of a listed item, RUS, through its Technical Standards Committees, may accept that item and remove the one previously listed. RUS will list only new items of material and equipment in the List of Materials. Used items will not be considered for listing.
§ 1728.70 Procurement of materials.
(a) By Owner. When purchasing the type of materials included in the List of Materials, RUS borrowers shall purchase only materials listed in the List of Materials, or materials which have a current technical acceptance by RUS and meet the “Buy American” requirement.
(b) By Contractor. When performing work for an RUS borrower, contractors shall supply only items from the general acceptance pages of the List of Materials, or obtain the borrower’s concurrence prior to purchase and use of a technically nondomestic item or any item listed on a conditional basis.
(c) Procurement of Unlisted Items. (1) The borrower shall request prior approval from RUS for use of an item that does not fall in categories established by RUS in the List of Materials for which acceptability has been established by the Technical Standards Committees.
(2) RUS will also determine, on a case-by-case basis, whether to allow use of an unlisted item in emergency situations and for experimental use or to meet a specific need. For purposes of this part 1728, an emergency shall mean a situation wherein the supply of listed material and equipment from the industry is not readily available, or the standard designs are not applicable to the borrower’s specific problem under consideration.
(3) RUS will make arrangements for test or experimental use of newly developed items requiring limited trial use. RUS, working with the borrower and the manufacturer, will establish test locations for the items to facilitate installation and observation.
§ 1728.97 Incorporation by reference of electric standards and specifications.
Certain material is incorporated by reference into this part with the approval of the Director of the Federal Register under 5 U.S.C. 552(a) and 1 CFR part 51. All approved material is available for inspection at the Rural Utilities Service, U.S. Department of Agriculture, Room 5170-S, Washington, DC 20250-1522, call (202) 720-8674 and is available from the sources listed in this section. It is also available for inspection at the National Archives and Records Administration (NARA). For information on the availability of this material at NARA, email [email protected] or go to www.archives.gov/federal-register/cfr/ibr-locations.html.
(a) Rural Utilities Service, U.S. Department of Agriculture, Room 5170-S-S, U.S. Department of Agriculture, Washington, DC 20250. For information on the availability of this material, call (202) 720-8674 or go to: https://www.rd.usda.gov/publications/regulations-guidelines/bulletins.
(1) Bulletin 50-4 (D-801), Specification and Drawings for 34.5/19.9 kV Distribution Line Construction (11-86), incorporation approved for § 1728.98.
(2) Bulletin 50-15 (DT-3), RUS Specifications for Pole Top Pins with 1
(3) Bulletin 50-16 (DT-4), RUS Specifications for Angle Suspension Brackets (3-52), incorporation approved for § 1728.98.
(4) Bulletin 50-19 (DT-7), RUS Specifications for Clevis Bolts (8-53), incorporation approved for § 1728.98.
(5) Bulletin 50-23 (DT-18), RUS Specifications for 60″ Wood Crossarm Braces (2-71), incorporation approved for § 1728.98.
(6) Bulletin 50-31 (D-3), RUS Specifications for Pole Top Pins with 1” Diameter Lead Threads (2-79), incorporation approved for § 1728.98.
(7) Bulletin 50-32 (D-4), RUS Specifications for Steel Crossarm Mounted Pins with 1″ Diameter Lead Threads (10-50), incorporation approved for § 1728.98.
(8) Bulletin 50-33 (D-5), RUS Specifications for Single and Double Upset Spool Bolts (2-51), incorporation approved for § 1728.98.
(9) Bulletin 50-34 (D-6), RUS Specifications for Secondary Swinging Clevises (12-70), incorporation approved for § 1728.98.
(10) Bulletin 50-35 (D-7), RUS Specifications for Service Swinging Clevises (9-52), incorporation approved for § 1728.98.
(11) Bulletin 50-36 (D-8), RUS Specifications for Service Deadend Clevises (9-52), incorporation approved for § 1728.98.
(12) Bulletin 50-40 (D-14), RUS Specifications for Pole Top Brackets for Channel Type Pins (9-51), incorporation approved for § 1728.98.
(13) Bulletin 50-41 (D-15), RUS Specifications for Service Wireholders (11-51), incorporation approved for § 1728.98.
(14) Bulletin 50-55 (T-2), RUS Specifications for Overhead Ground Wire Support Brackets (5-53), incorporation approved for § 1728.98.
(15) Bulletin 50-56 (T-3), RUS Specifications for Steel Plate Anchors for Transmission Lines (12-53), incorporation approved for § 1728.98.
(16) Bulletin 50-60 (T-9), RUS Specification – Single Pole Steel Structures, Complete with Arms (12-71), incorporation approved for § 1728.98.
(17) Bulletin 50-72 (U-4), RUS Specification for Electrical Equipment Enclosures (5-35 kV) (10-79), incorporation approved for § 1728.98.
(18) Bulletin 50-73 (U-5), RUS Specifications for Pad-Mounted Transformers (Single and Three-Phase) (1-77), incorporation approved for § 1728.98.
(19) Bulletin 50-74 (U-6), RUS Specification for Secondary Pedestals (600 Volts and Below) (10-79), incorporation approved for § 1728.98.
(20) Bulletin 50-91 (S-3), RUS Specifications for Step-Down Distribution Substation Transformers (34.4-138 kV) (1-78), incorporation approved for § 1728.98.
(21) Bulletin 1728F-700, RUS Specification for Wood Poles, Stubs and Anchor Logs (April 18, 2022), incorporation approved for §§ 1728.98 and 1728.202.
(22) Bulletin 1728F-803, Specifications and Drawings for 24.9/14.4 kV Line Construction (10-98), incorporation approved for § 1728.98.
(23) Bulletin 1728F-804 (D-804), Specification and Drawings for 12.47/7.2 kV Line Construction, October 2005, incorporation approved for § 1728.98.
(24) Bulletin 1728F-806 (D-806) Specifications and Drawings for Underground Electric Distribution, October 11, 2018, incorporation approved for § 1728.98.
(25) Bulletin 1728F-810, Electric Transmission Specifications and Drawings, 34.5 kV to 69 kV (3-98), incorporation approved for §§ 1728.98 and 1728.201.
(26) Bulletin 1728F-811, Electric Transmission Specifications and Drawings, 115 kV to 230 kV (3-98), incorporation approved for §§ 1728.98 and 1728.201.
(b) American Institute of Timber Construction (AITC), 7012 S Revere Park Way, Englewood, Colorado 80112, telephone (303) 792-9559, web address: https://www.aitc-glulam.org/index.asp.
(1) AITC 200-2009, Manufacturing Quality Control Systems Manual For Structural Glued Laminated Timber, copyright 2009, incorporation by reference approved for §§ 1728.201 and 1728.202.
(2) [Reserved]
(c) American National Standards Institute (ANSI), 25 West 43rd Street, New York, New York 10036, telephone (212) 642-4900, Web address: http://www.ansi.org.
(1) ANSI O5.2-2020, Structural Glued Laminated Timber for Utility Structures, approved January 10, 2020, incorporation by reference approved for §§ 1728.201 and 1728.202.
(2) ANSI O5.3-2015, Solid Sawn Wood Crossarms & Braces: Specifications & Dimensions, approved January 9, 2015, incorporation by reference approved for § 1728.201.
(d) ASTM International, 100 Barr Harbor Drive, West Conshohocken, PA 19428-2959, Telephone: (610) 832-9585, website: www.astm.org.
(1) ASTM B 3-01 (Reapproved 2007) – Standard Specification for Soft or Annealed Copper Wire, (ASTM B 3-01) approved March 15, 2007, incorporated by reference approved for § 1728.204.
(2) ASTM B 8-04 – Standard Specification for Concentric-Lay-Stranded Copper Conductors, Hard, Medium-Hard, or Soft (ASTM B 8-04), approved April 1, 2004, incorporated by reference approved for § 1728.204.
(3) ASTM B 230/B 230M-07 – Standard Specification for Aluminum 1350-H19 Wire for Electrical Purposes (ASTM B 230/B 230M-07), approved March 15, 2007, incorporated by reference approved for § 1728.204.
(4) ASTM B 231/B 231M-04 – Standard Specification for Concentric-Lay-Stranded Aluminum 1350 Conductors (ASTM B 231/B 231M-04), approved April 1, 2004, incorporated by reference approved for § 1728.204.
(5) ASTM B 400-08 – Standard Specification for Compact Round Concentric-Lay-Stranded Aluminum 1350 Conductors (ASTM B 400-08), approved September 1, 2008, incorporated by reference approved for § 1728.204.
(6) ASTM B 496-04 – Standard Specification for Compact Round Concentric-Lay-Stranded Copper Conductors (ASTM B 496-04), approved April 1, 2004, incorporated by reference approved for § 1728.204.
(7) ASTM B 609/B 609M-99 – Standard Specification for Aluminum 1350 Round Wire, Annealed and Intermediate Tempers, for Electrical Purposes (ASTM B 609/B 609M-99), approved April 1, 2004, incorporated by reference approved for § 1728.204.
(8) ASTM B 786-08 – Standard Specification for 19 Wire Combination Unilay-Stranded Aluminum 1350 Conductors for Subsequent Insulation (ASTM B 786-08), approved September 1, 2008, incorporated by reference approved for § 1728.204.
(9) ASTM B 787/B 787M-04 – Standard Specification for 19 Wire Combination Unilay-Stranded Copper Conductors for Subsequent Insulation (ASTM B 787/B 787M-04), approved September 1, 2004, incorporated by reference approved for § 1728.204.
(10) ASTM B 835-04 – Standard Specification for Compact Round Stranded Copper Conductors Using Single Input Wire Construction (ASTM B 835-04), approved September 1, 2004, incorporated by reference approved for § 1728.204.
(11) ASTM B902-04a – Standard Specification for Compressed Round Stranded Copper Conductors, Hard, Medium-Hard, or Soft Using Single Input Wire Construction (ASTM B902-04a), approved September 1, 2004, incorporated by reference approved for § 1728.204.
(12) ASTM D 1248-05 – Standard Specification for Polyethylene Plastics Extrusion Materials for Wire and Cable (ASTM D 1248-05), approved March 1, 2005, incorporated by reference approved for § 1728.204.
(13) ASTM D 2275-01 (Reapproved 2008) – Standard Test Method for Voltage Endurance of Solid Electrical Insulating Materials Subjected to Partial Discharges (Corona) on the Surface (ASTM D 2275-01), approved May 1, 2008, incorporated by reference approved for § 1728.204.
(14) ASTM E 96/E 96M-05 – Standard Test Methods for Water Vapor Transmission of Materials (ASTM E 96/E 96M-05), approved May 1, 2005, incorporated by reference approved for § 1728.204.
(e) American Wood Protection Association (AWPA), P.O. Box 361784, Birmingham, AL 35236-1784, telephone 205-733-4077, www.awpa.com.
(1) AWPA A6-20, Standard for the Determination of Retention of Oil-Type Preservatives from Small Samples, Revised 2020, incorporation by reference approved for § 1728.202.
(2) AWPA A9-20, Standard Method for Analysis of Treated Wood and Treating Solutions By X-Ray Spectroscopy, Revised 2020, incorporation by reference approved for § 1728.202.
(3) AWPA A15-19, Referee Methods, Revised 2019, incorporation by reference approved for § 1728.202.
(4) AWPA A30-18, Standard Method for the Determination of 4,5 Dichloro-2-n-octyl-4-isothiazolin-3 one (DCOI) in Wood and Solutions by High Performance Liquid Chromatography (HPLC), Revised 2018, incorporation by reference approved for § 1728.202.
(5) AWPA A69-18, Standard Method to Determine the Penetration of Copper Containing Preservatives, Reaffirmed 2018, incorporation by reference approved for § 1728.202.
(6) AWPA A70-18, Standard Method to Determine the Penetration of Pentachlorophenol Using a Silver-Copper Complex Known as Penta-Check, Reaffirmed in 2018, incorporation by reference approved for § 1728.202.
(7) AWPA A71-18, Standard Method to Determine the Penetration of Solvent Used with Oil-Soluble Preservatives, Reaffirmed 2018, incorporation by reference approved for § 1728.202.
(8) AWPA A83-18, Standard Method for Determination of Chloride for Calculating Pentachlorophenol in Solution or Wood, Reaffirmed 2018, incorporation by reference approved for § 1728.202.
(9) AWPA M2-19, Standard for the Inspection of Preservative Treated Products for Industrial Use, Revised 2019, incorporation by reference approved for § 1728.202.
(10) AWPA M3-16, Standard for the Quality Control of Preservative Treated Products for Industrial Use, Revised 2016, incorporation by reference approved for §§ 1728.201 and 1728.202.
(11) AWPA T1-20, Use Category System: Processing and Treatment Standard, Revised 2020, incorporation by reference § 1728.201.
(12) AWPA U1-20, Use Category System: User Specification for Treated Wood, Revised 2020, incorporation by reference approved for §§ 1728.201 and 1728.202.
(f) Insulated Cable Engineers Association (ICEA). The following material may be purchased from: IHS Global Engineering Documents, 15 Inverness Way East, Englewood, CO 80112, Phone: (303) 397-7956; (800) 854-7179, Fax: (303) 397-2740, email: [email protected], website: http://global.ihs.com.
(1) ANSI/ICEA S-94-649-2004 – Standard for Concentric Neutral Cables Rated 5 Through 46 KV (ANSI/ICEA S-94-649-2004), approved September 20, 2005, incorporation by reference approved for § 1728.204.
(2) ANSI/ICEA T-31-610-2007 – Test Method for Conducting Longitudinal Water Penetration Resistance Tests on Blocked Conductors (ANSI/ICEA T-31-610-2007), approved October 31, 2007, incorporated by reference approved for § 1728.204.
(3) ICEA T-32-645-93 – Guide for Establishing Compatibility of Sealed Conductor Filler Compounds with Conducting Stress Control Materials (ICEA T-32-645-93), approved February 1993, incorporated by reference approved for § 1728.204.
(g) Southern Pine Inspection Bureau Standards, 4709 Scenic Highway, Pensacola, Florida 32504-9094, telephone (850) 434-2611. The web address for the Southern Pine Inspection Bureau is http://www.spib.org/.
(1) Standard Grading Rules for Southern Pine Lumber, 2014 Edition, effective January 25, 2014, incorporation by reference approved for § 1728.201.
(2) [Reserved]
(h) West Coast Lumber Inspection Bureau, P.O. Box 23145, Portland, Oregon 97281, telephone (503) 639-0651, fax (503) 684-8928. The web address for is http://www.wclib.org/.
(1) Standard No. 17, Grading Rules for West Coast Lumber, Revised September 1, 2018, incorporation by reference approved for § 1728.201.
(2) [Reserved]
§ 1728.98 Electric standards and specifications.
(a) To comply with this part, you must follow the requirements contained in the following REA/RUS bulletins. These bulletins are incorporated by reference in § 1728.97 of this part.
(1) Bulletin 50-4 (D-801), Specification and Drawings for 34.5/19.9 kV Distribution Line Construction (11-86).
(2) Bulletin 50-15 (DT-3), RUS Specifications for Pole Top Pins with 1
(3) Bulletin 50-16 (DT-4), RUS Specifications for Angle Suspension Brackets (3-52).
(4) Bulletin 50-19 (DT-7), RUS Specifications for Clevis Bolts (8-53).
(5) Bulletin 50-23 (DT-18), RUS Specifications for 60″ Wood Crossarm Braces (2-71).
(6) Bulletin 50-31 (D-3), RUS Specifications for Pole Top Pins with 1″ Diameter Lead Threads (2-79).
(7) Bulletin 50-32 (D-4), RUS Specifications for Steel Crossarm Mounted Pins with 1″ Diameter Lead Threads (10-50).
(8) Bulletin 50-33 (D-5), RUS Specifications for Single and Double Upset Spool Bolts (2-51).
(9) Bulletin 50-34 (D-6), RUS Specifications for Secondary Swinging Clevises (12-70).
(10) Bulletin 50-35 (D-7), RUS Specifications for Service Swinging Clevises (9-52).
(11) Bulletin 50-36 (D-8), RUS Specifications for Service Deadend Clevises (9-52).
(12) Bulletin 50-40 (D-14), RUS Specifications for Pole Top Brackets for Channel Type Pins (9-51).
(13) Bulletin 50-41 (D-15), RUS Specifications for Service Wireholders (11-51).
(14) Bulletin 50-55 (T-2), RUS Specifications for Overhead Ground Wire Support Brackets (5-53).
(15) Bulletin 50-56 (T-3), RUS Specifications for Steel Plate Anchors for Transmission Lines (12-53).
(16) Bulletin 50-60 (T-9), RUS Specification – Single Pole Steel Structures, Complete with Arms (12-71).
(17) Bulletin 50-72 (U-4), RUS Specification for Electrical Equipment Enclosures (5-35 kV) (10-79).
(18) Bulletin 50-73 (U-5), RUS Specifications for Pad-Mounted Transformers (Single and Three-Phase) (1-77).
(19) Bulletin 50-74 (U-6), RUS Specification for Secondary Pedestals (600 Volts and Below) (10-79).
(20) Bulletin 50-91 (S-3), RUS Specifications for Step-Down Distribution Substation Transformers (34.4-138 kV) (1-78).
(21) Bulletin 1728F-700, RUS Specification for Wood Poles, Stubs and Anchor Logs, September 9, 2021.
(22) Bulletin 1728F-803, Specifications and Drawings for 24.9/14.4 kV Line Construction (10-98).
(23) Bulletin 1728F-804 (D-804), Specification and Drawings for 12.47/7.2 kV Line Construction, October 2005.
(24) Bulletin 1728F-806 (D-806) Specifications and Drawings for Underground Electric Distribution), October 11, 2018.
(25) Bulletin 1728F-810, Electric Transmission Specifications and Drawings, 34.5 kV to 69 kV (3-98).
(26) Bulletin 1728F-811, Electric Transmission Specifications and Drawings, 115 kV to 230 kV (3-98).
(b) 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.
§ 1728.201 Bulletin 1728H-701, Specification for Wood Crossarms (Solid and Laminated), Transmission Timbers and Pole Keys.
(a) Scope. (1) The specification in this section describes the minimum acceptable quality of wood transmission and distribution crossarms (hereinafter called arms) purchased by or for RUS borrowers. Where there is conflict between the specification in this section and any other specification referred to in this section, the specification in this section shall govern.
(2) The requirements of the specification in this section implement contractual provisions between RUS and borrowers receiving financial assistance from RUS. The contractual agreement between RUS and a RUS borrower requires the borrower to construct its system in accordance with RUS accepted plans and specifications. Each RUS electric and telecommunications borrower shall purchase only arms produced in accordance with the specification in this section. Each RUS electric and telecommunications borrower shall require a written confirmation from their selected contractor that all material utilized shall be produced in accordance with the specifications in this section.
(b) General stipulations. (1) Conformance of arms to RUS specifications is the responsibility of the producer. A member of the producer’s staff shall be designated as quality control supervisor and charged with the responsibility for the exercise of proper quality control procedures throughout the production process. The primary responsibility of third-party inspection agencies is to verify that producers involved in the manufacture of RUS treated wood products have functional in-house quality control systems in place that result in the shipment of materials meeting applicable RUS specification requirements to borrowers.
(2) Treated wood products intended for RUS borrowers shall not be inspected when in the opinion of the inspector, unsafe conditions are present.
(3) Various requirements relating to quality control and inspection that are contained in § 1728.202 and ANSI O5.2 and ANSI O5.3 (both incorporated by reference in § 1728.97) shall be followed exactly and shall not be interpreted or subject to judgment by the producer’s quality control personnel or by the third party inspector.
(4) The requirements of AWPA M3 (incorporated by reference in § 1728.97) pertaining to record keeping, pre-treatment storage, analytical laboratories, plant gauges and other plant facilities, shall be followed.
(5) The producer shall maintain its own properly staffed and equipped analytical laboratory or contract with an independent testing laboratory at or near the treating plant to provide the required analytical service. On a case-by-case basis, with written permission from RUS, a producer with more than one treatment facility may be allowed to use a central laboratory.
(6) Arms can be purchased under either of two purchase plans; a RUS approved Quality Assurance Plan or an Independent Inspection Plan. The method of inspection described in this section shall be used no matter which plan timber products are purchased under.
(7) All third-party inspectors involved in the inspection of RUS products shall maintain their impartiality when providing their inspection service. This requires that these individuals and their employers, as well as producers and suppliers involved in providing RUS borrowers with treated wood products, maintain a professional separation during the performance of their respective functions to eliminate any possible conflict of interest.
(8) With the exception of financial agreements for inspection services, inspection agencies shall neither accept nor provide gratuities or free services to suppliers.
(9) Inspection agencies shall not offer product warranties on inspected material.
(10) Arms shall be warranted to conform to this specification. Arms shall meet or exceed their minimum allowable dimensions for at least one year from time of delivery to the borrower. If any arm is determined to be defective or does not conform to this specification within 1 year from the date of delivery to the borrower, it shall be replaced as promptly as possible by the supplier. In the event of failure to do so, the purchaser may make such replacement and the cost of the arm, at destination, shall be recovered from the supplier.
(11) Arm producers shall have and maintain liability insurance in the amount of $1 million. Evidence of compliance to this requirement shall be forwarded to the RUS annually. The evidence shall be in the form of a certificate of insurance or a bond signed by a representative of the insurance company or Surety Bonding company and include a provision that no change in, or cancellation of, will be made without the prior written notice to the Chairman, Technical Standards Committee “A” (Electric), 1400 Independence Ave. SW, Stop 1569, Washington, DC 20250-1569.
(c) Definitions. The following definitions apply to this section:
Agency refers to Rural Utilities Service (RUS), United States Department of Agriculture.
Certificate of compliance is a written certification by an authorized employee of the producer that the material shipped meets the requirements of this specification and any supplemental requirements specified in a purchase order from a borrower or the borrower’s contractor.
Crossarm refers to the structural wood member used to support electrical conductors and equipment. The word arm is used interchangeably with crossarm.
Independent inspection refers to examination of material by a trained inspector employed by a commercial inspection agency.
Inspection means an examination of material in sufficient detail to ensure conformity to all requirements of the specification under which it was purchased.
Lot is a certain number of pieces of a given item submitted for inspection at one time.
Producer is the party who manufactures arms. In some cases the producer may also be the treating plant.
Purchaser refers to either the RUS borrower or contractors acting as the borrower’s agent, except where a part of the specification in this section specifically refers to only the borrower or the contractor.
Quality control supervisor refers to an employee of the producer designated to be responsible for quality control procedures carried out by said producer.
Reserve treated stock consists of treated material held in storage by a producer for purchase and immediate shipment to a borrower.
Supplier may refer to the producer, the treater, or to a third-party broker or distributorship involved in supplying RUS products to the borrowers.
Treating plant is the facility that applies the preservative treatment to the arms.
(d) Material requirements – (1) Material and grade. All arms furnished under the specification in this section shall be free of brashy wood, decay, and shall meet additional requirements as shown on specific drawings in this section. Arms shall be made of one of the following:
(i) Douglas-fir which conforms to the applicable provisions of paragraphs 170 and 170a, or the applicable transmission arm provisions of paragraphs 169 and 169a of the West Coast Lumber Standard No. 17 (incorporated by reference in § 1728.97). Only coastal origin Douglas-fir shall be used for Douglas-fir arms manufactured under the specification in this section;
(ii) Southern Yellow Pine which conforms to the provisions of Dense Industrial Crossarm 65, as described in Southern Pine Inspection Bureau’s Standard Grading Rules for Southern Pine Lumber (incorporated by reference at § 1728.97); or
(iii) Laminated wood arms shall conform to ANSI O5.2 and have at least the same load carrying capacity as the solid sawn arms being replaced. The load carrying capacity of the laminated arms shall be determined by one of the procedures outlined in ANSI O5.2. The testing and inspection of laminated arms shall be in accordance with AITC 200 (incorporated by reference at § 1728.97).
(2) Alternative arms. Borrowers may use alternative arms that are listed in Informational Publication 202-1, List of Materials Acceptable for Use on Systems of USDA Rural Utilities Service Borrowers. For information on the availability of such material, contact the Chairman, Technical Standards Committee “A” (Electric), 1400 Independence Ave. SW, Stop 1569, Washington, DC 20250-1569, or go to: https://www.rd.usda.gov/files/UEP_LoM.pdf.
(3) Knots. Well-spaced sound, firm, and tight knots are permitted.
(i) Slightly decayed knots are permitted, except on the top face, provided the decay extends no more than
(ii) Knots are subject to limits on size and location as detailed in Tables 1 and 2 to this paragraph (d)(3)(ii).
Table 1 to Paragraph (
[All dimensions in inches]
| Class of knot and location | Maximum knot diameter | |
|---|---|---|
| Close grain | Dense grain | |
| Round Knots: | ||
| Single Knot: Maximum Diameter Center Section 1 | ||
| Upper Half | 1 | |
| Lower Half | 1 | 1 |
| Elsewhere | 1 | 1 |
| Sum of Diameters in 6-Inch Length: Maximum Center Section: | ||
| Upper Half | 1 | 2 |
| Lower Half | 2 | 2 |
| Elsewhere | 2 | 3 |
1 No knot shall be closer than its diameter to the pole mounting hole.
Table 2 to Paragraph (
[All dimensions in inches]
| Pole mounting hole zone 1 | Maximum diameter for single knot |
|---|---|
| Upper Half (inner zone) | |
| Upper Half (outer zone) | 1 for close grain. |
| 1 |
| Other locations transmission arm size 2 | Narrow face | Wide face (two sides) | |
|---|---|---|---|
| Edge | Along
centerline | ||
| 4 | 1 | 1 | 1 |
| 5 | 1 | 1 | 1 |
| 3 | 1 | 2 | |
1 No knot shall be closer than its diameter to the pole mounting hole.
2 For cross sections not shown, refer to grading rules.
(iii) Knot clusters shall be prohibited unless the entire cluster, measured on the worst face, is equal to or less than the round knot allowed at the specific location.
(iv) Spike knots shall be prohibited in deadend arms. Any spike knot across the top face shall be limited to the equivalent displacement of a knot
(v) Loose knots shall be prohibited in deadend arms. Loose knots and knot holes shall be permitted only if they allow water to drain when the arm is installed in its normal position. In the center section, upper half, loose knots shall not be greater than
(vi) All knots except those “spike” knots intersecting a corner shall be measured on the least diameter of the knot.
(vii) A knot shall be considered to occupy a specific zone or section if the center of the knot (i.e., pith of knot) is within the zone or on the zone’s boundary.
(viii) If a round or oval knot appears on two faces and is in two zones, each face shall be judged independently. When this does not occur, average the least dimension showing on both faces. Knots which occur on only one face of a free of heart center (FOHC) arm shall be permitted to be 25 percent larger than the stated size.
(ix) Two or more knots opposite each other on any face shall be limited by a sum not to exceed the size of a maximum single knot permitted for the location. On all four faces, all knots shall be well spaced.
(x) No knot over
(e) Miscellaneous characteristics, features and requirements. (1) The top face of distribution arms shall not have more than four medium pitch and bark pockets in 8-foot arms, and not more than five pitch and bark pockets in 10-foot arms. Elsewhere a maximum of six medium pitch and bark pockets in 8-foot arms and eight in 10-foot arms shall be permitted. Equivalent smaller pockets shall be permissible. An occasional large pocket is permissible.
(2) Shakes shall be prohibited.
(3) Prior to treatment on properly seasoned arms, single face checks shall not exceed an average penetration of
(4) Compression wood shall be prohibited on any face. Compression wood is permitted if wholly enclosed in the arm, more than six annual rings from the surface, and not over
(5) Insect holes
(6) Wane shall be allowed on one edge, limited to approximately 1 inch measured across the corner. Outside of the top center section, an aggregate length not to exceed 2 feet may have wane up to 1
(7) Prior to and after preservative treatment, crook, bow, or twist shall not exceed
(f) Manufacturing – (1) Quality of work. All arms shall be of the highest quality production. Arms shall be dressed on all four sides, although “hit and miss skips” may occur on two adjacent faces on occasional pieces.
(2) Dimensions and tolerances. All dimensions and tolerances shall conform to those shown on the drawings in this section or drawings supplied with the purchase order. Arms supplied shall meet or exceed minimum dimensions shown on the drawings in this section. Cross-sectional dimensions shall be measured and judged at about
(3) Shape. The shape of the arms at any cross section, except for permissible wane, shall be as shown on the respective drawings in this section or supplied with the order. The two top edges may be either chamfered or rounded
(4) Lamination techniques. Lamination techniques shall comply with ANSI O5.2.
(5) Pin and bolt holes. Pin and bolt holes shall be smoothly bored without undue splintering where drill bits break through the surface. The center of any hole shall be within
(6) Incising. The lengthwise surfaces of Douglas-fir arms shall be incised a minimum of
(g) Conditioning prior to treatment. AWPA T1 (incorporated by reference at § 1728.97) shall be followed.
(1) All solid sawn arms shall be made of lumber which has been kiln-dried. Douglas-fir arms shall have an average moisture content of 19 percent or less, with a maximum not to exceed 22 percent in a single arm. Southern Yellow Pine arms shall have an average moisture content of 22 percent or less, with a maximum not to exceed 30 percent in a single arm.
(2) Moisture content levels shall be measured at about
(3) A minimum of at least 20 solid sawn arms per treating charge shall be measured and the individual results recorded by the producer to verify moisture content.
(4) The moisture content of lumber used in laminating shall, at the time of gluing, be within the range of 8 to 12 percent, inclusive.
(h) Preservatives. (1) Creosote, water-borne preservatives, pentachlorophenol, DCOI, and copper naphthenate shall conform to the requirements of AWPA U1 (incorporated by reference at § 1728.97). Oxide formulations of waterborne preservatives shall be supplied. If CCA is the selected preservative, CCA-C shall be the type required.
(2) Douglas-fir arms shall not be treated with CCA.
(i) Preservative treatment. (1) All timber products manufactured under the specification in this section shall be pressure treated. AWPA T1 shall be followed.
(2) These materials may be further conditioned by steaming, or by heating in hot oil (Douglas-fir), within the following time and temperature limits:
| Max. time (hours) | Temperature | |
|---|---|---|
| (i) Steam | 3 | 220 °F |
| (ii) Heating in Preservative | 3 | 210 °F |
(3) A final steam or hot oil bath may be used only to meet cleanliness requirements. Total duration of the final steam bath shall not exceed 2 hours and the temperature shall not exceed 240 °F.
(j) Results of treatment – (1) Penetration and retention. The quality control supervisor shall test or supervise the testing of each treated charge for penetration and retention.
(2) Method of sampling. When testing penetration and retention, a borer core shall be taken from a minimum of 20 arms in each treating charge. The borings shall be taken from any face except the top face at a point as close to the end as possible, being at least 3 inches from the end of the arm and no closer than 3 inches from the edge of the holes. The bored holes shall be plugged with treated plugs. Borings from laminated arms shall not be taken from the same laminate unless there is an end joint separation.
(3) Preservative penetration. All of the sapwood present in Douglas-fir and southern yellow pine arms shall be completely penetrated with preservative. Preservative penetration in the heartwood of Douglas-fir arms shall be not less than 3 inches longitudinally from the edge of holes and ends, and at least
(4) Preservative retention. Preservative retention in the outer 0.6 inch for Douglas-fir arms and in the outer one inch of southern yellow pine arms shall be not less than the following:
| Preservative | Retention (pcf) |
|---|---|
| (i) Creosote | 8.0 |
| (ii) Pentachlorophenol | 1 0.4/0.36 |
| (iii) ACA, ACZA, or CCA-C | 0.4 |
| (iv) Copper Naphthenate | 0.04 |
| (v) DCOI | 0.13 |
1 If the copper pyridine method is used when timbers may have been in contact with salt water, a penta retention of 0.36 pcf is required for all species native to the Pacific Coast region.
(5) Arms surfaces. The surfaces of all arms shall be free from oil exudation (bleeding) and pentachlorophenol crystallization (blooming), and other surface deposits.
(6) Retreatment of arms. Arms may be retreated no more than twice. Initial treatment steaming time plus re-treatment steaming time, combined, shall not exceed total steaming time allowed.
(k) Marking/branding. (1) Before treatment, arms shall be legibly branded (hot brand) or die-stamped to a depth of approximately
(2) The letters and figures shall be not less than
(3) The brand or die-stamp shall include:
(i) The manufacturer’s identification symbol;
(ii) Month and year of manufacture;
(iii) Species (DF for Douglas-fir and SP for southern yellow pine);
(iv) Preservative (C for creosote, DA for DCOI, PA for penta, SK for CCA, SZ for ACZA, N for Copper Naphthenate); and
(v) Required retention. An example of required retention is: M-6-16 Manufacturer – Month – Year and DF-PA-.4 Douglas-fir-penta treated – .40 pcf retention.
(4) Brands and quality assurance/inspection marks shall be removed from arms that do not meet these specifications.
(l) Storage. (1) Producers may manufacture/treat RUS arms for reserve treated stock under either of the allowable purchase plans. (See paragraph (b)(6) of this section).
(2) Arms treated with creosote or oil-borne preservatives, and which have been held in storage for more than 1 year before purchase and shipment to the borrower shall be re-assayed before shipment. Any such arms found to be nonconforming for retention shall be retreated and reassayed per the requirements of this section of the specification.
(m) Drawings. (1) The drawings of Figure 3 to this section, Crossarm Drilling Guide, have a type number and show in detail the hole size, shape, and pattern desired for arms ordered under the specification in this section.
(2) Purchase orders shall indicate the type arm required.
(3) Arms shall be furnished in accordance with the details of the drawings in this section or in accordance with drawings attached to the purchase order.
(4) Appropriate drawings for transmission arms are to be specified and included with purchase orders. Technical drawings for transmission arms are published in Bulletin 1728F-811 (incorporated by reference at § 1728.97) and Bulletin 1728F-810 (incorporated by reference at § 1728.97).
(n) Destination inspection. The RUS borrower shall have the prerogative to inspect materials at destination. All provisions of the specification in this section shall apply to material inspected at destination. If a disagreement arises over conformance of materials received at destination, it shall be the responsibility of the supplier to resolve the matter with the purchaser.
(o) Purchase of related specifications and standards. (1) All ANSI and AWPA standards may be purchased from: American Wood Protection’ Association (AWPA), P.O. Box 361784, Birmingham, AL 35236-1784, Telephone (205)733-4077, Web address: http://www.awpa.com.
(2) Standard Grading Rules for Southern Pine Lumber and Special Products Rules for Structural, Industrial, and Railroad Freight Car Lumber may be purchased from: Southern Pine Inspection Bureau, 4709 Scenic Highway, Pensacola, Florida 32504-9094, Telephone (850) 434-2611, Web address: http://www.spib.org.
(3) Standard Grading Rules for West Coast Lumber may be purchased from: West Coast Lumber Inspection Bureau, P.O. Box 23145, Portland, Oregon 97281, Telephone (503) 639-0651, Web address: http://www.wclib.org.
(4) AITC 200 may be purchased from: American Institute of Timber Construction, 7012 S Revere Park Way, Englewood, Colorado 80112, Telephone (303) 792-9559, Web address: http://aitc-glulam.org.
(p) Information to be completed by the borrower. When using the specification in this section, the borrower or borrower’s representative should enter into a written agreement with a material supplier by way of a contract or purchase order. This agreement should state that all arms shall be manufactured in strict accordance with the specifications in this section.
§ 1728.202 Bulletin 1728H-702, Specification for Quality Control and Inspection of Timber Products.
(a) Scope. (1) The specification in this section describes the responsibilities and procedures pertaining to the quality control by producers and pertaining to inspection of timber products produced in accordance with the following RUS specifications in § 1728.201, and poles, covered in Bulletin 1728F-700 (incorporated by reference in § 1728.97) and in § 1755.97 of this chapter.
(2) Where there is conflict between the specification in this section and any other specification referred in this section, the specification in this section shall govern.
(3) The specification in this section also describes and designates responsibilities of RUS borrowers in regard to their purchases under the specifications referenced in paragraph (a)(1) of this section.
(b) General stipulations. (1) Conformance of poles and crossarms to RUS specifications is the responsibility of the producer. A member of the producer’s staff shall be designated as quality control supervisor and charged with the responsibility for the exercise of proper quality control procedures throughout the production process. The primary responsibility of third party inspection agencies is to verify that producers involved in the manufacture of RUS treated wood products have functional in-house quality control systems in place that result in the shipment of materials meeting applicable RUS specification requirements to borrowers.
(2) The requirements of AWPA M3 (incorporated by reference at § 1728.97), pertaining to recordkeeping, pretreatment storage, analytical laboratories, plant gauges, and other plant facilities, shall be followed.
(3) Treated wood products intended for RUS borrowers shall not be inspected when in the opinion of the inspector, unsafe conditions are present.
(4) Poles and crossarms can be purchased under either of two purchase plans; a RUS approved Quality Assurance Plan or an Independent Inspection Plan. The method of inspection described in this section shall be used no matter which plan timber products are purchased under.
(5) Under the Independent Inspection Plan, the borrower should designate in the purchase order which inspection agency it has selected. Unless the borrower contracts for inspection as a separate transaction, the treating company shall obtain the services of the borrower’s designated inspection agency. For reserve treated stock held in inventory by the producer, the producer shall obtain the services of the appropriate inspection program.
(6) All third-party inspectors involved in the inspection of RUS products shall maintain their impartiality when providing their inspection service. This requires that these individuals and their employers, as well as producers and suppliers involved in providing RUS borrowers with treated wood products, maintain the greatest degree of professional separation during the performance of their respective functions to eliminate any possible conflict of interest.
(7) With the exception of financial agreements for inspection services, inspection agencies shall not accept nor provide gratuities or free services to suppliers.
(8) Inspection agencies shall not offer product warranties on inspected material.
(9) Inspection agencies shall have and maintain liability insurance in the amount of $500,000 and a surety bond or miscellaneous Errors and Omission insurance for consequential damages for not less than $250,000. Evidence of compliance to the requirement in this paragraph (b)(9) shall be forwarded to the RUS annually. The evidence shall be in the form of a certificate of insurance or a Bond signed by a representative of the insurance or Surety Bonding company and include a provision that no change in, or cancellation of, will be made without the prior written notice to Chairman, Technical Standards Committee “A” (Electric).
(10)(i) Inspection agencies shall maintain their own properly equipped laboratory that, at a minimum, is able to run the referee methods listed in table 1 to this paragraph (b)(10) for retention analysis for all preservatives being inspected. This laboratory shall be independent from any treating plant laboratory. Inspection Agencies may use one central laboratory. All XRF units maintained by third party inspection agencies as part of their RUS required laboratories shall be calibrated at least quarterly by said agency utilizing the referee method for each preservative treatment being analyzed or via comparison with a set of graduated treated wood standards. Each agency shall keep an up-to-date written record of these quarterly calibration results.
Table 1 to Paragraph (
| Preservative | Analytical method | Referee method |
|---|---|---|
| Pentachlorophenol | XRF, Lime Ignition, Copper Pyridine | Lime Ignition, Copper Pyridine. |
| Creosote | Toluene Extraction | Toluene Extraction. |
| Waterborne | XRF | XRF. |
| Copper Naphthenate | XRF | ICP, GC. |
| DCOI | XRF, HPLC | HPLC. |
(ii) Inspection agencies shall, on an annual basis, provide RUS Technical Standards Committee “A” with proof that the agency does have the required, fully equipped laboratory capable of running each of the referee methods of analysis as illustrated in table 1 to paragraph (b)(10)(i) of this section. AWPA A83 or AWPA A9 (both incorporated by reference at § 1728.97) shall be followed for Pentachlorophenol testing.
(iii) AWPA A30 (incorporated by reference at § 1728.97) or AWPA A9 shall be followed for DCOI testing. AWPA A6 (incorporated by reference at § 1728.97) shall be followed for Creosote testing and AWPA A9 shall be followed for XRF, as illustrated in table 1 to paragraph (b)(10)(i) of this section.
(11) If used for analysis, plant XRF units shall be accurate and generate reproducible results per AWPA A9. At least once monthly, their accuracy and precision shall be checked by the third-party inspector. This verification shall consist of the inspector taking a retention sample previously analyzed by the plant quality control supervisor on-site and rerunning it in the inspection agency’s own laboratory using said agency’s XRF unit or the referee method for a specific preservative. If the inspection agency’s analytical result is within +5% of the plant’s retention result on that sample, the plant XRF unit needs no further calibration.
(12) Individual inspectors in the employ of inspection agencies shall be properly trained and experienced. See § 1728.203, for details of an inspector’s minimum qualifications. Upon request, inspection agencies must provide RUS with detailed written documentation verifying that each of their employees inspecting RUS materials has the minimum experience and training described in § 1728.203. Failure of an individual inspector to follow proper procedures or failure of an inspection agency to properly train and supervise their inspectors or follow applicable RUS specifications constitutes grounds for RUS debarment of said inspector and said inspection agency from future inspection of RUS financed material.
(c) Quality control and inspection procedures. It is the responsibility of the plant quality control supervisor to perform the following procedures to ensure that a particular lot of material conforms to the requirements of the applicable Agency specification prior to treatment. After the plant quality control supervisor has performed these procedures, a particular lot of material shall be released to the inspector for verification of conformance.
(1) For poles, inspection prior to treatment shall include:
(i) Ample space and assistance shall be provided by the treating plant for handling and turning poles. Regardless of the purchase plan poles are being purchased under, all poles in a lot shall be inspected by the plant quality control supervisor prior to offering the lot for verification by a third party.
(ii) When limited by the purchaser in a written purchase order, moisture content shall be measured with a calibrated electronic moisture meter. Calibration of the moisture meter shall include not only the zero settings for the X and Y readings, but also two resistance standards for 12 and 22 percent moisture content. Material failing to conform for moisture content may be retested upon request after recalibration of the moisture meter.
(iii) Dimensions, length, and circumference shall be measured by a standard steel tape to determine that they meet specification requirements and that they agree with the details for class and length found in the face brand/tag and butt of each pole. If it is obvious by visual comparison with a measured pole that the brand information regarding class and length is correct, individual poles need not be measured. Pole circumference dimensions measured prior to treatment shall govern acceptance. Reduction in dimension due to treatment and shipping shall be no more than 2 percent below the minimum for the pole class.
(iv) Poles in a lot shall be of the same seasoning condition and all shall be inspected for decay. If the plant quality control supervisor suspects that decay is present in a pole, a slice from both ends shall be cut for closer examination. If 3 percent or more of the poles in the lot inspected by the plant quality control supervisor show evidence of decay, the entire lot shall be unconditionally withdrawn without further sorting.
(v) Under the Independent Inspection Plan, all poles shall be examined by the third-party Inspector for verification of conformance. Under a RUS approved Quality Assurance Plan, the number of poles inspected for verification of conformance may vary according to the terms of the approved plan.
(vi) Whenever it becomes evident during third party inspection of any lot of poles offered by the producer that non-conforming pieces exceed 3 percent for any one defect or 5 percent for all defects, the inspector shall withhold further inspection and reject the balance of the lot. After the producer has acted to eliminate all defective pieces, the rejected balance may be inspected as a new lot. Sorting, however, shall not be permitted when a lot has been rejected for decay.
(vii) Re-examination for mechanical damage or deterioration and for original acceptance shall be conducted on timber products not treated within 10 days after the original third-party inspection.
(2) For crossarms, inspection prior to treatment shall include:
(i) Regardless of the purchase plan arms are being purchased under, all arms in a lot shall be inspected by the plant quality control supervisor prior to offering the lot for verification by a third party. After the plant quality control supervisor has performed the procedures in paragraphs (c)(2)(ii) through (vii) of this section, a particular lot of arms shall be released to the inspector for verification of conformance.
(ii) Moisture content of the arms in the lot shall be checked with a calibrated moisture meter.
(iii) Surface inspection of both ends and the side surfaces of each arms. Particular attention shall be paid to visible defects such as compression wood, red heart, honeycomb and other forms of decay, shakes, splits, through checks, low density, wane, undersize, and pitch pockets.
(iv) Inspection of bolt and insulator pin holes for proper location, dimension and excessive splintering.
(v) Inspection of brands for proper location, required content and legibility.
(vi) Under the Independent Inspection, both ends of all crossarms and a random representative sample of the lengthwise side faces of all crossarms shall be inspected. The sample size shall equal 20 percent of the lot size or 200 arms, whichever is smaller. Under a RUS approved Quality Assurance Plan, the number of crossarms inspected for verification of conformance may vary according to the terms of the approved plan.
(vii) Whenever it becomes evident during third party inspection of any lot of arms offered by the producer that non-conforming pieces exceed 2 percent of the sample size, the entire lot shall be rejected. After the producer has acted to eliminate all defective pieces, the rejected balance may be inspected as a new lot.
(d) Preservatives. Creosote, waterborne preservatives, pentachlorophenol, DCOI, and copper naphthenate shall conform to current AWPA U1 (incorporated by reference in § 1728.97).
(e) Results of treatment – Poles. (1) Following treatment, poles shall be sampled for preservative retention and penetration utilizing a calibrated increment borer 0.2 inches +0.02 inches in diameter in accordance with procedures listed in AWPA M2 (incorporated by reference in § 1728.97).
(2) Inspectors may take their own retention samples and analyze them concurrently with those taken by the quality control supervisor, but each shall work independently. The results of the plant’s analysis shall be presented before verification and acceptance of the charge by the third-party inspector.
(3) Unless otherwise specified, borings shall be taken from the section of the pole extending from 1 foot below the face brand/tag to 1 foot above the face brand/tag. For pressure treated Western Red Cedar, Alaska Yellow Cedar and all butt treated poles, borings shall be taken from the section of the pole approximately 1 foot below groundline.
(4) For all species, core samples shall be taken from 20 poles in charges of 20 or more poles. If a charge consists of less than 20 poles, each pole shall be bored and then individual poles shall be bored a second time to obtain a minimum of 20 core samples. Any additional borings required to obtain the required 20 core samples shall be taken in a manner that represents the lot of material with respect to variations in size, seasoning condition, or other features that may affect the results of treatment.
(5) Retention and penetration samples shall consist of borings representative of pole volumes for each class and length in the charge, as illustrated in the following table:
Table 2 to Paragraph (
| Number of poles | Class/length | Vol. in ft 3 | % of total vol. | Number of borings 2 |
|---|---|---|---|---|
| 20 | 5/40 | 550 | 22 | 4 |
| 30 | 4/40 | 840 | 34 | 7 |
| 20 | 4/45 | 510 | 20 | 4 |
| 20 | 3/45 | 600 | 24 | 5 |
| Total | 2,500 |
(6) Preservative retention analyses shall be performed per the standard AWPA U1, (incorporated by reference at § 1728.97).
(7) Penetration compliance of both poles and crossarms shall be determined in accordance with the standard AWPA A15 (incorporated by reference at § 1728.97). Chrome Azurol S shall be used to determine the penetration of copper containing preservatives AWPA A69 (incorporated by reference at § 1728.97), Penta-Check shall be used to determine the penetration of penta AWPA A70 (incorporated by reference at § 1728.97), and Red-O dye for penetration of DCOI AWPA A71 (incorporated by reference at § 1728.97), respectively.
(8) All bored holes created by penetration and retention sampling shall be promptly filled with tight fitting treated plugs.
(9) Penetration sampling of poles shall be carried out as follows:
(i) Group A poles (Those poles with a circumference of 37.5 inches or less at 6 feet from butt.):
(A) Bore 20 poles or 20 percent of the poles in the charge, whichever is greater. Accept all poles in the charge for penetration if every boring in the sample conforms. If any sample fails penetration, bore all poles in the charge.
(B) If more than 15% of the poles in the charge are found to be nonconforming, the entire charge shall be retreated. If 15% or less are found to be nonconforming, remove and retreat only those that are nonconforming.
(ii) Group B poles (Those poles with a circumference greater than 37.5 inches at 6 feet from the butt.):
(A) For Group B poles 45 feet and under, bore each pole in the charge. If more than 15% of these poles are found to be nonconforming, the entire charge shall be retreated. If 15% or less are found to be nonconforming, remove and retreat only those that are nonconforming.
(B) For Group B poles 50 feet and over, bore each pole twice at 90 degrees apart and accept only those poles conforming to penetration in both borings.
(iii) Nonconforming poles may be treated only twice. The letter “R” shall be added to the original charge number in the butts of all poles that are retreated. Poles failing to meet treatment requirements after two retreatments shall be permanently rejected and all brand and butt information removed.
(f) Results of treatment – Crossarms. Retention and penetration samples shall be taken from not less than 20 crossarms in each charge. The sampling method and retention and penetration requirements for both Douglas-fir and Southern Yellow Pine crossarms are listed in § 1728.201.
(g) Product acceptance. (1) Third party inspectors shall verify their acceptance of untreated poles that have been offered by the producer as conforming by marking each accepted piece in the tip with a clear, legible hammer stamp. Following treatment, inspectors shall verify their acceptance of treated poles that have been offered by the producer as conforming by marking each accepted piece in the butt with a clear, legible hammer stamp. Inspection marks are not to be placed in the butt surfaces of any poles prior to treatment and proper retention analysis and penetration testing being completed. The inspector shall personally mark each piece for acceptance and shall not delegate this responsibility to any other individual.
(2) Third-party inspectors shall verify their acceptance of untreated crossarms that have been offered by the producer as conforming by marking each accepted piece in one end with a clear, legible hammer stamp. Following treatment, inspectors shall verify their acceptance of treated crossarms that have been offered by the producer as conforming by marking each accepted piece in the opposing end with a clear, legible hammer stamp. The inspector shall personally mark each piece for acceptance and shall not delegate this responsibility to any other individual.
(3) Each inspector or inspection agency shall retain for a period of at least one year a copy or transcript of each pre-treatment inspection report and a copy of analytical worksheets covering retention and penetration test results for each treated charge of material inspected. On request, a copy or transcript of these reports shall be furnished to the Chairman, Technical Standards Committee “A”, Rural Utilities Service, Washington, DC 20250-1569.
(i) On each inspection report the third-party inspector and the plant quality control supervisor shall certify in writing that the material listed on the report has been properly inspected both before and after treatment and that the preservative used met the requirements of this section. Inspection reports shall also include the following information:
(A) Conditioning details of the material prior to treatment.
(B) Total number of pieces offered by the producer.
(C) Number of pieces rejected by the inspector, cause for rejection.
(D) Copy of preservative analysis (usually supplied by the preservative supplier).
(E) Treating sheet containing details of treatment for each charge.
(F) Separate worksheets for retention analyses done by the plant quality control supervisor and by the inspector.
(G) Penetration result on each individual core boring taken from poles in the charge.
(ii) [Reserved]
(h) Laminated materials. (1) All lumber used to fabricate laminated materials shall be inspected and its grade verified by a qualified lumber grader, then marked appropriately.
(2) Laminated materials shall comply with manufacturing requirements specified in ANSI O5.2 (incorporated by reference at § 1728.97). Melamine urea adhesives shall not be used. Plant quality control procedures and any third-party inspection shall be conducted in accordance with AITC 200 (incorporated by reference at § 1728.97), and § 1728.201 (Bulletin 1728H-701).
(3) Following treatment, laminated material shall be checked for proper preservative retention and penetration, and for any evidence of delamination. All conforming laminated materials shall be clearly marked with either an American Institute of Timber Construction (AITC) or American Plywood Association (APA) quality stamp.
(i) Safety provisions. Poles intended for agency borrowers shall not be inspected when, in the opinion of the inspector, unsafe conditions are present.
§ 1728.203 Inspector’s qualifications.
Inspection agencies must assure borrowers that employees assigned to the inspection of timber products and preservative treatments are competent and experienced. In general, any of the following examples are considered as minimum qualifying experience before an individual may be permitted to inspect timber products for borrowers:
(a) Three years of direct experience inspecting untreated and treated utility products; or
(b) Three years of direct experience conducting in-plant quality control work at a treating plant producing treated utility products; or
(c) Under the direct supervision of an experienced, qualified inspector, the individual shall have performed the following:
(1) For poles, inspected at least 10,000 individual untreated poles, and checked preservative penetration on at least 3,000 individual poles;
(2) For crossarms, inspected at least 5,000 individual untreated arms and checked penetration on at least 500 individual arms;
(3) Conducted at least 100 retention assays, including at least 25 analyses for each different preservative treatment being inspected.
(d) In both paragraphs (a) and (b) of this section, the experience should be not less than that required in paragraph (c) of this section.
(e) Individuals involved in the inspection of more than one commodity must have the minimum experience required in paragraph (c) of this section for each respective product.
§ 1728.204 Electric standards and specifications for materials and construction.
(a) General specifications. This section details requirements for 15 and 25 kV single phase, V-phase, and three-phase power cables for use on 12.5/7.2 kV (15 kV rated) and 24.9/14.4 kV (25 kV rated) underground distribution systems with solidly multi-grounded neutral. Cable complying with this specification shall consist of solid or strand-filled conductors which are insulated with tree-retardant cross-linked polyethylene (TR-XLPE) or ethylene propylene rubber (EPR), with concentrically wound copper neutral conductors covered by a nonconducting or semiconducting jacket. 35 kV rated cables may be used in 24.9/14.4 kV application where additional insulation is desired.
(1) The cable may be used in single-phase, two (V)-phase, or three-phase circuits.
(2) Acceptable conductor sizes are: No. 2 AWG (33.6 mm
(3) Except where provisions therein conflict with the requirements of this specification, the cable shall meet all applicable provisions of ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97). Where provisions of the ANSI/ICEA specification conflict with this section, § 1728.204 shall apply.
(b) Definitions. As used in this section:
Agency refers to the Rural Utilities Service (RUS), an agency of the United States Department of Agriculture’s (USDA), hereinafter referred to as the Agency.
EPR Insulating Compound is a mixture of ethylene propylene base resin and selected ingredients.
TR-XLPE Insulating Compound is a tree retardant crosslinked polyethylene (TR-XLPE) insulation compound containing an additive, a polymer modification filler, which helps to retard the growth of electrical trees in the compound.
(c) Phase conductors. (1) Central phase conductors shall be copper or aluminum as specified by the borrower within the limit of § 1728.204(a)(2).
(2) Central copper phase conductors shall be annealed copper in accordance with ASTM B 3-01 (incorporated by reference in § 1728.97). Concentric-lay-stranded phase conductors shall conform to ASTM B 8-04 (incorporated by reference in § 1728.97) for Class B stranding. Compact round concentric-lay-stranded phase conductors shall conform to ASTM B 496-04 (incorporated by reference in § 1728.97). Combination unilay stranded phase conductors shall conform to ASTM B 787/B 787M-04 (incorporated by reference in § 1728.97). Compact round atranded copper conductors using single input wire construction shall conform to ASTM B835-04 (incorporated by reference in § 1728.97). Compressed round stranded copper conductors, hard, medium-hard, or soft using single input wire construction shall conform to ASTM B902-04a (incorporated by reference in § 1728.97). If not specified, stranded phase conductors shall be Class B stranded.
(3) Central aluminum phase conductors shall be one of the following:
(i) Solid: Aluminum 1350 H12 or H22, H14 or H24, H16 or H26, in accordance with ASTM B 609/B 609M-99 (incorporated by reference in § 1728.97).
(ii) Stranded: Aluminum 1350 H14 or H24, H142 or H242, H16, or H26, in accordance with ASTM B 609/B 609M-99 (incorporated by reference in § 1728.97) or Aluminum 1350-H19 in accordance with ASTM B 230/B 230M-07 (incorporated by reference in § 1728.97). Concentric-lay-stranded (includes compacted and compressed) phase conductors shall conform to ASTM B 231/B 231M-04 (incorporated by reference in § 1728.97) for Class B stranding. Compact round concentric-lay-stranded phase conductors shall conform to ASTM B 400-08 (incorporated by reference in § 1728.97). Combination unilay stranded aluminum phase conductors shall conform to ASTM B 786-08 (incorporated by reference in § 1728.97). If not specified, stranded phase conductors shall be class B stranded.
(4) The interstices between the strands of stranded conductors shall be filled with a material designed to fill the interstices and to prevent the longitudinal migration of water that might enter the conductor. This material shall be compatible with the conductor and conductor shield materials. The surfaces of the strands that form the outer surface of the stranded conductor shall be free of the strand fill material. Compatibility of the strand fill material with the conductor shield shall be tested and shall be in compliance with ICEA T-32-645-93 (incorporated by reference in § 1728.97). Water penetration shall be tested and shall be in compliance with ANSI/ICEA T-31-610-2007 (incorporated by reference in § 1728.97).
(5) The center strand of stranded conductors shall be indented with the manufacturer’s name and year of manufacture at regular intervals with no more than 12 inches (0.3 m) between repetitions.
(d) Conductor shield (stress control layer). A non-conducting (for discharge resistant EPR) or semi-conducting shield (stress control layer) meeting the applicable requirements of ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97) shall be extruded around the central conductor. The minimum thickness at any point shall be in accordance with ANSI/ICEA S-94-649-2004. The void and protrusion limits on the conductor shield shall be in compliance with ANSI/ICEA S-94-649-2004. The shield shall have a nominal operating temperature equal to, or higher than, that of the insulation.
(e) Insulation. (1) The insulation shall conform to the requirements of ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97) and may either be tree retardant cross-linked polyethylene (TR-XLPE) or ethylene propylene rubber (EPR), as specified by the borrower. The void and protrusion limits on the insulation shall be in compliance with ANSI/ICEA S-94-649-2004.
(2) The thickness of insulation shall be as follows:
| Cable rated voltage | Nominal thickness | Minimum thickness | Maximum thickness |
|---|---|---|---|
| 15 kV | 220 mils (5.59 mm) | 210 mils (5.33 mm) | 250 mils (6.35 mm). |
| 25 kV | 260 mils (6.60 mm) | 245 mils (6.22 mm) | 290 mils (7.37 mm). |
| 35 kV | 345 mils (8.76 mm) | 330 mils (8.38 mm) | 375 mils (9.53 mm). |
(f) Insulation shield. (1) A semi-conducting thermosetting polymeric layer meeting the requirements of ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97) shall be extruded tightly over the insulation to serve as an electrostatic shield and protective covering. The shield compound shall be compatible with, but not necessarily the same material composition as, that of the insulation (e.g., cross-linked polyethylene shield may be used with EPR insulation). The void and protrusion limits on the semi-conducting shields shall be in compliance with the ANSI/ICEA S-94-649-2004.
(2) The thickness of the extruded insulation shield shall be in accordance with ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97).
(3) The shield shall be applied such that all conducting material can be easily removed without the need for externally applied heat. Stripping tension values shall be 3 through 18 pounds (1.36 through 8.16 kg) for TR-XLPE and EPR discharge free cables. Discharge resistant cables shall have strip tension of 0 through 18 pounds (0 through 8.16 kg).
(4) The insulation shield shall meet all applicable tests of ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97).
(g) Concentric neutral conductor. (1) Concentric neutral conductor shall consist of annealed round, uncoated copper wires in accordance with ASTM B 3-01 (incorporated by reference in § 1728.97) and shall be spirally wound over the shielding with uniform and equal spacing between wires. The concentric neutral wires shall remain in continuous intimate contact with the extruded insulation shield. Full neutral is required for single phase and
(2) When a strap neutral is specified by the borrower, the neutral shall consist of uncoated copper straps applied concentrically over the insulation shield with uniform and equal spacing between straps and shall remain in intimate contact with the underlying extruded insulation shield. The straps shall not have sharp edges. The thickness of the flat straps shall be not less than 20 mils (0.5 mm).
(h) Overall outer jacket. (1) An electrically nonconducting (insulating) or semi-conducting outer jacket shall be applied directly over the concentric neutral conductors.
(2) The jacket material shall fill the interstice area between conductors, leaving no voids. The jacket shall be free stripping. The jacket shall have three red stripes longitudinally extruded into the jacket surface 120° apart.
(3) Nonconducting jackets shall consist of low density, linear low density, medium density, or high density HMW black polyethylene (LDPE, LLDPE, MDPE, HDPE) compound meeting the requirements of ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97) and ASTM D 1248-05 (incorporated by reference in § 1728.97) for Type I, Class C, Category 4 or 5, Grade J3 before application to the cable. Polyvinyl chloride (PVC) and chlorinated polyethylene (CPE) jackets are not acceptable.
(4) Semi-conducting jackets shall have a maximum radial resistivity of 100 ohm-meter and a maximum moisture vapor transmission rate of 1.5 g/m
(5) The minimum thickness of the jacket over metallic neutral wires or straps shall comply with the thickness specified in ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97).
(i) Tests. (1) As part of a request for Agency consideration for acceptance and listing, the manufacturer shall submit certified test data results to the Agency that detail full compliance with ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97) for each cable design.
(i) Test results shall confirm compliance with each of the material tests, production sampling tests, tests on completed cable, and qualification tests included in ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97).
(ii) The testing procedure and frequency of each test shall be in accordance with ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97).
(iii) Certified test data results shall be submitted to the Agency for any test, which is designated by ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97) as being “for Engineering Information Only,” or any similar designation.
(2) Partial discharge tests. Manufacturers shall demonstrate that their cable is not adversely affected by excessive partial discharge. This demonstration shall be made by completing the procedures described in paragraphs (i)(2)(i) and (i)(2)(ii) of this section.
(i) Each shipping length of completed cable shall be tested and have certified test data results available indicating compliance with the partial discharge test requirements in ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97).
(ii) Manufacturers shall test production samples and have available certified test data results indicating compliance with ASTM D 2275-01 (incorporated by reference in § 1728.97) for discharge resistance as specified in the ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97). Samples of insulated cable shall be prepared by either removing the overlying extruded insulation shield material, or using insulated cable before the extruded insulation shield material is applied. The sample shall be mounted as described in ASTM D 2275-01 and shall be subjected to a voltage stress of 250 volts per mil of nominal insulation thickness. The sample shall support this voltage stress, and not show evidence of degradation on the surface of the insulation for a minimum of 100 hours. The test shall be performed at least once on each 50,000 feet (15,240 m) of cable produced, or major fractions thereof, or at least once per insulation extruder run.
(3) Jacket tests. Tests described in paragraph (i)(3)(i) of this section shall be performed on cable jackets from the same production sample as in paragraphs (i)(2)(i) and (i)(2)(ii) of this section.
(i) A Spark Test shall be performed on nonconducting jacketed cable in accordance with ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97) on 100 percent of the completed cable prior to its being wound on shipping reels. The test voltage shall be 4.5 kV AC for cable diameters 1.5 inches, and shall be applied between an electrode at the outer surface of the nonconducting (insulating) jacket and the concentric neutral for not less than 0.15 second.
(ii) [Reserved]
(4) Frequency of sample tests shall be in accordance with ANSI/ICEA S-94-649-2004 (incorporated by reference in § 1728.97).
(5) If requested by the borrower, a certified copy of the results of all tests performed in accordance with this section shall be furnished by the manufacturer on all orders.
(j) Miscellaneous. (1) All cable provided under this specification shall have suitable markings on the outer surface of the jacket at sequential intervals not exceeding 2 feet (0.61 m). The label shall indicate the name of the manufacturer, conductor size, type and thickness of insulation, center conductor material, voltage rating, year of manufacture, and jacket type. There shall be no more than 6 inches (0.15 m) of unmarked spacing between texts label sequence. The jacket shall be marked with the symbol required by Rule 350G of the National Electrical Safety Code and the borrower shall specify any markings required by local safety codes. This is in addition to extruded red stripes required in this section.
(2) Watertight seals shall be applied to all cable ends to prevent the entrance of moisture during transit or storage. Each end of the cable shall be firmly and properly secured to the reel.
(3) Cable shall be placed on shipping reels suitable for protecting it from damage during shipment and handling. Reels shall be covered with a suitable covering to help provide physical protection to the cable.
(4) A durable label shall be securely attached to each reel of cable. The label shall indicate the purchaser’s name and address, purchase order number, cable description, reel number, feet of cable on the reel, tare and gross weight of the reel, and beginning and ending sequential footage numbers.
PART 1730 – ELECTRIC SYSTEM OPERATIONS AND MAINTENANCE
Subpart A – General
§ 1730.1 Introduction.
(a) This part contains the policies and procedures of the Rural Utilities Service (RUS) related to electric borrowers’ operation and maintenance practices and RUS’ review and evaluation of such practices.
(b) The policies and procedures included in this part apply to all electric borrowers (both distribution borrowers and power supply borrowers) and are intended to clarify and implement certain provisions of the security instrument and loan contract between RUS and electric borrowers regarding operations and maintenance. This part is not intended to waive or supersede any provisions of the security instrument and loan contract between RUS and electric borrowers.
(c) The Administrator may waive, for good cause, on a case by case basis, certain requirements and procedures of this part.
§ 1730.2 RUS policy.
It is RUS policy to require that all property of a borrower be operated and maintained properly in accordance with the requirements of each borrower’s loan documents. It is also RUS policy to provide financial assistance only to borrowers whose operations and maintenance practices and records are satisfactory or to those who are taking corrective actions expected to make their operations and maintenance practices and records satisfactory to RUS.
§ 1730.3 RUS addresses.
(a) Persons wishing to obtain forms referred to in this part should contact: Program Support and Regulatory Analysis, Rural Utilities Service, U.S. Department of Agriculture, Stop 1522, 1400 Independence Ave., SW., Washington, DC 20250-1522, telephone (202) 720-8674. Borrowers or others may reproduce any of these forms in any number required.
(b) Documents required to be submitted to RUS under this part are to be sent to the office of the borrower’s assigned RUS General Field Representative (GFR) or such other office as designated by RUS.
§ 1730.4 Definitions.
Terms used in this part have the meanings set forth in 7 CFR Part 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 Part 1710.2, the term Prudent Utility Practice has the meaning set forth in Article 1, Section 1.01 of Appendix A to Subpart B of 7 CFR Part 1718 – Model Form of Mortgage for Electric Distribution Borrowers, for the purposes of this Part.
§§ 1730.5-1730.19 [Reserved]
Subpart B – Operations and Maintenance Requirements
§ 1730.20 General.
Each electric program distribution, transmission and generation borrower (as defined in § 1710.2) shall operate and maintain its system in compliance with prudent utility practice, in compliance with its loan documents, and in compliance with all applicable laws, regulations and orders, shall maintain its systems in good repair, working order and condition, and shall make all needed repairs, renewals, replacements, alterations, additions, betterments and improvements, in accordance with applicable provisions of the borrower’s security instrument. Each borrower is responsible for on-going operations and maintenance programs, individually or regionally performing a system security Vulnerability and Risk Assessment (VRA), establishing and maintaining an Emergency Restoration Plan (ERP), maintaining records of the physical, cyber and electrical condition and security of its electric system and for the quality of services provided to its customers. The borrower is also responsible for all necessary inspections and tests of the component parts of its system, and for maintaining records of such inspections and tests. Each borrower shall budget sufficient resources to operate and maintain its system and annually exercise its ERP in accordance with the requirements of this part. An actual manmade or natural event on the borrowers system in which a borrower utilizes a significant portion of its ERP shall count as an annual exercise for that calendar year, provided that after conclusion of the event, the borrower verifies accuracy of the emergency points-of-contact (POC) and the associated contact numbers as listed in their ERP. For portions of the borrower’s system that are not operated by the borrower, if any, the borrower is responsible for ensuring that the operator is operating and maintaining the system properly in accordance with the operating agreement.
§ 1730.21 Inspections and tests.
(a) Each borrower shall conduct all necessary inspections and tests of the component parts of its electric system, annually exercise its ERP, and maintain records of such inspections and tests. For the purpose of this part, “Exercise” means a borrower’s Tabletop execution of, or actual implementation of, the ERP to verify the operability of the ERP. Such Exercise may be performed singly by an individual borrower, or as an active participant in a multi-party (to include utilities, government agencies and other participants or combination thereof) Tabletop execution or actual full implementation of the ERP. For the purpose of this part, “Tabletop” means a hypothetical emergency response scenario in which participants will identify the policy, communication, resources, data, coordination, and organizational elements associated with an emergency response.
(b) The frequency of inspection and testing will be determined by the borrower in conformance with applicable laws, regulations, national standards, and Prudent Utility Practice. The frequency of inspection and testing will be determined giving due consideration to the type of facilities or equipment, manufacturer’s recommendations, age, operating environment and hazards to which the facilities are exposed, consequences of failure, and results of previous inspections and tests. The records of such inspections and tests will be retained in accordance with applicable regulatory requirements and Prudent Utility Practice. The retention period should be of a sufficient time period to identify long-term trends. Records must be retained at least until the applicable inspections or tests are repeated.
(c) Inspections of facilities must include a determination of whether the facility complies with the National Electrical Safety Code, National Electrical Code (as applicable), and applicable State or local regulations and whether additional security measures are considered necessary to reduce the vulnerability of those facilities which, if damaged or destroyed, would severely impact the reliability and security of the electric power grid, cause significant risk to the safety and health of the public and/or impact the ability to provide service to consumers over an extended period of time. The electric power grid, also known as the transmission grid, consists of a network of electrical lines and related facilities, including certain substations, used to connect distribution facilities to generation facilities, and includes bulk transmission and subtransmission facilities as defined in § 1710.2 of this title. Any serious or life-threatening deficiencies shall be promptly repaired, disconnected, or isolated in accordance with applicable codes or regulations. Any other deficiencies found as a result of such inspections and tests are to be recorded and those records are to be maintained until such deficiencies are corrected or for the retention period required by paragraph (b) of this section, whichever is longer.
§ 1730.22 Borrower analysis.
(a) Each borrower shall periodically analyze and document its security, operations and maintenance policies, practices, and procedures to determine if they are appropriate and if they are being followed. The records of inspections and tests are also to be reviewed and analyzed to identify any trends which could indicate deterioration in the physical or cyber condition or the operational effectiveness of the system or suggest a need for changes in security, operations or maintenance policies, practices and procedures. For portions of the borrower’s system that are not operated by the borrower, if any, the borrower’s written analysis would also include a review of the operator’s performance under the operating agreement.
(b) When a borrower’s security, operations and maintenance policies, practices, and procedures are to be reviewed and evaluated by RUS, the borrower shall:
(1) Conduct the analysis required by paragraph (a) of this section not more than 90 days prior to the scheduled RUS review;
(2) Complete RUS Form 300, Review Rating Summary, and other related forms, prior to RUS’ review and evaluation; and
(3) Make available to RUS the borrower’s completed RUS Form 300 (including a written explanation of the basis for each rating) and records related to the operations and maintenance of the borrower’s system.
(c) For those facilities not included on the RUS Form 300 (e.g., generating plants), the borrower shall prepare and complete an appropriate supplemental form for such facilities.
§ 1730.23 Review rating summary, RUS Form 300.
The RUS Form 300 is available from RUS and shall be used when required by this part.
§ 1730.24 RUS review and evaluation.
RUS will initiate and conduct a periodic review and evaluation of the operations and maintenance practices of each borrower for the purpose of assessing loan security and determining borrower compliance with RUS policy as outlined in this part. This review will normally be done at least once every three years. The borrower will make available to RUS the borrower’s policies, procedures, and records related to the operations and maintenance of its complete system. Reports made by other inspectors (e.g., other Federal agencies, State inspectors, etc.) will also be made available, as applicable. RUS will not duplicate these other reviews but will use their reports to supplement its own review. RUS may inspect facilities, as well as records, and may also observe construction and maintenance work in the field. Key borrower personnel responsible for the facilities being inspected are to accompany RUS during such inspections, unless otherwise determined by RUS. RUS personnel may prepare an independent summary of the operations and maintenance practices of the borrower. The borrower’s management will discuss this review and evaluation with its Board of Directors.
§ 1730.25 Corrective action.
(a) For any items on the RUS Form 300 rated unsatisfactory (i.e., 0 or 1) by the borrower or by RUS, the borrower shall prepare a corrective action plan (CAP) outlining the steps (both short term and long term) the borrower will take to improve existing conditions and to maintain an acceptable rating. The CAP must include a time schedule and cost estimate for corrective actions, and must be approved by the borrower’s Board of Directors. The CAP must be submitted to RUS for approval within 90 days after the completion of RUS’ evaluation noted in § 1730.24.
(b) The borrower must periodically report to RUS in writing progress under the CAP. This report must be submitted to RUS every six months until all unsatisfactory items are corrected unless RUS prescribes a different reporting schedule.
§ 1730.26 Certification.
(a) Engineer’s certification. Where provided for in the borrower’s loan documents, RUS may require the borrower to provide an “Engineer’s Certification” as to the condition of the borrower’s system (including, but not limited to, all mortgaged property.) Such certification shall be in form and substance satisfactory to RUS and shall be prepared by a professional engineer satisfactory to RUS. If RUS determines that the Engineer’s Certification discloses a need for improvements to the condition of its system or any other operations of the borrower, the borrower shall, upon notification by RUS, promptly undertake to accomplish such improvements.
(b) Emergency Restoration Plan certification. The borrower’s Manager or Chief Executive Officer shall provide written certification to RUS stating that a VRA has been satisfactorily completed that meets the criteria of § 1730.27 (a), (b), (c), or (d), as applicable and § 1730.27(e)(1) through (e)(8), and that the borrower has an ERP that meets the criteria of § 1730.28 (a), (b), (c), or (d), as applicable, and § 1730.28 (e), (f), and (g). The written certification shall be in letter form. Applicants for new RUS electric loans, loan guarantees or grants shall include the written certification in the application package submitted to RUS. If the self-certification of an ERP and VRA are not received as set forth in this section, approval of the loan, loan guarantees or grants will not be considered until the certifications are received by RUS.
§ 1730.27 Vulnerability and Risk Assessment (VRA).
(a) Each borrower with an approved RUS electric program loan shall perform an initial VRA of its electric system. Additional or periodic VRA’s may be necessary if significant changes occur in the borrower’s system, and records of such additional assessments shall be maintained by the borrower.
(b) Each applicant that submits an application for an RUS electric program loan or grant shall include with its application package a letter certification that such applicant has performed an initial VRA of its electric system. Additional or periodic VRA’s may be necessary if significant changes occur in the borrower’s system, and records of such additional assessments shall be maintained by the borrower.
(c) The VRA shall include identifying:
(1) Critical assets or facilities considered necessary for the reliability and security of the electric power grid as described in § 1730.21(c);
(2) Facilities that if damaged or destroyed would cause significant risk to the safety and health of the public;
(3) Critical assets or infrastructure owned or served by the borrower’s electric system that are determined, identified and communicated as elements of national security by the consumer, State or Federal government;
(4) External system impacts (interdependency) with loss of identified system components;
(5) Threats to facilities and assets identified in paragraphs (c)(1) through (4) of this section;
(6) Criticality and risk level of the borrower’s system;
(7) Critical asset components and elements unique to the RUS borrower’s system; and
(8) Other threats, if any, identified by an individual borrower.
§ 1730.28 Emergency Restoration Plan (ERP).
(a) Each borrower shall have a written ERP. The ERP should be developed by the borrower individually or in conjunction with other electric utilities (not all having to be RUS borrowers) through the borrower’s unique knowledge of its system, prudent utility practices (which includes development of an ERP) and the borrower’s completed VRA. If a joint electric utility ERP is developed, each RUS borrower shall prepare an addendum to meet the requirements of paragraphs (c) through (e) of this section as it relates to its system.
(b) Each applicant that submits an application for an RUS electric program loan or grant shall include with its application package a letter certification that such applicant has a written ERP.
(c) The ERP shall include:
(1) A list of key contact emergency telephone numbers (emergency agencies, borrower management and other key personnel, contractors and equipment suppliers, other utilities, and others that might need to be reached in an emergency);
(2) A list of key utility management and other personnel and identification of a chain of command and delegation of authority and responsibility during an emergency;
(3) Procedures for recovery from loss of power to the headquarters, key offices, and/or operation center facilities;
(4) A Business Continuity Section describing a plan to maintain or re-establish business operations following an event which disrupts business systems (computer, financial, and other business systems);
(5) A section describing a plan to comply with the eligibility requirements to qualify for the FEMA Public Assistance Grant Program; and
(6) Other items, if any, identified by the borrower as essential for inclusion in the ERP.
(d) The ERP must be approved and signed by the borrower’s Manager or Chief Executive Officer, and approved by the borrower’s Board of Directors.
(e) Copies of the most recent approved ERP must be made readily available to key personnel at all times.
(f) The ERP shall be Exercised at least annually to ensure operability and employee familiarity.
(g) If modifications are made to an existing ERP:
(1) The modified ERP must be prepared in compliance with the provisions of paragraphs (c) through (e) of this section; and
(2) Additional Exercises may be necessary to maintain employee operability and familiarity.
(h) Each borrower shall maintain records of such Exercises.
§ 1730.29 Grants and Grantees.
For the purposes of this part, the terms “borrower” shall include recipients of RUS electric program grants, and “applicant” shall include applicants for such grants. References to “security documents” shall, with respect to recipients of RUS electric program grants, include grant agreements and other grant-related documents.
§§ 1730.30-1730.59 [Reserved]
Subpart C – Interconnection of Distributed Resources
§ 1730.60 General.
Each electric program distribution borrower (as defined in § 1710.2) is responsible for establishing and maintaining a written standard policy relating to the Interconnection of Distributed Resources (IDR) having an installed capacity of not more than 10 megavolt amperes (MVA) at the point of common coupling.
§ 1730.61 RUS policy.
The Distributed Resource facility must not cause significant degradation of the safety, power quality, or reliability on the borrower’s electric power system or other electric power systems interconnected to the borrower’s electric power system. The Agency encourages borrowers to consider model policy templates developed by knowledgeable and expert institutions, such as, but not limited to the National Association of Regulatory Utility Commissioners, the Federal Energy Regulatory Commission and the National Rural Electric Cooperative Association. The Agency encourages all related electric borrowers to cooperate in the development of a common Distributed Resource policy.
§ 1730.62 Definitions.
“Distributed resources” as used in this subpart means sources of electric power that are not directly connected to a bulk power transmission system, having an installed capacity of not more than 10 MVA, connected to the borrower’s electric power system through a point of common coupling. Distributed resources include both generators and energy storage technologies.
“Responsible party” as used in this subpart means the owner, operator or any other person or entity that is accountable to the borrower under the borrower’s interconnection policy for Distributed Resources.
§ 1730.63 IDR policy criteria.
(a) General. (1) The borrower’s IDR policy and procedures shall be readily available to the public and include, but not limited to, a standard application, application process, application fees, and agreement.
(2) All costs to be recovered from the applicant regarding the application process or the actual interconnection and the process to determine the costs are to be clearly explained to the applicant and authorized by the applicant prior to the borrower incurring these costs. The borrower may require separate non-refundable deposits sufficient to insure serious intent by the applicant prior to proceeding either with the application or actual interconnection process.
(3) IDR policies must be approved by the borrower’s Board of Directors.
(4) The borrower may establish a new rate classification for customers with Distributed Resources.
(5) IDR policies should be reconsidered and updated periodically in a manner that is consistent with prudent utility practice.
(b) Technical requirements. (1) IDR policies must be consistent with prudent electric utility practice.
(2) IDR policies must provide for appropriate electric power system disconnect facilities, as determined by the borrower, which shall include a lockable disconnect and a visible open, that are readily accessible to and operable by authorized personnel at all times.
(3) IDR policies must provide for borrower access to the Distributed Resources facility during normal business hours and all emergency situations.
(c) Responsible Party obligations. IDR policies must provide for appropriate Responsible Parties to assume the following risks and responsibilities:
(1) A Responsible Party must agree to maintain appropriate liability insurance as outlined in the borrower’s interconnection policy.
(2) A Responsible Party must be responsible for the Distributed Resources compliance with all national, State, local government requirements and electric utility standards for the safety of the public and personnel responsible for utility electric power system operations, maintenance and repair.
(3) A Responsible Party must be responsible for the safe and effective operation and maintenance of the facility.
(4) Only Responsible Parties may apply for interconnection and the Responsible Party must demonstrate that the facility will be capably developed, constructed and operated, maintained, and repaired.
§ 1730.64 Power purchase agreements.
Nothing in this subpart requires the borrower to enter into purchase power arrangements with the owner of the Distributed Resources.
§ 1730.65 Effective dates.
All electric program applicants shall provide a letter of certification executed by the General Manager stating that the borrower meets the requirements of this subpart before such loan may be approved.
§ 1730.66 Administrative waiver.
The Administrator may waive in all or part, for good cause, the requirements and procedures of this subpart.
§§ 1730.67-1730.99 [Reserved]
§ 1730.100 OMB Control Number.
The Information collection requirements in this part are approved by the Office of Management and Budget and assigned OMB control number 0572-0141.
PART 1734 – DISTANCE LEARNING AND TELEMEDICINE LOAN AND GRANT PROGRAMS
Subpart A – Distance Learning and Telemedicine Loan and Grant Program – General
§ 1734.1 Purpose.
The purpose of the Distance Learning and Telemedicine (DLT) Loan and Grant Program is to encourage and improve telemedicine services and distance learning services in rural areas through the use of telecommunications, computer networks, and related advanced technologies by students, teachers, medical professionals, and rural residents. This subpart describes the general policies for administering the DLT program. Subpart B of this part contains the policies and procedures related to grants; subpart C contains the policies and procedures related to a combination loan and grant; and subpart D contains the policies and procedures related to loans.
§ 1734.2 Policy.
(a) The transmission of information is vital to the economic development, education, and health of rural Americans. To further this objective, the Rural Utilities Service (RUS) will provide financial assistance to distance learning and telemedicine projects that will improve the access for people residing in rural areas to educational, learning, training, and health care services.
(b) In providing financial assistance, RUS will give priority to rural areas that it believes have the greatest need for distance learning and telemedicine services. RUS believes that generally the need is greatest in areas that are economically challenged, costly to serve, and experiencing outward migration. This program is consistent with the provisions of the Telecommunications Act of 1996 that designate telecommunications service discounts for schools, libraries, and rural health care centers. RUS will take into consideration the community’s involvement in the proposed project and the applicant’s ability to leverage grant funds.
(c) In administering this subpart, RUS will not favor or mandate the use of one particular technology over another.
(d) Rural institutions are encouraged to cooperate with each other, with applicants, and with end-users to promote the program being implemented under this subpart.
(e) RUS staff will make diligent efforts to inform potential applicants in rural areas of the programs being implemented under this subpart.
(f) The Administrator may provide loans under this subpart to an entity that has received a telecommunications or electric loan under the Rural Electrification Act of 1936. A borrower receiving a loan shall:
(1) Make the funds provided available to entities that qualify as distance learning or telemedicine projects satisfying the requirements of this subpart, under any terms it so chooses as long as the terms are no more stringent than the terms under which it received the financial assistance.
(2) Use the loan to acquire, install, improve, or extend a distance learning or telemedicine system referred to in this subpart.
(g) The Administrator will allocate funds that are appropriated each fiscal year for subparts B, C, and D, of this part respectively. Not more than 30 days before the end of the fiscal year, the Administrator may transfer any funds not committed to grants in the combination loan and grant program to the grant program.
(h) Financial assistance may be provided for end user sites. Financial assistance may also be provided for hubs located in rural or non-rural areas if they are necessary to provide distance learning or telemedicine services to rural residents at end user sites.
(i) The Administrator will publish, at the end of each fiscal year, a notice on the RUS Telecommunications Program Web site of all applications receiving financial assistance under this subpart. Subject to the provisions of the Freedom of Information Act (5 U.S.C. 552), applications will be available for public inspection at the U.S. Department of Agriculture, 1400 Independence Avenue SW., Washington, DC 20250.
§ 1734.3 Definitions.
As used in this part:
1996 Act means the Federal Agriculture Improvement Act of 1996.
Act means the Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.).
Administrator means the Administrator of the Rural Utilities Service, or designee or successor.
Applicant means an eligible organization that applies for financial assistance under this subpart.
Approved purposes means project purposes for which grant, loan, or combination loan and grant financial assistance may be expended.
Broadband facilities means facilities that transmit, receive, or carry voice, video, or data between the terminal equipment at each end of the circuit or path. Such facilities include microwave antennae, relay stations and towers, other telecommunications antennae, fiber-optic cables and repeaters, coaxial cables, communication satellite ground station complexes, copper cable electronic equipment associated with telecommunications transmissions, and similar items.
Combination loan and grant means a grant in combination with a loan made under the DLT program.
Completed application means an application that includes all those items specified in §§ 1734.125, 1734.134, and in form and substance satisfactory to the Administrator.
Consortium means a combination or group of entities undertaking the purposes for which the distance learning and telemedicine financial assistance is provided. At least one of the entities in a consortium must meet the requirements of § 1734.4.
Construct means to acquire, construct, extend, improve, or install a facility or system.
Distance learning means a telecommunications link to an end user through the use of eligible equipment to provide educational programs, instruction, or information originating in one area, whether rural or not, to students and teachers who are located in rural areas.
DLT borrower means an entity that has an outstanding loan under the provisions of the DLT program.
DLT program means the Distance Learning and Telemedicine Loan and Grant Program administered by RUS.
Economic useful life as applied to equipment and facilities financed under the DLT program is calculated based on Internal Revenue Service depreciation rules or recognized telecommunications industry guidelines.
Eligible equipment means computer hardware and software, audio and video equipment, computer networking components, telecommunications terminal equipment, terminal equipment, inside wiring, interactive video equipment.
Eligible facilities means land, buildings, or building construction needed to carry out an eligible distance learning or telemedicine project for loan financial assistance only.
End user is one or more of the following:
(1) Rural elementary, secondary schools, and other educational institutions, such as institutions of higher education, vocational and adult training and educational centers, libraries and teacher training centers, and students, teachers and instructors using such rural educational facilities, that participate in distance learning telecommunications program through a project funded under this subpart;
(2) Rural hospitals, primary care centers or facilities, such as medical centers, nursing homes, and clinics, and physicians and staff using such rural medical facilities, that participants in a rural distance learning telecommunications program through a project funded under this part; and
(3) Other rural community facilities, institutions, or entities that receive distance learning or telemedicine services.
End user site means a facility that is part of a network or telecommunications system that is utilized by end users. An end user site can also be the residence of someone living in a rural area that is receiving telemedicine or distant learning services.
Financial assistance means a grant, combination loan and grant, or loan.
GFR means RUS telecommunications program General Field Representative.
Grant documents means the grant agreement, including any amendments and supplements thereto, between RUS and the grantee.
Grantee means a recipient of a grant from RUS to carry out the purposes of the DLT program.
Guarantee means a guarantee for a loan provided by a RUS borrower or other qualified third party.
Hub means a facility that is part of a network or telecommunications system that provides educational or medical services to end user sites.
Instructional programming means course material for teaching over the Distance Learning or Telemedicine network, including computer software.
Interactive equipment means equipment used to produce and prepare for transmission of audio and visual signals from at least two distant locations so that individuals at such locations can orally and visually communicate with each other. Such equipment includes, but is not limited to, monitors, other display devices, cameras or other recording devices, audio pickup devices, and other related equipment.
Loan means a loan made under the DLT program bearing interest at a rate equal to the then current cost-of-money to the government.
Loan documents mean the loan agreement, note, and security instrument, including any amendments and supplements thereto, between RUS and the DLT borrower.
Local exchange carrier (LEC) is a regulatory term in telecommunications for the local telephone company. In the United States, wireline telephone companies are divided into two large categories: Long distance (interexchange carrier, or IXCs) and local (local exchange carrier, or LECs). This structure is a result of 1984 divestiture of then regulated monopoly carrier American Telephone & Telegraph. Local telephone companies at the time of the divestiture are also known as Incumbent Local Exchange Carriers (ILEC).
Matching contribution means the applicant’s contribution for approved purposes.
Project means approved purposes for which financial assistance has been provided.
Project service area means the area in which at least 90 percent of the persons to be served by the project are likely to reside.
Recipient means a grantee, borrower, or both of a DLT program grant, loan or combination loan and grant.
Rural community facility means a facility such as a school, library, learning center, training facility, hospital, or medical facility that provides benefits primarily to residents of rural areas.
RUS means the Rural Utilities Service, an agency of the United States Department of Agriculture, successor to the Rural Electrification Administration.
Secretary means the Secretary of Agriculture.
Technical assistance means:
(1) Assistance in learning to manage, operate, or use equipment or systems; and
(2) Studies, analyses, designs, reports, manuals, guides, literature, or other forms of creating, acquiring, or disseminating information.
Telecommunications carrier means any provider of telecommunications services.
Telecommunications or electric borrower means an entity that has outstanding RUS electric or telecommunications loan or loan guarantee under the provisions of the Act.
Telecommunications systems plan means the plan submitted by an applicant in accordance with § 1734.25 for grants, § 1734.34 for a combination loan and grant, or § 1734.44 for loans.
Telemedicine means a telecommunications link to an end user through the use of eligible equipment which electronically links medical professionals at separate sites in order to exchange health care information in audio, video, graphic, or other format for the purpose of providing improved health care services primarily to residents of rural areas.
§ 1734.4 Applicant eligibility and allocation of funds.
To be eligible to receive a grant, loan and grant combination, or loan under this subpart:
(a) The applicant must be legally organized as an incorporated organization, an Indian tribe or tribal organization, as defined in 25 U.S.C. 450b(b) and (c), a state or local unit of government, a consortium, as defined in § 1734.3, or other legal entity, including a private corporation organized on a for-profit or not-for profit basis. Each applicant must provide written evidence of its legal capacity to contract with RUS to obtain the grant, loan and grant combination, or the loan, and comply with all applicable requirements. If a consortium lacks the legal capacity to contract, each individual entity must contract with RUS in its own behalf.
(b) The applicant proposes to utilize the financing to:
(1) Operate a rural End-User Site for the purpose of providing Distance Learning or Telemedicine services; or
(2) Deliver distance learning or telemedicine services to entities that operate a rural community facility or to residents of rural areas at rates calculated to ensure that the benefit of the financial assistance is passed through to such entities or to residents of rural areas.
§ 1734.5 Processing of selected applications.
(a) During the period between the submission of an application and the execution of documents, the applicant must inform RUS if the project is no longer viable or the applicant no longer is requesting financial assistance for the project. When the applicant so informs RUS, the selection will be rescinded or the application withdrawn and written notice to that effect sent to the applicant.
(b) If an application has been selected and the scope of the project changes substantially, the applicant may be required to reapply in the next program window if the agency and the selected applicant cannot agree on the new scope of the award.
(c) If state or local governments raise objections to a proposed project under the intergovernmental review process that are not resolved within 90 days from the time the public is made aware of the award, the Administrator will rescind the selection and written notice to that effect will be sent to the applicant. The Administrator, in his sole discretion, may extend the 90 day period if it appears resolution is imminent.
(d) RUS may request additional information that would not change the application or scoring, in order to complete the appropriate documents covering financial assistance.
(e) Financial assistance documents. (1) The documents will include a grant agreement for grants; loan documents, including third party guarantees, notes and security instruments for loans; or any other legal documents the Administrator deems appropriate, including suggested forms of certifications and legal opinions.
(2) The grant agreement and the loan documents will include, among other things, conditions on the release or advance of funds and include at a minimum, a project description, approved purposes, the maximum amount of the financial assistance, supplemental funds required for the project, and certain agreements or commitments the applicant may have proposed in its application. In addition, the loan documents may contain covenants and conditions the Administrator deems necessary or desirable to provide additional assurance that loans will be repaid and the purposes of the loan will be accomplished.
(3) The recipient of a loan will be required to execute a security instrument in form and substance satisfactory to RUS and must, before receiving any advance of loan funds, provide security that is adequate, in the opinion of RUS, to assure repayment, within the time agreed, of all loans to the borrower under the DLT program. This assurance will generally be provided by a first lien upon all facilities and equipment financed by the loan. RUS may require additional security as it deems necessary.
(4) Adequate security may also be provided by third-party guarantees, letters of credit, pledges of revenue, or other forms of security satisfactory to RUS.
(5) The security instrument and other loan documents required by RUS in connection with a loan under the DLT program shall contain such pledges, covenants, and other provisions as may, in the opinion of RUS, be required to secure repayment of the loan.
(6) If the project does not constitute a complete operating system, the DLT recipient shall provide evidence, in form and substance satisfactory to RUS, demonstrating that the recipient has sufficient contractual, financing, or other arrangements to assure that the project will provide adequate and efficient service.
(f) Prior to the execution of a grant and loan document, RUS reserves the right to require any changes in the project or legal documents covering the project to protect the integrity of the DLT program and the interests of the government.
(g) If the applicant fails to submit, within 120 calendar days from the date RUS notifies the applicant that they have been selected for an award, all of the information that RUS determines to be necessary to prepare legal documents and satisfy other requirements of this subpart, RUS may rescind the selection of the application.
§ 1734.6 Disbursement of loans and grants.
(a) For financial assistance of $100,000 or greater, prior to the disbursement of a grant and a loan, the recipient, if it is not a unit of government, will provide evidence of fidelity bond coverage as required by 2 CFR part 200, which is adopted by USDA through 2 CFR part 400.
(b) Grants and loans will be disbursed to recipients on a reimbursement basis, or with unpaid invoices for the eligible purposes contained in this subpart, by the following process:
(1) An SF 270, “Request for Advance or Reimbursement,” will be completed by the recipient and submitted to RUS not more frequently than once a month;
(2) RUS will review the SF 270 for accuracy when received and will schedule payment if the form is satisfactory. Payment will ordinarily be made within 30 days; and
(c) The recipient’s share in the cost of the project must be disbursed in advance of the loan and grant, or if the recipient agrees, on a pro rata distribution basis with financial assistance during the disbursement period. Recipients will not be permitted to provide their contributions at the end of the project.
(d) A combination loan and grant will be disbursed on a pro rata basis based on the respective amounts of financial assistance provided.
§ 1734.7 Reporting and oversight requirements.
(a) A project performance activity report will be required of all recipients on an annual basis until the project is complete and the funds are expended by the applicant.
(b) Recipients shall diligently monitor performance to ensure that time schedules are being met, projected work by time periods is being accomplished, and other performance objectives are being achieved. Recipients are to submit all project performance reports, including, but not limited to, the following:
(1) A comparison of actual accomplishments to the objectives established for that period;
(2) A description of any problems, delays, or adverse conditions which have occurred, or are anticipated, and which may affect the attainment of overall project objectives, prevent the meeting of time schedules or objectives, or preclude the attainment of particular project work elements during established time periods. This disclosure shall be accompanied by a statement of the action taken or planned to resolve the situation; and
(3) Objectives and timetable established for the next reporting period.
(c) RUS will monitor recipients, as it determines necessary, to ensure that projects are completed in accordance with the approved scope of work and that the financial assistance is expended for approved purposes.
§ 1734.8 Audit requirements.
A recipient of financial assistance shall provide RUS with an audit for each year, beginning with the year in which a portion of the financial assistance is expended, in accordance with the following:
(a) If the recipient is a for-profit entity, a Telecommunications or Electric borrower, or any other entity not covered by the following paragraph, the recipient shall provide an independent audit report in accordance with 7 CFR part 1773, “Policy on Audits of RUS Borrowers.”
(b) If the recipient is a state or local government, or non-profit organization, the recipient shall provide an audit in accordance with subpart F of 2 CFR part 200, as adopted by USDA through 2 CFR part 400.
(c) Grantees shall comply with 2 CFR part 200, as adopted by USDA through 2 CFR part 400, and rules on the disposition of grant assets in Part 200 shall be applied regardless of the type of legal organization of the grantee.
§ 1734.9 Grant and loan administration.
RUS will conduct reviews as necessary to determine whether the financial assistance was expended for approved purposes. The recipient is responsible for ensuring that the project complies with all applicable regulations, and that the grants and loans are expended only for approved purposes. The recipient is responsible for ensuring that disbursements and expenditures of funds are properly supported by invoices, contracts, bills of sale, canceled checks, or other appropriate forms of evidence, and that such supporting material is provided to RUS, upon request, and is otherwise made available, at the recipient’s premises, for review by the RUS representatives, the recipient’s certified public accountant, the Office of Inspector General, U.S. Department of Agriculture, the General Accounting Office, and any other official conducting an audit of the recipient’s financial statements or records, and program performance for the grants and loans made under this subpart. The recipient shall permit RUS to inspect and copy any records and documents that pertain to the project.
§ 1734.10 Changes in project objectives or scope.
The recipient shall obtain prior written approval by RUS for any material change to the scope or objectives of the project, including any changes to the scope of work or the budget submitted to RUS. Any material change shall be contained in a revised scope of work plan to be prepared by the recipient, submitted to, and approved by RUS in writing. If RUS does not approve the change and the awardee is unable to fulfill the original purposes of the award, the awardee will work with RUS to return or rescind the financial assistance.
§ 1734.11 Grant and loan termination.
(a) The financial assistance may be terminated when RUS and the recipient agree upon the conditions of the termination, the effective date of the termination, and, in the case of a partial termination of the financial assistance, any unadvanced portion of the financial assistance to be terminated and any advanced portion of the financial assistance to be returned.
(b) The recipient may terminate the financial assistance by written notification to RUS, providing the reasons for such termination, the effective date, and, in the case of a partial termination, the portion of the financial assistance to be terminated. In the case of a partial termination, if RUS believes that the remaining portion of the financial assistance will not accomplish the approved purposes, then RUS may terminate the financial assistance in its entirety, pursuant to the provisions of paragraph (a) of this section.
§ 1734.12 Expedited telecommunications loans
RUS will expedite consideration and determination of an application submitted by an RUS telecommunications borrower for a loan under the Act or an advance of such loan funds to be used in conjunction with financial assistance under subparts B, C, or D of this part. See 7 CFR part 1737 for loans and 7 CFR part 1744 for advances under this section.
§§ 1734.13-1734.19 [Reserved]
Subpart B – Distance Learning and Telemedicine Grant Program
§ 1734.20 [Reserved]
§ 1734.21 Approved purposes for grants.
For distance learning and telemedicine projects, grants shall finance only the costs for approved purposes. Grants shall be expended only for the costs associated with the capital assets associated with the project. The following are approved grant purposes:
(a) Acquiring and installing, by lease or purchase, eligible equipment as defined in § 1734.3;
(b) Purchases of extended warranties, site licenses, and maintenance contracts, for a period not to exceed 3 years from installation date, so long as such purchases are in support of eligible equipment included in the project and made concurrently;
(c) Acquiring or developing instructional programming; but shall not include salaries, benefits, and overhead of medical, educational, or any personnel employed by the applicant. The funded development and acquisition of instructional programming must be done through an independent 3rd party, and may not be performed using the applicant’s employees.
(d) Providing technical assistance and instruction for using eligible equipment, including any related software; developing instructional programming; or providing engineering and environmental studies relating to the establishment or expansion of the phase of the project that is being financed with the grant. These purposes shall not exceed 10 percent of the grant; and
(e) Purchasing and installing broadband facilities. This purpose is limited to a maximum of 20 percent of the request grant amount and must be used for providing distance learning or telemedicine services.
§ 1734.22 Matching contributions.
(a) The grant applicant’s minimum matching contribution must equal 15 percent of the grant amount requested and shall be used for approved purposes for grants listed in § 1734.21. Matching contributions generally must be in the form of cash. However, in-kind contributions solely for the purposes listed in § 1734.21 may be substituted for cash.
(b) In-kind items listed in § 1734.21 must be non-depreciated or new assets with established monetary values. Use of specific manufacturers’ equipment or services, or discounts thereon, are not considered eligible in-kind matching if the manufacturer, or its authorized reseller, is a vendor on the project, the grant writer for the grant application, or has undertaken any responsibility on the grant application, including payment.
(c) Costs incurred by the applicant, or others on behalf of the applicant, for facilities or equipment installed, or other services rendered prior to submission of a completed application, shall not be considered as an eligible in-kind matching contribution.
(d) Costs incurred for non-approved purposes for grant outlined in § 1734.23 shall not be used as an in-kind matching contribution.
(e) Any financial assistance from Federal sources will not be considered as matching contributions under this subpart unless there is a Federal statutory exception specifically authorizing the Federal financial assistance to be considered as a matching contribution.
§ 1734.23 Nonapproved purposes for grants.
(a) A grant made under this subpart will not be provided or used:
(1) To pay for medical or educational equipment not having telemedicine or distance learning as its essential function;
(2) To pay for Electronic Medical Records (EMR) systems;
(3) To pay salaries, wages, or employee benefits to medical or educational personnel;
(4) To pay for the salaries or administrative expenses of the applicant or the project;
(5) To purchase equipment that will be owned by the local exchange carrier or another telecommunications service provider unless that service provider is the applicant.
(6) To duplicate facilities providing distance learning or telemedicine services in place or to reimburse the applicant or others for costs incurred prior to RUS’ receipt of the completed application;
(7) To pay costs of preparing the application package for financial assistance under this program;
(8) For projects whose sole objective is to provide links between teachers and students or between medical professionals who are located at the same facility or campus environment;
(9) For site development and the destruction or alteration of buildings;
(10) For the purchase of land, buildings, or building construction;
(11) For projects located in areas covered by the Coastal Barrier Resources Act (16 U.S.C. 3501 et seq.);
(12) For any purpose that the Administrator has not specifically approved;
(13) Except for leases provided for in § 1734.21, to pay the cost of recurring or operating expenses for the project; or
(14) For any other purposes not specifically contained in § 1734.21.
(b) Except as otherwise provided in § 1734.12, grants shall not be used to finance a project, in part, when the success of the project is dependent upon the receipt of additional financial assistance under this subpart or is dependent upon the receipt of other financial assistance that is not assured.
§ 1734.24 Maximum and minimum grant amounts.
Applications for grants under this subpart will be subject to limitations on the proposed amount of grant funds. The Administrator will establish the maximum and minimum amounts of a grant to be made available to an individual recipient for each fiscal year under this subpart by publishing notice of the maximum and minimum amounts in the RUS DLT Program Application Guide and/or the RUS DLT Program Web site and in the funding opportunity posted on www.Grants.gov on an annual basis.
§ 1734.25 Completed application.
The following items are required to be submitted to RUS in support of an application for grant funds:
(a) An application for Federal Assistance. A completed Standard Form 424.
(b) An executive summary of the project. The applicant must provide RUS with a general project overview that addresses the following 9 categories:
(1) A description of why the project is needed;
(2) An explanation of how the applicant will address the need cited in paragraph (b)(1) of this section, why the applicant requires financial assistance, the types of educational or medical services to be offered by the project, and the benefits to rural residents;
(3) A description of the applicant, documenting eligibility in accordance with § 1734.4;
(4) An explanation of the total project cost including a breakdown of the grant required and the source of matching contribution and other financial assistance for the remainder of the project;
(5) A statement specifying whether the project is either a distance learning or telemedicine facility as defined in § 1734.3. If the project provides both distance learning and telemedicine services, the applicant must identify the predominant use of the system;
(6) A general overview of the telecommunications system to be developed, including the types of equipment, technologies, and facilities used;
(7) A description of the participating hubs and end user sites and the number of rural residents that will be served by the project at each end user site
(8) A certification by the applicant that facilities constructed with grants do not duplicate adequate established telemedicine or distance learning services; and
(9) A listing of the location of each end user site (city, town, village, borough, or rural areas) plus the State.
(c) Scoring criteria documentation. Each grant applicant must address and provide documentation on how it meets each of the scoring criteria contained in § 1734.26, and as supplemented in the listing on grants.gov, the DLT Application Guide and the agency’s Web site.
(d) A scope of work. The scope of work must include, at a minimum:
(1) The specific activities to be performed under the project;
(2) Who will carry out the activities;
(3) The time-frames for accomplishing the project objectives and activities; and
(4) A budget for all capital expenditures reflecting the line item costs for approved purposes for both the grant funds and other sources of funds for the project. Separately, the budget must specify any line item costs that are non-approved purposes for grants as contained in § 1734.23.
(e) Financial information and sustainability. The applicant must provide a narrative description demonstrating: Feasibility of the project, including having sufficient resources and expertise necessary to undertake and complete the project; and, how the project will be sustained following completion of the project.
(f) A statement of experience. The applicant must provide a written narrative (not exceeding three single spaced pages) describing its demonstrated capability and experience, if any, in operating an educational or health care endeavor and any project similar to the project. Experience in a similar project is desirable but not required.
(g) Funding commitment from other sources. The applicant must provide evidence, in form and substance satisfactory to RUS, that funding agreements have been obtained to ensure completion of the project. These agreements shall be sufficient to ensure:
(1) Payment of all proposed expenditures for the project;
(2) All required matching contributions in § 1734.22; and
(3) Any other funds necessary to complete the project.
(h) A telecommunications system plan. A telecommunications system plan consisting of the following:
(1) The capabilities of the telecommunications terminal equipment, including a description of the specific equipment which will be used to deliver the proposed service. The applicant must document discussions with various technical sources which could include consultants, engineers, product vendors, or internal technical experts, provide detailed cost estimates for operating and maintaining the end user equipment and provide evidence that alternative equipment and technologies were evaluated.
(2) A listing of the proposed telecommunications terminal equipment, telecommunications transmission facilities, data terminal equipment, interactive video equipment, computer hardware and software systems, and components that process data for transmission via telecommunications, computer network components, communication satellite ground station equipment, or any other elements of the telecommunications system designed to further the purposes of this subpart, that the applicant intends to build or fund using RUS financial assistance. If funds are being requested for broadband facilities, a description of the use of these facilities and how they will be used to deliver distance learning or telemedicine services.
(3) A description of the consultations with the appropriate telecommunications carriers (including other interexchange carriers, cable television operators, enhanced service providers, providers of satellite services and telecommunications equipment manufacturers and distributors) and the anticipated role of such providers in the proposed telecommunications system.
(i) Compliance with other Federal statutes. The applicant must provide evidence of compliance with other Federal statutes and regulations including, but not limited to the following:
(1) E.O. 11246, Equal Employment Opportunity, as amended by E.O. 11375 and as supplemented by regulations contained in 41 CFR part 60;
(2) Architectural barriers;
(3) Flood hazard area precautions;
(4) Assistance and Real Property Acquisition Policies Act of 1970;
(5) Drug-Free Workplace Act of 1998 (41 U.S.C. 8101 et seq.), 2 CFR part 421;
(6) E.O.s 12549 and 12689, Debarment and Suspension, 2 CFR part 180, which is adopted by USDA through 2 CFR part 417;
(7) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352), 2 CFR part 418.
(j) Environmental review requirements.
(1) The applicant must provide details of the project’s impact on the human environment and historic properties, in accordance with 7 CFR part 1970. The application must contain a separate section entitled “Environmental Impact of the Project.”
(2) The applicant must use any programmatic environmental agreements, available from RUS, in effect at the time of filing to assist in complying with the requirements of this section.
(k) Evidence of legal authority and existence. The applicant must provide evidence of its legal existence and authority to enter into a grant agreement with RUS and perform the activities proposed under the grant application.
(l) Federal debt certification. The applicant must provide a certification that it is not delinquent on any obligation owed to the government (31 U.S.C. 3720B).
(m) Consultation with USDA State Director, Rural Development. The applicant must provide evidence that it has consulted with the USDA State Director, Rural Development, concerning the availability of other sources of funding available at the State or local level.
(n) Supplemental information. The applicant should provide any additional information it considers relevant to the project and likely to be helpful in determining the extent to which the project would further the purposes of the 1996 Act.
§ 1734.26 Criteria for scoring grant applications.
The criteria by which applications will be scored will be published in the RUS DLT Program application guide and/or the RUS DLT Program Web site and in the funding opportunity posted on www.Grants.gov Web site on an annual basis. The criteria will be used to determine and evaluate: Rurality; economic need; service need and benefit; and special considerations as determined by the Administrator
§ 1734.27 Application selection provisions.
(a) Applications will be evaluated competitively by the Agency and will be ranked in accordance with § 1734.26. Applications will then be awarded generally in rank order until all grant funds are expended, subject to paragraphs (b), (c), and (d) of this section. RUS will make determinations regarding the reasonableness of all numbers; dollar levels; rates; the nature and design of the project; costs; location; and other characteristics of the application and the project to determine the number of points assigned to a grant application for all selection criteria.
(b) Regardless of the number of points an application receives in accordance with § 1734.26, the Administrator may, based on a review of the applications in accordance with the requirements of this subpart:
(1) Limit the number of applications selected for projects located in any one State during a fiscal year;
(2) Limit the number of selected applications for a particular type of project;
(3) Select an application receiving fewer points than another higher scoring application if there are insufficient funds during a particular funding period to select the higher scoring application. In this case, however, the Administrator will provide the applicant of the higher scoring application the opportunity to reduce the amount of its grant request to the amount of funds available. If the applicant agrees to lower its grant request, it must certify that the purposes of the project can be met, and the Administrator must determine the project is financially feasible at the lower amount in accordance with § 1734.25(e). An applicant or multiple applicants affected under this paragraph will have the opportunity to be considered for loan financing in accordance with subparts C and D of this part.
(c) RUS will not approve a grant if RUS determines that:
(1) The applicant’s proposal does not indicate financial feasibility or is not sustainable in accordance with the requirements of § 1734.25(e);
(2) The applicant’s proposal indicates technical flaws, which, in the opinion of RUS, would prevent successful implementation, operation, or sustainability of the project;
(3) Other applications would provide more benefit to rural America based on a review of the financial and technical information submitted in accordance with § 1734.25(e).
(4) Any other aspect of the applicant’s proposal fails to adequately address any requirement of this subpart or contains inadequacies which would, in the opinion of RUS, undermine the ability of the project to meet the general purpose of this subpart or comply with policies of the DLT Program contained in § 1734.2.
(d) RUS may reduce the amount of the applicant’s grant based on insufficient program funding for the fiscal year in which the project is reviewed. RUS will discuss its findings informally with the applicant and make every effort to reach a mutually acceptable agreement with the applicant. Any discussions with the applicant and agreements made with regard to a reduced grant amount will be confirmed in writing.
§ 1734.28 Submission of applications.
(a) Applications will be accepted as announced in the RUS DLT Program application guide and/or the RUS DLT Program Web site and in the funding opportunity posted on www.Grants.gov on an annual basis.
(b) When submitting paper applications:
(1) Applications for grants shall be submitted to the RUS, U.S. Department of Agriculture, 1400 Independence Avenue SW., STOP 1590, Washington, DC 20250-1590. Applications should be marked “Attention: Assistant Administrator, Telecommunications Program”.
(2) Applications must be submitted to RUS postmarked no later than the application filing deadline established by the Administrator if the applications are to be considered during the period for which the application was submitted. The deadline for submission of applications each fiscal year will be announced in the RUS DLT Program application guide and/or the RUS DLT Program Web site and in the funding opportunity posted on www.Grants.gov on an annual basis.
(3) All applicants must submit an original and a digital copy of a completed application.
§ 1734.29 Appeals.
RUS Telecommunications and Electric Borrowers may appeal the decision to reject their application. Any appeal must be made, in writing, within 10 days after the applicant is notified of the determination to deny the application. Appeals shall be submitted to the Administrator, RUS, U.S. Department of Agriculture, 1400 Independence Ave. SW., STOP 1590, Washington, DC 20250-1590. Thereafter, the Administrator will review the appeal to determine whether to sustain, reverse, or modify the original determination. Final determinations will be made after consideration of all appeals. The Administrator’s determination will be final. A copy of the Administrator’s decision will be furnished promptly to the applicant.
Subpart C – Distance Learning and Telemedicine Combination Loan and Grant Program
§ 1734.30 Use of combination loan and grant.
(a) A combination loan and grant may be used by eligible organizations as defined in § 1734.4 for distance learning and telemedicine projects to finance 100 percent of the cost of approved purposes contained in § 1734.31 provided that no financial assistance may exceed the maximum amount for the year in which the combination loan and grant is made published in the funding opportunity posted on www.grants.gov on an annual basis.
(b) Applicants must meet the minimum eligibility requirement for determining the extent to which the project serves rural areas as determined in § 1734.26(b)
§ 1734.31 Approved purposes for a combination loan and grant.
The approved purposes for a combination loan and grant are:
(a) Acquiring, by lease or purchase, eligible equipment or facilities as defined in § 1734.3;
(b) Acquiring instructional programming;
(c) Providing technical assistance and instruction for using eligible equipment, including any related software; developing instructional programming; providing engineering or environmental studies relating to the establishment or expansion of the phase of the project that is being financed with a combination loan and grant (this purpose shall not exceed 10 percent of the total requested financial assistance);
(d) Paying for medical or educational equipment and facilities that are shown to be necessary to implement the project, including vehicles utilizing distance learning and telemedicine technology to deliver educational and health care services. The applicant must demonstrate that such items are necessary to meet the purposes under this subpart and financial assistance for such equipment and facilities is not available from other sources at a cost which would not adversely affect the economic viability of the project;
(e) Providing links between teachers and students or medical professionals who are located at the same facility, provided that such facility receives or provides distance learning or telemedicine services as part of a distance learning or telemedicine network which meets the purposes of this subpart;
(f) Providing for site development and alteration of buildings in order to meet the purposes of this subpart. Financial assistance for this purpose must be necessary and incidental to the total amount of financial assistance requested;
(g) Purchasing of land, buildings, or building construction determined by RUS to be necessary and incidental to the project. The applicant must demonstrate that financial assistance funding from other sources is not available at a cost that does not adversely impact the economic viability of the project as determined by the Administrator. Financial assistance for this purpose must be necessary and incidental to the total amount of financial assistance requested; and
(h) Acquiring telecommunications or broadband facilities provided that no telecommunications carrier will install such facilities under the Act or through other financial procedures within a reasonable time period and at a cost to the applicant that does not impact the economic viability of the project, as determined by the Administrator.
§ 1734.32 Nonapproved purposes for a combination loan and grant.
(a) Without limitation, a combination loan and grant made under this subpart shall not be expended:
(1) To pay salaries, wages, or employee benefits to medical or educational personnel;
(2) To pay for the salaries or administrative expenses of the applicant or the project;
(3) To purchase equipment that will be owned by the local exchange carrier or another telecommunications service provider, unless the applicant is the local exchange carrier or other telecommunications service provider;
(4) To duplicate facilities providing distance learning or telemedicine services in place or to reimburse the applicant or others for costs incurred prior to RUS’ receipt of the completed application;
(5) For projects located in areas covered by the Coastal Barrier Resources Act (16 U.S.C. 3501 et seq.);
(6) For any purpose that the Administrator has not specifically approved;
(7) Except for leases (see § 1734.31), to pay the cost of recurring or operating expenses for the project; or,
(8) For any other purposes not specifically outlined in § 1734.31.
(b) Except as otherwise provided in § 1734.12, funds shall not be used to finance a project, in part, when the success of the project is dependent upon the receipt of additional financial assistance under this subpart or is dependent upon the receipt of other funding that is not assured.
§ 1734.33 Maximum and minimum amounts.
Applications for a combination loan and grant under this subpart will be subject to limitations on the proposed amount of loans and grants. The Administrator will establish the maximum and minimum amount of loans and grants and the portion of grant funds as a percentage of total assistance for each project to be made available to an individual recipient for each fiscal year under this subpart, by posting a funding opportunity in the RUS DLT Program Application Guide and/or the RUS DLT Program Web site and in the funding opportunity posted on www.Grants.gov on an annual basis.
§ 1734.34 Completed application.
The following items are required to be submitted to RUS in support of an application for a combination loan and grant:
(a) An application for federal assistance: A completed Standard Form 424.
(b) An executive summary of the project: The applicant must provide RUS with a general project overview that addresses each of the following 9 categories:
(1) A description of why the project is needed;
(2) An explanation of how the applicant will address the need cited in paragraph (b)(1) of this section, why the applicant requires financial assistance, the types of educational or medical services to be offered by the project, and the benefits to the rural residents;
(3) A description of the applicant, documenting eligibility in accordance with § 1734.4;
(4) An explanation of the total project cost including a breakdown of the combination loan and grant required and the source of funding, if applicable, for the remainder of the project;
(5) A statement specifying whether the project provides predominantly distance learning or telemedicine services as defined in § 1734.3. If the project provides both distance learning and telemedicine services, the applicant must identify the predominant use of the system;
(6) A general overview of the telecommunications system to be developed, including the types of equipment, technologies, and facilities used;
(7) A description of the participating hubs and end user sites and the number of rural residents that will be served by the project at each end user site;
(8) A certification by the applicant that facilities constructed with a combination loan and grant do not duplicate adequately established telemedicine or distance learning services.
(9) A listing of the location of each end user site (city, town, village, borough, or rural area plus the State).
(c) A scope of work. The scope of work must include, at a minimum:
(1) The specific activities to be performed under the project;
(2) Who will carry out the activities;
(3) The time-frames for accomplishing the project objectives and activities; and
(4) A budget for capital expenditures reflecting the line item costs for both the combination loan and grant and any other sources of funds for the project.
(d) Financial information. The applicant must show its financial ability to complete the project; show project feasibility; and provide evidence that it can execute a note for a loan with a maturity period greater than one year. For educational institutions participating in a project application (including all members of a consortium), the financial data must reflect revenue and expense reports and balance sheet reports, reflecting net worth, for the most recent annual reporting period preceding the date of the application. For medical institutions participating in a project application (including all members of a consortium), the financial data must include income statement and balance sheet reports, reflecting net worth, for the most recent completed fiscal year preceding the date of the application. When the applicant is a partnership, company, corporation, or other entity, current balance sheets, reflecting net worth, are needed from each of the entities that has at least a 20 percent interest in such partnership, company, corporation or other entity. When the applicant is a consortium, a current balance sheet, reflecting net worth, is needed from each member of the consortium and from each of the entities that has at least a 20 percent interest in such member of the consortium.
(1) Applicants must include sufficient pro-forma financial data that adequately reflects the financial capability of project participants and the project as a whole to continue a sustainable project for a minimum of 10 years and repay the loan portion of the combination loan and grant. This documentation should include sources of sufficient income or revenues to pay operating expenses including telecommunications access and toll charges, system maintenance, salaries, training, and any other general operating expenses, provide for replacement of depreciable items, and show repayment of interest and principal for the loan portion of the combination loan and grant.
(2) A list of property which will be used as collateral to secure repayment of the loan. The applicant shall purchase and own collateral that secures the loan free from liens or security interests and take all actions necessary to perfect a security interest in the collateral that secures the loan. RUS considers as adequate security for a loan, a guarantee by a RUS Telecommunications or Electric borrower or by another qualified party. Additional forms of security, including letters of credit, real estate, or any other items will be considered. RUS will determine the adequacy of the security offered.
(3) As applicable, a depreciation schedule covering all assets of the project. Those assets for which a combination loan and grant are being requested should be clearly indicated.
(4) For each hub and end user site, the applicant must identify and provide reasonable evidence of each source of revenue. If the projection relies on cost sharing arrangements among hub and end user sites, the applicant must provide evidence of agreements made among project participants.
(5) For applicants eligible under § 1734.4(1), an explanation of the economic analysis justifying the rate structure to ensure that the benefit, including cost saving, of the financial assistance is passed through to the other persons receiving telemedicine or distance learning services.
(e) A statement of experience. The applicant must provide a written narrative (not exceeding three single spaced pages) describing its demonstrated capability and experience, if any, in operating an educational or health care endeavor similar to the project. Experience in a similar project is desirable but not required.
(f) A telecommunications system plan. A telecommunications system plan, consisting of the following (the items in paragraphs (f)(4) and (5) of this section are required only when the applicant is requesting a combination loan and grant for telecommunications transmission facilities):
(1) The capabilities of the telecommunications terminal equipment, including a description of the specific equipment which will be used to deliver the proposed service. The applicant must document discussions with various technical sources which could include consultants, engineers, product vendors, or internal technical experts, provide detailed cost estimates for operating and maintaining the end user equipment and provide evidence that alternative equipment and technologies were evaluated.
(2) A listing of the proposed purchases or leases of telecommunications terminal equipment, telecommunications or broadband transmission facilities, data terminal equipment, interactive video equipment, computer hardware and software systems, and components that process data for transmission via telecommunications, computer network components, communication satellite ground station equipment, or any other elements of the telecommunications system designed to further the purposes of this subpart, that the applicant intends to build or fund using a combination loan and grant.
(3) A description of the consultations with the appropriate telecommunications carriers (including other interexchange carriers, cable television operators, enhanced service providers, providers of satellite services, and telecommunications equipment manufacturers and distributors) and the anticipated role of such providers in the proposed telecommunications system.
(4) Results of discussions with local exchange carriers serving the project area addressing the concerns contained in § 1734.31(h).
(5) The capabilities of the telecommunications or broadband transmission facilities, including bandwidth, networking topology, switching, multiplexing, standards, and protocols for intra-networking and open systems architecture (the ability to effectively communicate with other networks). In addition, the applicant must explain the manner in which the transmission facilities will deliver the proposed services. For example, for medical diagnostics, the applicant might indicate whether or not a guest or other diagnosticians can join the network from locations off the network. For educational services, indicate whether or not all hub and end-user sites are able to simultaneously hear in real-time and see each other or the instructional material in real-time. The applicant must include detailed cost estimates for operating and maintaining the network, and include evidence that alternative delivery methods and systems were evaluated.
(g) Compliance with other Federal statutes. The applicant must provide evidence of compliance with other federal statutes and regulations including, but not limited to the following:
(1) E.O. 11246, Equal Employment Opportunity, as amended by E.O. 11375 and as supplemented by regulations contained in 41 CFR part 60;
(2) Architectural barriers;
(3) Flood hazard area precautions;
(4) Assistance and Real Property Acquisition Policies Act of 1970;
(5) Drug-Free Workplace Act of 1998 (41 U.S.C. 8101 et seq.), 2 CFR part 421;
(6) E.O.s 12549 and 12689, Debarment and Suspension, 2 CFR part 180, which is adopted by USDA through 2 CFR part 417;
(7) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352), 2 CFR part 418.
(h) Environmental review requirements.
(1) The applicant must provide details of the project’s impact on the human environment and historic properties, in accordance with 7 CFR part 1970. The application must contain a separate section entitled “Environmental Impact of the Project.”
(2) The applicant must use any programmatic environmental agreements, available from RUS, in effect at the time of filing to assist in complying with the requirements of this section.
(i) Evidence of legal authority and existence. The applicant must provide evidence of its legal existence and authority to enter into a grant and incur debt with RUS.
(j) Federal debt certification. The applicant must provide evidence that it is not delinquent on any obligation owed to the government (31 U.S.C. 3720B).
(k) Supplemental information. The applicant should provide any additional information it considers relevant to the project and likely to be helpful in determining the extent to which the project would further the purposes of this subpart.
(l) Additional information required by RUS. The applicant must provide any additional information RUS may consider relevant to the application and necessary to adequately evaluate the application. RUS may also request modifications or changes, including changes in the amount of funds requested, in any proposal described in an application submitted under this subpart.
§ 1734.35 Application selection provisions.
(a) A combination loan and grant will be approved based on availability of funds, the financial feasibility of the project in accordance with § 1734.34(d), the services to be provided which demonstrate that the project meets the general requirements of this subpart, the design of the project; costs; location; and other characteristics of the application.
(b) RUS will determine, from the information submitted with each application for a combination loan and grant, whether the application achieves sufficient priority, based on the criteria set forth in the 1996 Act, to receive a combination loan and grant from funds available for the fiscal year. If such priority is achieved, RUS will process the combination loan and grant application on a first-in, first-out basis, provided that the total amount of applications on-hand for combination loans and grants does not exceed 90 percent of the total loan and grant funding available for the fiscal year. At such time as the total amount of applications eligible for combination loans and grants, if such applications were approved, exceeds 90 percent of amount of combination loan and grant funding available, RUS will process the remaining applications using the evaluation criteria referenced in § 1734.26.
(c) RUS will not approve a combination loan and grant if RUS determines that:
(1) The applicant’s proposal does not indicate financial feasibility, or will not be adequately secured in accordance with the requirements contained in § 1734.34(d);
(2) The applicant’s proposal indicates technical flaws, which, in the opinion of RUS, would prevent successful implementation, or operation of the project; or
(3) Any other aspect of the applicant’s proposal fails to adequately address any requirements of this subpart or contains inadequacies which would, in the opinion of RUS, undermine the ability of the project to meet the general purpose of this subpart or comply with policies of the DLT program contained in § 1734.2.
(d) RUS will provide the applicant with a statement of any determinations made with regard to paragraphs (c)(1) through (c)(3) of this section. The applicant will be provided 15 days from the date of RUS’ letter to respond, provide clarification, or make any adjustments or corrections to the project. If, in the opinion of the Administrator, the applicant fails to adequately respond to any determinations or other findings made by the Administrator, the project will not be funded, and the applicant will be notified of this determination. If the applicant does not agree with this finding, an appeal may be filed in accordance with § 1734.37.
§ 1734.36 Submission of applications.
(a) RUS will accept applications for a combination loan and grant submitted by RUS Telecommunications General Field Representatives (GFRs), by Rural Development State Directors, or by applicants themselves. Applications for a combination loan and grant under this subpart may be filed at any time and will be evaluated as received.
(b) Applications submitted to the State Director, Rural Development, in the State serving the headquarters of the project will be evaluated as they are submitted. All applicants must submit an original and an electronic copy of a completed application. The applicant must also submit a copy of the application to the State government point of contact, if one has been designated for the State, at the same time it submits an application to the State Director. The State Director will:
(1) Review each application for completeness in accordance with § 1734.34, and notify the applicant, within 15 working days of receiving the application, of the results of this review, acknowledging a complete application, or citing any information that is incomplete. To be considered for a combination loan and grant, the applicant must submit any additional information requested to complete the application within 15 working days of the date of the State Director’s written response. If the applicant fails to submit such information, the application will be returned to the applicant.
(2) Within 30 days of the determination of a completed application in accordance with paragraph (b)(1) of this section, review the application to determine suitability for financial assistance in accordance with § 1734.35, and other requirements of this subpart. Based on its review, the State Director will work with the applicant to resolve any questions or obtain any additional information. The applicant will be notified, in writing, of any additional information required to allow a financial assistance recommendation and will be provided a reasonable period of time to furnish the additional information.
(3) Based on the review in accordance with § 1734.35 and other requirements of this subpart, make a preliminary determination of suitability for financial assistance. A combination loan and grant recommendation will be prepared by the State Director with concurrence of the RUS telecommunications GFR that addresses the provisions of § 1734.34 and § 1734.35 and other applicable requirements of this subpart.
(4) If the application is determined suitable for further consideration by RUS, forward an original and electronic version of the application with a financial assistance recommendation, signed jointly, to the Assistant Administrator, Telecommunications Program, Rural Utilities Service, Washington, DC. The applicant will be notified by letter of this action. Upon receipt of the application from the State Director, RUS will conduct a review of the application and the financial assistance recommendation. A final determination will be made within 15 days. If the Administrator determines that a combination loan and grant can be approved, the State Director will be notified and the State Director will notify the applicant. A combination loan and grant will be processed, approved, and serviced in accordance with §§ 1734.5 through 1734.12.
(5) If the State Director determines that the application is not suitable for further consideration by RUS, notify the applicant with the reasons for this determination.
(c) Applications submitted by RUS Telecommunications GFRs or directly by applicants will be evaluated as they are submitted. All applicants must submit an original and an electronic version a completed application. The applicant must also submit a copy of the application to the State government point of contact, if one has been designated for the State, at the same time it submits an application to RUS. RUS will:
(1) Review each application for completeness in accordance with § 1734.34, and notify the applicant, within 15 working days of receiving the application, of the results of this review, acknowledging a complete application, or citing any information that is incomplete. To be considered for a combination loan and grant assistance, the applicant must submit any additional information requested to complete the application within 15 working days of the date of the RUS written response. If the applicant fails to submit such information, the application will be returned to the applicant.
(2) Within 30 days of the determination of a completed application in accordance with paragraph (c)(1) of this section, review the application to determine suitability for financial assistance in accordance with § 1734.35, and other requirements of this subpart. Based on its review, RUS will work with the applicant to resolve any questions or obtain any additional information. The applicant will be notified, in writing, of any additional information required to allow a financial assistance recommendation and will be provided a reasonable period of time to furnish the additional information.
(3) If the application is determined suitable for further consideration by RUS, conduct a review of the application and financial assistance recommendation. A final determination will be made within 15 days. If the Administrator determines that a combination loan and grant can be approved, the applicant will be notified. A combination loan and grant will be processed, approved, and serviced in accordance with §§ 1734.5 through 1734.12.
(4) If RUS determines that the application is not suitable for further consideration, notify the applicant with the reasons for this determination. The applicant will be able to appeal in accordance with § 1734.37.
§ 1734.37 Appeals.
RUS Electric and Telecommunications Borrowers may appeal a decision to reject their application. Any appeal must be made, in writing, within 10 days after the applicant is notified of the determination to deny the application. Appeals shall be submitted to the Administrator, RUS, U.S. Department of Agriculture, 1400 Independence Ave. SW., STOP 1590, Washington, DC 20250-1590. Thereafter, the Administrator will review the appeal to determine whether to sustain, reverse, or modify the original determination. Final determinations will be made after consideration of all appeals. The Administrator’s determination will be final. A copy of the Administrator’s decision will be furnished promptly to the applicant.
§§ 1734.38-1734.39 [Reserved]
Subpart D – Distance Learning and Telemedicine Loan Program
§ 1734.40 Use of loan funds.
A loan may be used by eligible organizations as defined in § 1734.4 for distance learning and telemedicine projects to finance 100 percent of the cost of approved purposes contained in § 1734.41 provided that no financial assistance may exceed the maximum amount for the year in which the loan is made. Entities seeking a loan must be able to provide security and execute a note with a maturity period greater than one year. The following entities are eligible for loans under this subpart:
(a) Organizations as defined in § 1734.4. If a RUS Telecommunications Borrower is seeking a loan, the borrower does not need to submit all of the financial security information required by § 1734.44(d). The borrower’s latest financial report (Form 479) filed with RUS and any additional information relevant to the project, as determined by RUS, will suffice;
(b) Any non-profit or for-profit entity, public or private entity, urban or rural institution, or rural educational broadcaster, which proposes to provide and receive distance learning and telemedicine services to carry out the purposes of this subpart; or
(c) Any entity that contracts with an eligible organization in paragraphs (a) or (b) of this section for constructing distance learning or telemedicine facilities for the purposes contained in § 1734.41, except for those purposes in § 1734.41(h).
(d) Applicants must meet the minimum eligibility requirement for determining the extent to which the project serves rural areas as contained in § 1734.26(b)
§ 1734.41 Approved purposes for loans.
The following are approved purposes for loans:
(a) Acquiring, by lease or purchase, eligible equipment or facilities as defined in § 1734.3;
(b) Acquiring instructional programming;
(c) Providing technical assistance and instruction for using eligible equipment, including any related software; developing instructional programming; providing engineering or environmental studies relating to the establishment or expansion of the phase of the project that is being financed with the loan (financial assistance for this purpose shall not exceed 10 percent of the requested financial assistance);
(d) Paying for medical or educational equipment and facilities which are shown to be necessary to implement the project, including vehicles utilizing distance learning and telemedicine technology to deliver educational and health care services. The applicant must demonstrate that such items are necessary to meet the purposes under this subpart and financial assistance for such equipment and facilities is not available from other sources at a cost which would not adversely affect the economic viability of the project;
(e) Providing links between teachers and students or medical professionals who are located at the same facility, provided that such facility receives or provides distance learning or telemedicine services as part of a distance learning or telemedicine network which meets the purposes of this subpart;
(f) Providing for site development and alteration of buildings in order to meet the purposes of this subpart. Loans for this purpose must be necessary and incidental to the total amount of financial assistance requested;
(g) Purchasing of land, buildings, or building construction, where such costs are demonstrated necessary to construct distance learning and telemedicine facilities. The applicant must demonstrate that funding from other sources is not available at a cost which does not adversely impact the economic viability of the project as determined by the Administrator. Financial assistance for this purpose must be necessary and incidental to the total amount of financial assistance requested;
(h) Acquiring of telecommunications or broadband facilities provided that no telecommunications carrier will install such facilities under the Act or through other financial procedures within a reasonable time period and at a cost to the applicant that does not impact the economic viability of the project, as determined by the Administrator;
(i) Any project costs, except for salaries and administrative expenses, not included in paragraphs (a) through (h) of this section, incurred during the first two years of operation after the financial assistance has been approved. The applicant must show that financing such costs are necessary for the establishment or continued operation of the project and that financing is not available for such costs elsewhere, including from the applicant’s financial resources. The Administrator will determine whether such costs will be financed based on information submitted by the applicant. Loans shall not be made exclusively to finance such costs, and financing for such costs will not exceed 20 percent of the loan provided to a project under this section; and
(j) All of the costs needed to provide distance learning broadcasting to rural areas. Loans may be used to cover the costs of facilities and end-user equipment dedicated to providing educational broadcasting to rural areas for distance learning purposes. If the facilities are not 100 percent dedicated to broadcasting, a portion of the financing may be used to fund such facilities based on a percentage of use factor that approximates the distance learning broadcasting portion of use.
§ 1734.42 Non-approved purposes for loans.
(a) Loans made under this subpart will not be provided to pay the costs of recurring or operating expenses incurred after two years from approval of the project except for leases (see § 1734.41).
(b) Loans made under this subpart will not be provided for any of the following costs:
(1) To purchase equipment that will be owned by the local exchange carrier or another telecommunications service provider, unless the applicant is the local exchange carrier or other telecommunications service provider;
(2) To duplicate facilities providing distance learning or telemedicine services in place or to reimburse the applicant or others for costs incurred prior to RUS’ receipt of the completed application;
(3) For projects located in areas covered by the Coastal Barrier Resources Act (16 U.S.C. 3501 et seq.); or
(4) To pay for salaries, wages, or administrative expenses; or
(5) For any purpose that the Administrator has not specifically approved.
(c) Except as otherwise provided in § 1734.12, funds shall not be used to finance a project, in part, when the success of the project is dependent upon the receipt of additional financial assistance under this subpart D or is dependent upon the receipt of other funding that is not assured.
§ 1734.43 Maximum and minimum amounts.
Applications for loans under this subpart will be subject to limitations on the proposed amount of loans. The Administrator will establish the maximum amount of a loan available to an applicant under this subpart.
§ 1734.44 Completed application.
The following items are required to be submitted in support of an application for a loan:
(a) An application for federal assistance: A completed standard form 424.
(b) An executive summary of the project. The applicant must provide RUS with a general project overview that addresses each of the following 9 categories:
(1) A description of why the project is needed;
(2) An explanation of how the applicant will address the need (see paragraph (b)(1) of this section), why the applicant requires financial assistance, the types of educational or medical services to be offered by the project, and the benefits to the rural residents;
(3) A description of the applicant, documenting eligibility in accordance with § 1734.4;
(4) An explanation of the total project cost including a breakdown of the loan required and the source of funding, if applicable, for the remainder of the project;
(5) A statement specifying whether the project provides predominantly distance learning or telemedicine services as defined in § 1734.3. If the project provides both distance learning and telemedicine services, the applicant must identify the predominant use of the system;
(6) A general overview of the telecommunications system to be developed, including the types of equipment, technologies, and facilities used;
(7) A description of the participating hubs and end user sites and the number of rural residents which will be served by the project at each end user site;
(8) A certification by the applicant that facilities funded by a loan do not duplicate adequate established telemedicine or distance learning services;
(9) A listing of the location of each end user site (city, town, village, borough, or rural area plus the State).
(c) A scope of work. The scope of work must include, at a minimum:
(1) The specific activities to be performed under the project;
(2) Who will carry out the activities;
(3) The time-frames for accomplishing the project objectives and activities; and
(4) A budget for capital expenditures reflecting the line item costs for the loan and any other sources of funds for the project.
(d) Financial information. The applicant must show its financial ability to complete the project; show project feasibility; and provide evidence that it can execute a note for a loan for a maturity period greater than one year. For educational institutions participating in a project application (including all members of a consortium), the financial data must reflect revenue and expense reports and balance sheet reports, reflecting net worth, for the most recent annual reporting period preceding the date of the application. For medical institutions participating in a project application (including all members of a consortium), the financial data must include income statement and balance sheet reports, reflecting net worth, for the most recent completed fiscal year preceding the date of the application. When the applicant is a partnership, company, corporation, or other entity, current balance sheets, reflecting net worth, are needed from each of the entities that has at least a 20 percent interest in such partnership, company, corporation or other entity. When the applicant is a consortium, a current balance sheet, reflecting net worth, is needed from each member of the consortium and from each of the entities that has at least a 20 percent interest in such member of the consortium.
(1) Applicants must include sufficient pro-forma financial data which adequately reflects the financial capability of project participants and the project as a whole to continue a sustainable project for a minimum of 10 years and repay the requested loan. This documentation should include sources of sufficient income or revenues to pay operating expenses including telecommunications access and toll charges, system maintenance, salaries, training, and any other general operating expenses, provide for replacement of depreciable items, and show repayment of interest and principal for the loan.
(2) A list of property which will be used as collateral to secure repayment of the proposed loan. The applicant shall purchase and own collateral that secures the loan free from liens or security interests and take all actions necessary to perfect a first lien in the collateral that secures the loan. RUS will consider as adequate security a loan guarantee by a telecommunications or electric borrower or by another qualified party. Additional forms of security, including letters of credit, real estate, or any other items will be considered. RUS will determine the adequacy of the security offered.
(3) As applicable, a depreciation schedule covering all assets of the project. Those assets for which a loan is being requested should be clearly indicated.
(4) For each hub and end user site, the applicant must identify and provide reasonable evidence of each source of revenue. If the projection relies on cost sharing arrangements among hub and end user sites, the applicant must provide evidence of agreements made among project participants.
(5) For applicants eligible under § 1734.4(a)(1), an explanation of the economic analysis justifying the rate structure to ensure that the benefit, including cost saving, of the financial assistance is passed through to the other persons receiving telemedicine or distance learning services.
(e) A statement of experience. The applicant must provide a written narrative (not exceeding three single spaced pages) describing its demonstrated capability and experience, if any, in operating an educational or health care endeavor and any project similar to the project. Experience in a similar project is desirable but not required.
(f) A telecommunications system plan. A telecommunications system plan, consisting of the following (the items in paragraphs (f)(4) and (5) of this section are required only when the applicant is requesting a loan for telecommunications transmission facilities):
(1) The capabilities of the telecommunications terminal equipment, including a description of the specific equipment which will be used to deliver the proposed service. The applicant must document discussions with various technical sources which could include consultants, engineers, product vendors, or internal technical experts, provide detailed cost estimates for operating and maintaining the end user equipment and provide evidence that alternative equipment and technologies were evaluated.
(2) A listing of the proposed purchases or leases of telecommunications terminal equipment, telecommunications transmission facilities, data terminal equipment, interactive video equipment, computer hardware and software systems, and components that process data for transmission via telecommunications, computer network components, communication satellite ground station equipment, or any other elements of the telecommunications system designed to further the purposes of this subpart, that the applicant intends to build or fund using a loan.
(3) A description of the consultations with the appropriate telecommunications carriers (including other interexchange carriers, cable television operators, enhanced service providers, providers of satellite services, and telecommunications equipment manufacturers and distributors) and the anticipated role of such providers in the proposed telecommunications system.
(4) Results of discussions with local exchange carriers serving the project area addressing the concerns contained in § 1734.41(h).
(5) The capabilities of the telecommunications transmission facilities, including bandwidth, networking topology, switching, multiplexing, standards, and protocols for intra-networking and open systems architecture (the ability to effectively communicate with other networks). In addition, the applicant must explain the manner in which the transmission facilities will deliver the proposed services. For example, for medical diagnostics, the applicant might indicate whether or not a guest or other diagnosticians can join the network from locations off the network. For educational services, indicate whether or not all hub and end-user sites are able to simultaneously hear in real-time and see each other or the instructional material in real-time. The applicant must include detailed cost estimates for operating and maintaining the network, and include evidence that alternative delivery methods and systems were evaluated.
(g) Compliance with other Federal statutes. The applicant must provide evidence of compliance with other Federal statutes and regulations including, but not limited to the following:
(1) E.O. 11246, Equal Employment Opportunity, as amended by E.O. 11375 and as supplemented by regulations contained in 41 CFR part 60;
(2) Architectural barriers;
(3) Flood hazard area precautions;
(4) Assistance and Real Property Acquisition Policies Act of 1970;
(5) Drug-Free Workplace Act of 1998 (41 U.S.C. 8101 et seq.), 2 CFR part 421;
(6) E.O.s 12549 and 12689, Debarment and Suspension, 2 CFR part 180, which is adopted by USDA through 2 CFR part 417;
(7) Byrd Anti-Lobbying Amendment (31 U.S.C. 1352), 2 CFR part 418.
(h) Environmental review requirements.
(1) The applicant must provide details of the project’s impact on the environment and historic properties, in accordance with 7 CFR part 1970. The application must contain a separate section entitled “Environmental Impact of the Project.”
(2) The applicant must use any programmatic environmental agreements, available from RUS, in effect at the time of filing to assist in complying with the requirements of this section.
(i) Evidence of legal authority and existence. The applicant must provide evidence of its legal existence and authority to enter into debt with RUS and perform the activities proposed under the loan application.
(j) Federal debt certification. The applicants must provide a certification that it is not delinquent on any obligation owed to the government (31 U.S.C. 3720B).
(k) Supplemental information. The applicant should provide any additional information it considers relevant to the project and likely to be helpful in determining the extent to which the project would further the purposes of this subpart.
(l) Additional information required by RUS. The applicant must provide any additional information RUS determines is necessary to adequately evaluate the application. Modifications or changes, including changes in the loan amount requested, may be requested in any project described in an application submitted under this subpart.
§ 1734.45 Application selection provisions.
(a) Loans will be approved based on availability of funds, the financial feasibility of the project in accordance with § 1734.44(d), the services to be provided which demonstrate that the project meets the general requirements of this subpart, the design of the project; costs; location; and other characteristics of the application.
(b) RUS will determine, from the information submitted with each application for a loan, whether the application achieves sufficient priority, based on the criteria set forth in the 1996 Act, to receive a loan from funds available for the fiscal year. If such priority is achieved, RUS will process the loan application on a first-in, first-out basis, provided that the total amount of applications on-hand for loans does not exceed 90 percent of the total loan funding available for the fiscal year. At such time as the total amount of applications eligible for loans, if such applications were approved, exceeds 90 percent of amount of loan funding available, RUS will process the remaining applications using the evaluation criteria referenced in § 1734.26.
(c) A loan will not be approved if it is determined that:
(1) The applicant’s proposal does not indicate financial feasibility, or is not adequately secured in accordance with the requirements of § 1734.44(d);
(2) The applicant’s proposal indicates technical flaws, which, in the opinion of RUS, would prevent successful implementation, or operation of the project; or
(3) Any other aspect of the applicant’s proposal fails to adequately address any requirements of this subpart or contains inadequacies which would, in the opinion of RUS, undermine the ability of the project to meet the general purpose of this subpart or comply with policies of the DLT program contained in § 1734.2.
(d) RUS will provide the applicant with a statement of any determinations made with regard to paragraphs (c)(1) through (c)(3) of this section. The applicant will be provided 15 days from the date of the RUS letter to respond, provide clarification, or make any adjustments or corrections to the project. If, in the opinion of the Administrator, the applicant fails to adequately respond to any determinations or other findings made by the Administrator, the loan will not be approved, and the applicant will be notified of this determination. If the applicant does not agree with this finding an appeal may be filed in accordance with § 1734.47.
§ 1734.46 Submission of applications.
(a) RUS will accept applications for loans submitted by RUS Telecommunications GFRs, by Rural Development State Directors, or by applicants themselves. Applications for loans under this subpart may be filed at any time and will be evaluated as received on a non-competitive basis.
(b) Applications submitted to the State Director, Rural Development, in the State serving the headquarters of the project will be evaluated as they are submitted. All applicants must submit an original and an electronic version of a completed application. The applicant must also submit a copy of the application to the State government point of contact, if one has been designated for the State, at the same time it submits an application to the State Director. The State Director will:
(1) Review each application for completeness in accordance with § 1734.44, and notify the applicant, within 15 working days of receiving the application, of the results of this review, acknowledging a complete application, or citing any information that is incomplete. To be considered for a loan, the applicant must submit any additional information requested to complete the application within 15 working days of the date of the State Director’s written response. If the applicant fails to submit such information, the application will be returned to the applicant.
(2) Within 30 days of the determination of a completed application in accordance with paragraph (b)(1) of this section, review the application to determine suitability for financial assistance in accordance with § 1734.45, and other requirements of this subpart. Based on its review, the State Director will work with the applicant to resolve any questions or obtain any additional information. The applicant will be notified, in writing, of any additional information required to allow a financial assistance recommendation and will be provided a reasonable period of time to furnish the additional information.
(3) Based on the review in accordance with § 1734.45 and other requirements of this subpart, make a preliminary determination of suitability for financial assistance. A loan recommendation will be prepared by the State Director with concurrence of the RUS telecommunications GFR that addresses the provisions of §§ 1734.44 and 1734.45 and other applicable requirements of this subpart.
(4) If the application is determined suitable for further consideration by RUS, forward an original and an electronic version of the application with a loan recommendation, signed jointly, to the Assistant Administrator, Telecommunications Program, Rural Utilities Service, Washington, DC. The applicant will be notified by letter of this action. Upon receipt of the application from the State Director, RUS will conduct a cursory review of the application and the recommendation. A final determination will be made within 15 days. If the Administrator determines that a loan can be approved, the State Director will be notified and the State Director will notify the applicant. Applications for loans will be processed, and approved loans serviced, in accordance with §§ 1734.5 through 1734.12.
(5) If the State Director determines that the application is not suitable for further consideration by RUS, notify the applicant with the reasons for this determination.
(c) Applications submitted by RUS Telecommunications GFRs or directly by applicants will be evaluated as they are submitted. All applicants must submit an original and an electronic version of a completed application. The applicant must also submit a copy of the application to the State government point of contact, if one has been designated for the State, at the same time it submits an application to the RUS. RUS will:
(1) Review each application for completeness in accordance with § 1734.44, and notify the applicant, within 15 working days of receiving the application, of the results of this review, acknowledging a complete application, or citing any information that is incomplete. To be considered for a loan, the applicant must submit any additional information requested to complete the application within 15 working days of the date of the RUS written response. If the applicant fails to submit such information, the application will be returned to the applicant.
(2) Within 30 days of the determination of a completed application in accordance with paragraph (c)(1) of this section, review the application to determine suitability for financial assistance in accordance with this subpart. Based on its review, RUS will work with the applicant to resolve any questions or obtain any additional information. The applicant will be notified, in writing, of any additional information required to allow a financial assistance recommendation and will be provided a reasonable period of time to furnish the additional information.
(3) If the application is determined suitable for further consideration by RUS, conduct a review of the application and financial assistance recommendation. A final determination will be made within 15 days. If the Administrator determines that a loan can be approved, the applicant will be notified. Applications will be processed, and approved loans serviced, in accordance with §§ 1734.5 through 1734.12.
(4) If RUS determines that the application is not suitable for further consideration, notify the applicant with the reasons for this determination. The applicant will be offered appeal rights in accordance with § 1734.47.
§ 1734.47 Appeals.
RUS Electric and Telecommunications Borrowers may appeal a decision to reject their application. Any appeal must be made, in writing, within 10 days after the applicant is notified of the determination to deny the application. Appeals shall be submitted to the Administrator, RUS, U.S. Department of Agriculture, 1400 Independence Ave. SW., STOP 1590, Washington, DC 20250-1590. Thereafter, the Administrator will review the appeal to determine whether to sustain, reverse, or modify the original determination. Final determinations will be made after consideration of all appeals. The Administrator’s determination will be final. A copy of the Administrator’s decision will be furnished promptly to the applicant.
PART 1735 – GENERAL POLICIES, TYPES OF LOANS, LOAN REQUIREMENTS – TELECOMMUNICATIONS PROGRAM
Subpart A – General
§ 1735.1 General statement.
(a) Subparts A through E of this part set forth the general policies, types of loans and loan requirements under the Telephone loan program.
(b) The standard RUS security documents (see 7 CFR 1744 subpart D or RUS Bulletins 320-4, 320-22, 321-2, 322-2, 323-1, 326-1) contain provisions regarding acquisitions, mergers, and consolidations. Subparts F through J of this part implement those provisions by setting forth the policies, procedures, and requirements for telephone borrowers planning to acquire existing telephone lines, facilities, or systems with RUS loan or other funds, or planning to merge or consolidate with another system. This part supersedes all RUS Bulletins that are in conflict with it.
(c) Subparts F through J of this part also detail RUS’s requirements with respect to mergers and acquisitions involving RUS loan funds.
(d) Entities applying for a loan under this part may be eligible to receive a grant under 7 CFR 1738.101, for a portion of the project providing retail broadband service.
§ 1735.2 Definitions.
As used in this part:
Access line means a transmission path between user terminal equipment and a switching center that is used for local exchange service. For multiparty service, the number of access lines equals the number of lines/paths terminating on the mainframe of the switching center.
Acquisition means the purchase of another telephone system, lines, or facilities whether by acquiring telephone plant in service or majority stock interest of one or more organizations.
Acquisition agreement means the agreement, including a sales agreement, between the seller and purchaser outlining the terms and conditions of the acquisition. Acquisition agreements also include any other agreements, such as options and subsidiary agreements relating to terms of the transaction.
Administrator means the Administrator of RUS.
Advance of funds means the transferring of funds by RUS to the borrower’s construction fund.
Appropriated means funds appropriated based on subsidy.
Affiliate means an organization that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the borrower.
Borrower means any organization which has an outstanding loan made or guaranteed by RUS, or which is seeking such financing.
Cash distribution means investments, guarantees, extensions of credit, advances, loans, non-affiliated company joint ventures, affiliated company investments, and dividend and capital credit distributions. Not included in this definition are qualified investments (see 7 CFR part 1744, subpart D).
Composite economic life as applied to facilities financed by loan funds means the weighted (by dollar amount of each class of facility in the loan) average economic life of all classes of facilities in the loan.
Consolidation means the combination of two 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.
Construction fund means the RUS Construction Account required by § 2.4 of the standard loan contract into which all RUS loan funds are advanced.
Depreciation means the loss not restored by current maintenance, incurred in connection with the consumption or prospective retirement of telecommunications plant in the course of service from causes which are known to be in current operation, against which the company is not protected by insurance, and the effect of which can be forecast to a reasonable approach to accuracy.
Economic life as applied to facilities financed by loan funds, means the number of years resulting from dividing 100 percent by the depreciation rate (expressed as a percent) approved by the regulatory body with jurisdiction over the telephone service provided by the borrower for the class of facility involved or, if no approved rate exists, by the median depreciation rate expressed as a percent as published by RUS in its Statistical Report, Rural Telephone Borrowers for all RUS borrowers for that class of facility.
Exchange access means the offering of access to telephone exchange services or facilities for the purpose of the origination or termination of telephone toll services.
Feasibility study means the pro forma financial analysis performed by RUS to determine the economic feasibility of a loan. See 7 CFR part 1737.
Forecast period means the time period beginning on the date (base date) of the borrower’s balance sheet used in preparing the feasibility study and ending on a date equal to the base date plus the number of years estimated in the feasibility study for completion of the project. Feasibility projections are usually for 5 years, see § 1737.70(a) of this chapter. For example, the forecast period for a loan based on a December 31, 1990 balance sheet and having a 5-year estimated project completion time is the period from December 31, 1990 to December 31, 1995.
Funded reserve means a separate asset account, approved by RUS, consisting of any or all of the following:
(1) Federal government securities purchased in the name of the borrower;
(2) Other securities issued by an institution whose senior unsecured debt obligations are rated in any of the top three categories by a nationally recognized rating organization; or
(3) Cash.
GFR means the RUS general field representative.
Guaranteed loan means a loan guaranteed by RUS under section 306 of the RE Act bearing interest at a rate agreed to by the borrower and the lender.
Hardship loan means a loan made by RUS under section 305(d)(1) of the RE Act bearing interest at a rate of 5 percent per year.
Interim financing means funding for a project which RUS has acknowledged could be included in a loan, should said loan be approved, but for which RUS funds have not yet been made available. See 7 CFR part 1737, subpart E.
Loan means any loan made or guaranteed by RUS.
Loan contract means the loan agreement between RUS and the borrower, including all amendments thereto.
Loan funds means funds provided by RUS through direct or guaranteed loans.
Local exchange carrier (LEC) means an organization that is engaged in the provision of telephone exchange service or exchange access.
Majority noteholders means the holder or holders of a majority in principal amount of the notes outstanding at a particular time.
Merger means the combining, pursuant to state law, of one or more borrower or nonborrower organizations into an existing survivor organization that takes over the assets and assumes the liabilities of the merged organizations. While the terms merger and consolidation have different meanings, for the purpose of this part, “mergers” also include consolidations as defined above. Furthermore, “mergers” also include acquisitions where the acquired systems, lines, or facilities and the acquiring system are operated as one system.
Mobile telecommunications service means radio communication voice service between mobile and land or fixed stations, or between mobile stations.
Modernization Plan (State Telecommunications Modernization Plan) means a State plan, which has been approved by RUS, for improving the telecommunications network of those telecommunications providers covered by the plan. A Modernization Plan must conform to the provisions of 7 CFR 1751, subpart B.
Mortgage means the security agreement between RUS and the borrower, including any amendments and supplements thereto.
Net worth means the sum of the balances of the following accounts of the borrower:
| Account names | Number |
|---|---|
| (1) Capital stock | 4510 |
| (2) Additional paid-in capital | 4520 |
| (3) Treasury stock | 4530 |
| (4) Other capital | 4540 |
| (5) Retained earnings | 4550 |
Note: For nonprofit organizations, owners’ equity is shown in subaccounts of 4540 and 4550. All references regarding account numbers are to the Uniform System of Accounts (47 CFR part 32).
Public switched network means any common carrier switched network, whether by wire or radio, including local exchange carriers, interexchange carriers, and mobile telecommunications service providers, that use the North American Numbering Plan in connection with the provision of switched services.
RE Act means the Rural Electrification Act of 1936, as amended (7 U.S.C. 901 et seq.).
Retail broadband service means any technology identified by the Administrator as having the capacity to provide transmission facilities that enable the subscriber to receive a minimum level of service equal to at least a downstream transmission capacity of 25 megabits per second (Mbps) and an upstream transmission capacity of 3 Mbps. The agency may change the minimum transmission capacity by way of notice in the
Rural area means any area of the United States, its territories and insular possessions (including any area within the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau) not included within the boundaries of any incorporated or unincorporated city, village or borough having a population exceeding 5,000 inhabitants, and which excludes certain populations pursuant to 7 U.S.C. 1991(a)(13)(H) and (I). The population figure is obtained from the most recent decennial Census of the United States (decennial Census). If the applicable population figure cannot be obtained from the most recent decennial Census, RD will determine the applicable population figure based on available population data. For purposes of the “rural area” definition, the character of an area is determined as of a time the initial loan for the system is made.
RUS means the Rural Utilities Service, an agency of the United States Department of Agriculture, successor to the Rural Electrification Administration.
RUS cost-of-money loan means a loan made under section 305(d)(2) of the RE Act bearing an interest rate as determined under § 1735.31(c).
Specialized telecommunications service means any telephone service other than telephone exchange service, exchange access, or mobile telecommunications service.
Subscriber means the same as access line.
Survivor means (1) the successor corporation formed by the consolidation of one or more borrowers, (2) the corporation remaining after completion of a merger involving one or more borrowers, and (3) a corporation assuming all or a portion of an RUS loan in connection with an acquisition.
Telecommunications means the transmission or reception of voice, data, sounds, signals, pictures, writings, or signs of all kinds, by wire, fiber, radio, light, or other visual or electromagnetic means.
Telephone exchange service means: (1) Service provided primarily to fixed locations within a telephone exchange, or within a connected system of telephone exchanges within the same exchange area operated to furnish to subscribers intercommunicating service of the character ordinarily furnished by a single exchange, and which is covered by the exchange service charge; or
(2) Comparable service provided through a system of switches, transmission equipment, or other facilities (or combination thereof) by which a subscriber can originate and terminate a telecommunications service.
Telephone service means any communication service for the transmission or reception of voice, data, sounds, signals, pictures, writing, or signs of all kinds by wire, fiber, radio, light, or other visual or electromagnetic means and includes all telephone lines, facilities and systems to render such service. It does not mean:
(1) Message telegram service;
(2) Community antenna television system services or facilities other than those intended exclusively for educational purposes; or
(3) Radio broadcasting services or facilities within the meaning of section 3(o) of the Communications Act of 1934, as amended.
Times Interest Earned Ratio (TIER) means the ratio of a borrower’s net income (after taxes) plus interest expense, all divided by interest expense. For the purpose of this calculation, all amounts will be annual figures and interest expense will include only interest on debt with a maturity greater than one year.
Total assets means the sum of the balances of the following accounts of the borrower:
| Account names | Number |
|---|---|
| (1) Current assets | 1100s through 1300s. |
| (2) Noncurrent Assets | 1400s through 1500s. |
| (3) Total telecommunications plant | 2001 through 2007. |
| (4) Less: Accumulated depreciation | 3100 through 3300s. |
| (5) Less: Accumulated amortization | 3400 through 3600s. |
Note: All references regarding account numbers are to the Uniform System of Accounts (47 CFR part 32).
§ 1735.3 Availability of forms.
Single copies of RUS forms and publications cited in this part are available from Program Support Regulatory Analysis, Rural Utilities Service, STOP 1522, 1400 Independence Ave., SW., Washington, DC 20250-1522. These RUS forms and publications may be reproduced. The terms “RUS form”, “RUS standard form”, and “RUS specification” have the same meanings as the terms “REA form” “REA standard form”, and “REA specification”, respectively, unless otherwise indicated.
§§ 1735.4-1735.9 [Reserved]
Subpart B – Loan Purposes and Basic Policies
§ 1735.10 General.
(a) Loans made or guaranteed by the Administrator of RUS will be made in conformance with the Rural Electrification Act of 1936 (RE Act), as amended (7 U.S.C. 901 et seq.), and 7 CFR chapter XVII. RUS provides borrowers with specialized and technical accounting, engineering, and other managerial assistance in the construction and operation of their facilities when necessary to aid in the development of rural telephone service and to protect loan security. The Rural Utilities Service (RUS) makes loans to:
(1) Furnish and improve telephone service in rural areas; and
(2) To finance facilities and equipment which expand, improve or provide:
(i) 911 access;
(ii) Integrated interoperable emergency communications, including multiuse networks that provide critical transportation-related information services in addition to emergency communications services;
(iii) Homeland security communications;
(iv) Transportation safety communications; or
(v) Location technologies used outside an urbanized area.
(b) RUS will not make hardship loans or RUS cost-of-money loans for any wireline local exchange service or similar fixed-station voice service that, in RUS’ opinion, is inconsistent with the borrower achieving the requirements stated in the State’s telecommunication modernization plan within the time frame stated in the plan (see 7 CFR part 1751, subpart B), unless RUS has determined that achieving the requirements as stated in such plan is not technically or economically feasible.
(c) A borrower receiving a loan to provide mobile telecommunications services or special telecommunications services shall be considered to be participating in the state telecommunications plan (TMP) with respect to the particular loan so long as the loan funds are not used in a manner that, in RUS’ opinion, is inconsistent with the borrower achieving the goals set forth in the plan, except that a borrower must comply with any portion of a TMP made applicable to the borrower by a state commission with jurisdiction.
(d) RUS will not deny or reduce a loan or an advance of loan funds based on a borrower’s level of general funds.
(e) The Administrator may use consultants funded by the borrower for financial, legal, engineering, and other technical advice in connection with the review of a borrower’s loan application.
(f) For the purpose of paragraph (a)(2) of this section, rural areas means any area that is not located within a city, town, or incorporated area that has a population of greater than 20,000 inhabitants or within an urbanized area contiguous and adjacent to a city or town that has a population of greater than 50,000 inhabitants. For the purpose of the definition of rural area,
(1) The population figure is obtained from the most recent decennial Census of the United States (decennial Census). If the applicable population figure cannot be obtained from the most recent decennial Census, RD will determine the applicable population figure based on available population data; and
(2) An urbanized area means a densely populated territory as defined in the most recent decennial Census.
§ 1735.11 Area coverage.
Borrowers must make adequate telephone service available to the widest practical number of rural subscribers during the life of the loan. Both the nature of the service area and the cost per subscriber must be fully considered. The borrower must seek to provide service to all interested potential subscribers in the service area. Borrowers are not required to extend service in situations where the costs would be exorbitant. The loan contract shall contain appropriate provisions to effect this requirement. See 7 CFR 1737.11(a), Preapplication Determinations: Area to be Served.
§ 1735.12 Nonduplication.
(a) A loan will not be made unless the Administrator determines that no duplication of lines, facilities, or systems already providing reasonably adequate services shall result from such a loan.
(b) Existing borrowers that apply to upgrade existing facilities in their existing service area are exempt from the non-duplication requirement in paragraph (a) of this section.
(c) RUS shall consider the following criteria for any wireline local exchange service or similar fixed-station voice service provided by a local exchange carrier (LEC) in determining whether such service is reasonably adequate:
(1) The LEC is providing area coverage as described in § 1735.11.
(2) The LEC makes available custom calling features (at a minimum, call waiting, call forwarding, abbreviated dialing, and three-way calling).
(3) The LEC is able to provide E911 service to all subscribers, when requested by the government entity responsible for this service.
(4) The LEC is able to offer local service with blocked toll access to those subscribers who request it.
(5) The LEC’s network is capable of providing retail broadband service as defined in § 1735.2 to any subscriber location.
(6) There is an absence of frequent service interruptions.
(7) The LEC is interconnected with the public switched network.
(8) No Federal or State regulatory commission having jurisdiction has determined that the quality, availability, or reliability of the service provided is inadequate.
(9) Services are provided at reasonably affordable rates.
(10) Any other criteria the Administrator determines to be applicable to the particular case.
(d) RUS shall consider the following criteria for any of mobile telecommunications service in determining whether such service is reasonably adequate:
(1) The extent to which area coverage is being provided as described in 7 CFR 1735.11.
(2) Clear and reliable call transmission is provided with sufficient channel availability.
(3) The mobile telecommunications service signal strength is at least −85dBm (decibels expressed in miliwatts).
(4) The mobile telecommunications service is interconnected with the public switched network.
(5) Mobile 911 service is available to all subscribers, when requested by the local government entity responsible for this service.
(6) No Federal or State regulatory commission having jurisdiction has determined that the quality, availability, or reliability of the service provided is inadequate.
(7) Mobile telecommunications service is not provided at rates which render the service unaffordable to a significant number of rural persons.
(8) Any other criteria the Administrator determines to be applicable to the particular case.
(e) RUS does not consider mobile telecommunications service a duplication of existing wireline local exchange service or similar fixed-station voice service. RUS may finance mobile telecommunications systems designed to provide eligible services in rural areas under the Rural Electrification Act even though the services provided by the system may incidentally overlap services of existing mobile telecommunications providers.
(f) RUS shall consider the following criteria for any provider of a specialized telecommunications service in determining whether such service is reasonably adequate:
(1) The provider of a specialized telecommunications service is providing area coverage as described in § 1735.11.
(2) An adequate signal strength is provided throughout the largest practical portion of the service area.
(3) There is an absence of frequent service interruptions.
(4) The quality and variety of service provided is comparable to that provided in nonrural areas.
(5) The service provided complies with industry standards.
(6) No Federal, State, or local regulatory commission having jurisdiction has determined that the quality, availability, or reliability of the service provided is inadequate.
(7) Services are provided at reasonably affordable rates.
(8) Any other criteria the Administrator determines to be applicable to the particular case.
(g) RUS shall consider the following criteria for loans made for the purposes described in § 1735.10(a)(2):
(1) In making a preliminary assessment and a credit decision, the RUS will take into consideration the extent to which the emergency communications capability or emergency communications benefits already exist in the affected area and the need expressed by the proposed user of the emergency communications technology.
(2) The RUS will not consider an application to finance an upgrade of 911 capabilities or other emergency communications capability by different providers serving the same geographic area to be automatically duplicative. For example, RUS will generally not consider an application from two competing wireless carriers to upgrade their E911 capabilities in overlapping geographic territories to be duplicative, however the carrier’s competitive situation will be a relevant consideration in evaluating the ability of a service provider to repay their loan.
(3) Duplication considerations will be reviewed on the basis of the emergency communications benefit; the Agency encourages applicants to fully embrace interoperability to maximize the impact of RUS financed investments. In the case of dual or multi-use technologies, the extent to which the proposed non-emergency communications benefits are available from other providers within the proposed service area will be considered in determining loan feasibility.
§ 1735.13 Location of facilities and service for nonrural subscribers.
(a) When it is determined by the Administrator to be necessary in order to furnish or improve telephone service in rural areas, loans may be made for the improvement, expansion, construction, acquisition, and operation of telephone lines, facilities, or systems without regard to their geographical location.
(b) To the greatest extent practical, loans are limited to providing telephone facilities that serve subscribers in rural areas. In order to furnish and improve service to rural subscribers it may at times be necessary to provide loan funds to finance telephone facilities which (1) will also serve nonrural subscribers, or (2) are located in nonrural areas. Loans may be approved to finance such facilities if the Administrator determines, on a case-by-case basis, that (i) the primary purpose of the loan is to provide service to rural areas and (ii) the financing of facilities for nonrural subscribers is necessary and incidental to furnishing or improving telephone service in rural areas.
(c) Loan funds may be approved for facilities to serve nonrural subscribers only if (1) the principal purpose of the loan is to furnish and improve rural service and (2) the use of loan funds to serve nonrural subscribers is necessary and incidental to the principal purpose of the loan. The following are examples of purposes for which such loans may be made (such loans are not limited to these examples):
(1) In the case of construction of a new system, if the loan would not be economically feasible and self-liquidating unless the nonrural as well as the rural portions of the telephone service area are included in the proposed system, the loan may include funds for both portions.
(2) Where the acquisition of an existing system located in and serving a nonrural area is necessary to serve as the nucleus of an expanded system to furnish area coverage service in rural areas, the loan may include funds to finance the acquisition.
(3) When a system is being converted to modern service for rural subscribers, the loan may include funds for the conversion of the nonrural facilities, if the rural service will be improved as a result of such nonrural improvements and it is impractical to finance and serve the nonrural and rural areas separately.
(4) A loan may include funds to serve nonrural subscribers located in community centers frequently called by the rural subscribers if the construction to serve such nonrural subscribers will be incidental to, and contribute substantially to, the provision of adequate service for the rural subscribers.
(d) RUS may also approve financing for facilities to serve nonrural areas if, at the time financing was first approved by RUS:
(1) The nonrural area had a population of 1,500 or less when first financed by RUS and that financing was approved prior to November 1, 1993; or
(2) The nonrural area had a population of 5,000 or less when first financed by RUS and that financing was approved on or after November 1, 1993.
§ 1735.14 Borrower eligibility.
(a) RUS makes loans to:
(1) Entities providing, or who may hereafter provide, telephone service in rural areas;
(2) Public bodies providing telephone service in rural areas as of October 28, 1949; and
(3) Cooperative, nonprofit, limited dividend or mutual associations.
(4) For purposes of § 1735.10(a)(2):
(i) Any entity eligible to borrow from the RUS;
(ii) State or local governments;
(iii) Indian Tribes (as defined in § 4 of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450b); or
(iv) An emergency communications equipment provider that in the sole discretion of RUS offers adequate security for a loan where the State or local government that has jurisdiction over the proposed project is prohibited by law from acquiring debt.
(b) RUS does not make loans to individuals.
(c) RUS gives preference to those borrowers (including initial loan applicants) already providing telephone service in rural areas, and to cooperative, nonprofit, limited dividend, or mutual associations. To be eligible for a loan, a borrower:
(1) Must have sufficient authority to carryout the purposes of the RE Act; and
(2) Must be incorporated or a limited liability company.
§ 1735.15 Civil rights.
Borrowers are required to comply with certain regulations on nondiscrimination and equal employment opportunity. See RUS Bulletin 320-19 and RUS Bulletin 320-15, respectively.
§ 1735.16 Minimum loan amount.
Recognizing plant costs, the borrower’s cost of system design, and RUS’s administrative costs, RUS will not consider applications for loans of less than $50,000.
§ 1735.17 Facilities financed.
(a) RUS makes hardship and guaranteed loans to finance the improvement, expansion, construction, acquisition, and operation of systems or facilities (including station apparatus owned by the borrower, headquarters facilities, and vehicles not used primarily in construction) to furnish and improve telephone service in rural areas, except as noted under paragraph (c) of this section.
(b) RUS makes RUS cost-of-money to finance the improvement, expansion, construction, and acquisition of systems or facilities (excluding station apparatus owned by the borrower, headquarters facilities, and vehicles not used primarily in construction) to furnish and improve telephone service in rural areas, except as noted under paragraph (c) of this section.
(c) RUS will not make any type of loan to finance the following items:
(1) Station apparatus (including PBX and key systems) not owned by the borrower and any associated inside wiring;
(2) Certain duplicative facilities, see § 1735.12;
(3) Facilities to provide service other than 1-party; and
(4) System designs or facilities to provide service that cannot withstand or are not designed to minimize damage caused by storms and other natural catastrophes, including, but not limited to hurricanes, floods, tornadoes, mudslides, lightning, windstorms, hail, fire, and smoke, unless an alternate design or facility for modern telecommunications is more economically or technically feasible. Economic and technical feasibility will be determined using total long range economic costs and risk analysis.
(d) Generally, RUS will not make a loan to another entity to provide the same telecommunications service in an area served by an incumbent RUS telecommunications borrower providing such service. RUS may, however, consider an application for a loan to provide the same type of service being provided by an incumbent RUS borrower if the Administrator determines that the incumbent borrower is unable to meet its obligations to the government, including the obligation to provide service set forth in its loan documents and to repay its loans.
(e) If an unadvanced loan, or portion thereof, is rescinded, a new loan shall not be made for the same purposes as in the rescinded loan, except as provided in § 1735.47.
§ 1735.18 Additional equity.
If determined by the Administrator to be necessary for loan security, a borrower applying for an initial loan shall increase its net worth as a percentage of assets to the highest level recorded, not to exceed 40 percent, at the end of any calendar quarter in the period beginning 2 years prior to the receipt by RUS of the borrower’s loan application form (RUS Form 490). This restoration to the higher level of net worth shall take place before RUS will determine the feasibility of the proposed loan.
§ 1735.19 Mergers and consolidations.
RUS does not make loans for the sole purpose of merging or consolidating telephone organizations. After a merger or consolidation, RUS will consider making loans to the telephone system to finance the improvement or extension of telephone service in rural areas. See RUS Bulletins 320-4, 321-2, 325-1, and 326-1.
§ 1735.20 Acquisitions.
(a) RUS finances the acquisition by a borrower of another system, lines, or facilities only when the acquisition is necessary and incidental to furnishing or improving rural telephone service. See 7 CFR 1735.13.
(b) RUS determines the amount it will lend for each acquisition. If the acquisition price exceeds this amount, the borrower shall provide the remainder.
(c) For additional policies on acquisitions, see subpart F through J of this part.
§ 1735.21 Refinancing loans.
(a) Any new direct or guaranteed loan authority provided under the RE Act may be used to refinance an outstanding obligation of the applicant on another loan made under Titles II and VI of the RE Act, or on a non-RUS loan if that loan would have been for eligible telecommunications purposes under the RE Act provided that:
(1) The applicant is current with its payments on the RUS loan(s) to be refinanced; and
(2) The amortization period for that portion of the loan request that will be needed for refinancing will not exceed the remaining amortization period for the loan(s) to be refinanced. If multiple notes are being refinanced, an average remaining amortization period will be calculated based on the weighted dollar average of the notes being refinanced.
(b) The amount that can be refinanced will be included in the funding opportunity announcement that will open a funding window based on the funds authorized for any given fiscal year.
§ 1735.22 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 within the time agreed. See 7 CFR 1735.18 and 7 CFR 1735.51.
(b) RUS generally requires that borrowers provide it with a first lien on all of the borrower’s property. See 7 CFR 1735.46.
(c) The RUS will consider Government-imposed fees related to emergency communications (including State or local 911 fees) which are pledged to the repayment of a loan as security.
(d) In the case of loans that include the financing of telephone facilities that do not constitute self-contained operating systems or units (such as lines switched by other systems), the borrower shall, in addition to the mortgage lien on all of the borrower’s telephone facilities, furnish adequate assurance, in the form of contractual or other security arrangements, that continuous and efficient telephone service will be rendered.
(e) The borrower shall provide RUS with a satisfactory Area Coverage Survey. See 7 CFR 1737.30 and 1737.31.
(f) RUS makes loans only if the borrower’s entire system, including the facilities to be constructed with the proceeds of the loan, is economically feasible, as determined by RUS.
(g) For purposes of determining compliance with TIER requirements, unless a borrower whose existing mortgage contains TIER maintenance requirements notifies RUS in writing differently, RUS will apply the requirements described in paragraph (h) of this section to the borrower regardless of the provisions of the borrower’s existing mortgage.
(h) For Loans approved after December 22, 2008, the borrower shall be required to maintain a TIER, at the end of the Forecast Period, at least equal to the projected TIER determined by the feasibility study prepared in connection with the loan, which shall be at least 1.0 and not greater than 1.5.
(i) Nothing in this section shall affect any rights of supplemental lenders under the RUS mortgage, or other creditors of the borrower, to limit a borrower’s TIER requirement to a level above that established in paragraph (h) of this section.
(j) A borrower will not be required to raise its TIER as a condition for receiving a loan. Additional financial, investment, and managerial controls appear in the loan contract and mortgage required by RUS.
§ 1735.23 Public notice.
(a) Applications for funding request in which the applicant will provide retail broadband service, the Agency’s mapping tool will include the following information from each application, and will be displayed for the public:
(1) The identity of the applicant;
(2) A description of the project that can deliver retail broadband service;
(3) A map of the areas to be served, the proposed funded service area (PFSA), including identification of the associated census blocks;
(4) The amount and type of funding requested;
(5) The status of the application; and
(6) The estimated number and proportion of households and businesses in the proposed funded service area without fixed retail broadband service, whether terrestrial or wireless, excluding mobile and satellite service.
(b) For funding requests outside an area where the applicant receives Federal universal service support, the public notice filing referenced under paragraph (a) of this section will accept public notice responses from existing service providers with respect to retail broadband service already being provided in the PFSA for 45 calendar days on the Agency’s web page. Existing service providers are requested to submit the following information through the Agency’s mapping tool:
(1) The number of residential and business customers within the PFSA currently purchasing broadband at the minimum threshold, the rates of data transmission being offered, and the cost of each level of broadband service charged by the existing service provider;
(2) The number of residential and business customers within the applicant’s service area receiving voice and video services and the associated rates for these other services;
(3) A map showing where the existing service provider’s services coincide with the applicant’s service area using the Agency’s mapping tool; and
(4) Test results for the service area in question for a minimum of at least the prior three months demonstrating that the asserted level of broadband is being provided. The test results shall be for different times of the day.
(c) The Agency may contact service providers that respond under paragraph (b) of this section to validate their submission, and so responding service providers should be prepared to:
(1) Provide additional information supporting that the area in question has sufficient access to broadband service;
(2) Have a technician on site during the field validation by RUS staff;
(3) Run on site tests with RUS personnel being present, if requested; and
(4) Provide copies of any test results that have been conducted in the last six months and validate the information submitted in the public notice response months.
(d) If no broadband service provider submits information pursuant to a pending application or if the existing provider does not provide the information requested under paragraphs (b) and (c) of this section, RUS will consider the extent of broadband service using any other data available through reasonable efforts, including utilizing the National Telecommunications and Information Administration’s National Broadband Availability Map and the Federal Communications Commission broadband availability map. That may include the agency conducting field validations so as to locate facilities in the application service area and determine, to the extent possible, if those facilities can provide the minimum threshold of broadband. Notwithstanding, conclusive evidence as to the existence of the level of broadband will be taken only through the public notice process. As a result, the Agency highly recommends that existing service providers in a PFSA submit public notice response to ensure that their service is considered in the determination of eligibility on an application.
(e) The Agency will notify respondents who are existing service providers whether their public notice response was accepted or not and allow for an opportunity to respond.
(f) The information submitted by an existing service provider under paragraphs (b) and (c) of this section will be treated as proprietary and confidential and not subject to disclosure, pursuant to 7 U.S.C. 950cc(b)(3).
(g) For all applications that are approved, the following information will be made available to the public:
(1) The information provided in paragraph (a) of this section;
(2) Each annual report required under § 1735.24 will be redacted to protect any proprietary information; and
(3) Such other information as the Administrator of the RUS deems sufficient to allow the public to understand the assistance provided.
§ 1735.24 Additional reporting requirements.
(a) Entities receiving financial assistance from RUS that are used for retail broadband must submit annual reports for 3 years after project completion. The reports must include the following information:
(1) The purpose of the financing, including new equipment and capacity enhancements that support high-speed broadband access for educational institutions, health care providers, and public safety service providers (including the estimated number of end users who are currently using or forecasted to use the new or upgraded infrastructure); and
(2) The progress towards fulfilling the objectives for which the assistance was made, including:
(i) The number of service points that will receive new broadband service, existing network improvements, and facility upgrades resulting from the federal assistance;
(ii) The speed of the broadband services;
(iii) The average price of the most subscribed tier of retail broadband service in each PFSA;
(iv) The number of new subscribers generated from the project; and
(v) Complete, reliable, and precise geolocation information that indicates the location of new broadband service that is being provided or upgraded within the service territory supported by the grant, loan, or loan guarantee.
(b) A notice will be published on the Agency’s website that will include each annual broadband improvement report, redacted as appropriate to protect any proprietary information in the report.
§§ 1735.25-1735.29 [Reserved]
Subpart C – Types of Loans
§ 1735.30 Hardship loans.
(a) RUS makes hardship loans under section 305(d)(1) of the RE Act. These loans bear interest at a rate of 5 percent per year. To qualify for a hardship loan on or after November 1, 1993, a borrower must meet each of the following requirements:
(1) The average number of proposed subscribers per mile of line in the service area of the borrower is not more than 4;
(2) The borrower has a projected TIER (including the proposed loan or loans) of at least 1.0, but not greater than 3.0, as determined by the feasibility study prepared in connection with the loan, see 7 CFR part 1737, subpart H; and
(3) The Administrator has approved and the borrower is participating in a telecommunications modernization plan for the state, see 7 CFR part 1751, subpart B.
(b)(1) Hardship loan funds shall not be used to finance facilities located in any exchange of the borrower that has:
(i) More than 1,000 existing subscribers; and
(ii) An average number of proposed subscribers per mile of line greater than 17.
(2) Those facilities may, however, be financed with a RUS cost-of-money loans or a guaranteed loan if the borrower is eligible for such financing.
(c) The Administrator may waive the TIER requirement in paragraph (a)(2) of this section in any case in which the Administrator determines, and sets forth the reasons therefor in writing, that the requirement would prevent emergency restoration of the telephone system of the borrower or result in severe hardship to the borrower.
(d) In order to fairly and equitably approve hardship loans to ensure that borrowers most in need receive hardship financing first, RUS will prioritize for approval all applications qualifying for hardship loans. The criteria in this paragraph will be used by the Administrator to rank, from high to low, applications that have been determined to qualify for hardship financing. Subject to the availability of funds, applications receiving the highest number of points will be selected for loan approval each fiscal year quarter (the application with the most points will be approved first, the second highest next, etc.) The following ranking methodology and loan approval conditions apply:
(1) Ranking criteria. Borrowers will receive points based on each of the following criteria applicable to the proposed loan:
(i) Forecasted Average Number of Subscribers Per Mile of Line (Density). The number of points assigned to a borrower will be the value 4 less the value of the borrower’s forecasted density as determined by the Feasibility Study prepared in connection with the loan (i.e., if a borrower’s forecasted system density is 2.75, the borrower would receive 4 less 2.75 points, or 1.25 points).
(ii) Forecasted TIER. The number of points assigned to a borrower will be the value 3 less the value of the borrower’s forecasted TIER as determined by the Feasibility Study prepared in connection with the loan (i.e., if a borrower’s forecasted TIER is 1.75, the borrower would receive 3 less 1.75 points, or 1.25 points).
(iii) Unserved Territories. Borrowers will receive points for loan funds included in the application to provide telephone service in areas previously unserved because it was considered cost prohibitive (for example, high costs resulting from the terrain, remoteness, or system design). In particular, borrowers will receive one tenth of a point, up to a maximum of 2 points, for each subscriber added (in connection with the loan) that currently resides in an unserved area.
(iv) Plant Modernization. Borrowers will receive 1 point for loan funds included in the application for at least one of the following basic plant modernizations or system improvements:
(A) Providing digital switching capabilities where those capabilities did not previously exist; and/or
(B) Upgrading to equal access; and/or
(C) Conversion of service to 1-party making an entire exchange all 1-party service.
(v) Distance Learning and Medical Link Facilities. Borrowers will receive 2 points for loan funds included in the application for the purpose of providing distance learning or medical link transmission facilities. If loan funds are included for both distance learning and medical link transmission facilities, borrowers will receive 3 points. (See 7 CFR part 1734 for definitions of distance learning and medical link.)
(vi) Time Factor. If a borrower’s application has been ranked but cannot be approved due to the lack of funds available for loans in that quarter, the borrower will receive .25 points for each quarter in which its loan is pending but not approved.
(2) Ranking and approval of loans. Eligible loan applications (satisfying the requirements of 7 CFR 1737.21) will be ranked during the quarter in which the application is received. If an application is received in which insufficient time remains in that quarter to process and rank the application, it will be ranked in the next quarter. At the beginning of the quarter and as soon as practical, RUS will approve all eligible hardship loans ranked in the previous quarter to the extent loan funds are available, beginning with the borrowers that received the highest number of points and working downwards. Any qualified application that is not approved due to the lack of funds will be carried forward to the next quarter and ranked with all other eligible hardship loan applications in that quarter. Upon completion of the ranking and approval of loans, all borrowers will be informed in writing of the status of their loan applications.
(e) Optimal use of funds. RUS retains the right to limit the size of hardship loans made to individual borrowers in order to more equitably distribute the amount of hardship funds appropriated among the greatest number of qualified borrowers. Generally, no more than 10 percent of the funds appropriated in any fiscal year may be loaned to a single borrower. In addition, RUS retains the right to approve loans to borrowers that are ranked lower in the priority system, or without regard to when the application was received and ranked, if it is necessary to:
(1) Expedite restoration of service outages due to natural disasters; or
(2) Maximize the use of all available hardship funds appropriated for loans in that fiscal year.
(f) On request of any borrower who is eligible for a hardship loan for which funds are not available, the borrower shall be considered to have applied for a RUS cost-of-money loans under sections 305 of the RE Act.
(g) Hardship loans may be made simultaneously with a RUS cost-of-money loans or guaranteed loans.
§ 1735.31 RUS cost-of-money.
(a) RUS makes cost-of-money loans, under section 305(d)(2) of the RE Act. To qualify for cost-of-money loans, a borrower must meet each of the following requirements:
(1) The average number of proposed subscribers per mile of line in the service area of the borrower is not more than 15, or the borrower has a projected TIER (including the proposed loans) of at least 1.0, but not greater than 5.0, as determined by the feasibility study prepared in connection with the loans, see 7 CFR part 1737, subpart H; and
(2) The Administrator has approved and the borrower is participating in a telecommunications modernization plan for the state, see 7 CFR part 1751, subpart B.
(b) To determine the RUS cost-of-money, the total loan amount will be multiplied by the ratio of RUS cost-of-money funds appropriated for the fiscal year to the sum of RUS cost-of-money funds appropriated for the fiscal year in which the loan is approved. If during the fiscal year the amount of funds appropriated changes, the ratio will be adjusted accordingly and applied only to those loans approved afterwards.
(c) The RUS cost-of-money loan shall bear interest as described in paragraphs (c)(1) and (2) of this section.
(1) Each advance of funds included in RUS cost-of-money loans shall bear interest at a rate (the “Cost of Money Interest Rate”) equal to the current cost of money to the Federal Government for loans of a similar maturity. The Cost of Money Rate is determined when the funds are advanced to the borrower but cannot exceed 7 percent per year.
(2) RUS shall use the Federal Treasury Statistical Release (the “Statistical Release”) issued by the United States Treasury to determine the interest rate for each advance of RUS cost-of-money loan funds. Generally, the Statistical Release is issued each Monday to cover the preceding week. RUS shall determine the Cost of Money Interest Rate as follows:
(i) Each advance shall bear the interest rate stated in the applicable Statistical Release for Treasury constant maturities with a maturity similar to that of the advance.
(ii) RUS shall determine the interest rate for an advance bearing a maturity other than those stated in the applicable Statistical Release by straight-line interpolation between the next higher and next lower stated maturities.
(iii) The first Statistical Release published after the date of an advance shall apply to that advance.
(iv) If the interest rate determined under paragraph (c)(2)(i) or (c)(2)(ii) of this section is higher than 7 percent, then the advance shall bear interest at the rate of 7 percent per year.
(v) Advances with maturities greater than 30 years shall bear interest at the rate stated in the applicable Statistical Release for 30-year maturities.
(vi) RUS may use an alternative method to determine the Cost of Money Interest Rate if the Treasury ceases to issue the Statistical Release or changes its format or frequency of issue so that it is no longer appropriate for use in the manner described in paragraph (c)(2) of this section. In this eventuality, RUS shall immediately notify all borrowers with unadvanced RUS cost-of-money loan funds. RUS may, with the borrower’s consent, determine the Cost of Money Interest Rate on a case-by-case basis for subsequent advances of RUS cost-of-money loan funds but may also decide, in its discretion, that it is unable to continue advancing funds until an alternative method is in effect.
(vii) Refer to § 1735.43(a) for additional information on maturities of RUS loans.
(viii) RUS shall provide borrowers with prompt written confirmation of the Cost of Money Interest Rate borne by each advance of funds included in a RUS cost-of-money loan.
(d) Generally, no more than 10 percent of lending authority from appropriations in any fiscal year for RUS cost-of-money loans may be loaned to a single borrower. RUS will publish by notice in the
(e) On request of any borrower who is eligible for RUS cost-of-money loans for which funds are not available, the borrower shall be considered to have applied for a loan guarantee under section 306 of the RE Act.
(f) RUS cost-of-money loans may be made simultaneously with hardship loans or guaranteed loans.
§ 1735.32 Guaranteed loans.
(a) General. Loan guarantees under this section will be considered for only those borrowers specifically requesting a guarantee. Borrowers may also specify that the loan to be guaranteed shall be made by the Federal Financing Bank (FFB). RUS provides loan guarantees pursuant to section 306 of the RE Act. Guaranteed loans may be made simultaneously with hardship loans or RUS cost-of-money loans. No fees or charges are assessed for any guarantee of a loan provided by RUS. In view of the Government’s guarantee, RUS generally obtains a first lien on all assets of the borrower (see § 1735.46).
(b) Requirements. To qualify for a guaranteed loan, a borrower must have a projected TIER (including the proposed loan or loans) of at least 1.2 as determined by the feasibility study prepared in connection with the loan. In addition, a borrower must meet all requirements set forth in the regulations applicable to a loan made by RUS with the exception that it is not required to participate in a state telecommunications modernization plan and is not subject to a subscriber per mile eligibility requirement, as provided in § 1735.31(a).
(c) Net worth requirements. RUS generally requires that borrowers seeking guaranteed loans have a net worth in excess of 20 percent of assets. RUS will, however, consider loan guarantees for borrowers with a net worth less than 20 percent.
(d) Full amount guaranteed. Loans are guaranteed in the full amount of principal and interest. Because of the Government’s full faith and credit 100 percent guarantee of these loans, only RUS obtains a mortgage on the borrower’s assets.
(e) Federal Register notice. After RUS has reviewed an application and determined that it shall consider guaranteeing a loan for the proposed project and if the borrower has not specified that the loan be made from the FFB, RUS shall publish a notice in the
(f) Qualified lenders. RUS considers loan guarantees on a case by case basis for loans made by the FFB and any other legally organized lending agency or by a combination of lenders that the Administrator determines to be qualified to make, hold and service the loan. “Legally organized lending agency” and “lender” include commercial banks, trust companies, mortgage banking firms, insurance companies, and any other institutional investor authorized by law to loan money. The borrower is responsible for evaluating all proposals received from lenders other than FFB. The borrower furnishes RUS with a report on the evaluations and its choice of proposals. However, at the request of the borrower, the guaranteed loan shall be made by the FFB.
(g) Interest rate. Guaranteed loans shall bear interest at the rate agreed upon by the borrower and lender. Guaranteed FFB loans shall be at a rate of interest that is not more than the rate of interest applicable to other similar loans then being made or purchased by FFB.
(h) Condition of guarantee. RUS will not guarantee a loan if the income from the loan or the income from obligations issued by the holder of the loan, when the obligations are created by the loan, is excluded from gross income for the purpose of chapter I of the Internal Revenue Code of 1954.
(i) Contract of guarantee. If RUS is satisfied with the engineering and economic feasibility of the project and approves the borrower’s choice of proposal, subject to the submission of satisfactory financing documents and to the satisfaction of other pertinent terms and conditions, RUS will prepare a contract of guarantee to be executed by the borrower, the lender, and RUS within a specified time. The lender, or its representative, shall have the right to examine the borrower’s application and supporting data submitted to RUS in support of its request for financial assistance.
(j) Loan servicing. The contract of guarantee will require that arrangements satisfactory to RUS be made to service the loan. Required servicing by the lender will include:
(1) Determining that all prerequisites to each advance of loan funds by the lender under the terms of the contract of guarantee, all financing documents, and all related security instruments have been fulfilled. Such determinations may be met by obtaining RUS approval of each advance.
(2) Billing and collecting loan payments from the borrower.
(3) Notifying the Administrator promptly of any default in the payment of principal and interest on the loan and submitting a report, as soon as possible thereafter, setting forth its views as to the reasons for the default, how long it expects the borrower will be in default, and what corrective actions the borrower states it is taking to achieve a current debt service position.
(4) Notifying the Administrator of any known violations or defaults by the borrower under the lending agreement, contract of guarantee, or related security instruments, or conditions of which the lender is aware which might lead to nonpayment, violation, or other default.
(k) Payments under the contract of guarantee. Upon receipt of the notification required in § 1735.32(j)(3) of this section, RUS will pay the lender the amount in default with interest to the date of payment. When RUS has made a payment under a contract of guarantee, it will establish in its accounts the amount of the payment as due and payable from the borrower, with interest at the rate of interest specified in the lending agreement. RUS will work with the borrower and the lender in an effort to eliminate the borrower’s default as soon as possible. RUS may also proceed with other remedies available under its security instruments.
(l) Pledging of contract of guarantee. Subject to applicable law, RUS will consider, on a case by case basis, permitting pledging of the contract of guarantee in order to facilitate the obtaining of funds by the lending agency to make the guaranteed loan.
§ 1735.33 Variable interest rate loans.
After June 10, 1991, and prior to November 1, 1993, RUS made certain variable rate loans at interest rates less than 5 percent but not less than 2 percent. For those borrowers that received variable rate loans, this section describes the method by which interest rates are adjusted. The interest rate used in determining feasibility is the rate charged to the borrower until the end of the Forecast Period for that loan. At the end of the Forecast Period, the interest rate for the loan may be annually adjusted by the Administrator upward to a rate not greater than 5 percent, or downward to a rate not less than the rate determined in the feasibility study on which the loan was based, based on the borrower’s ability to pay debt service and maintain a minimum TIER of 1.0. Downward and upward adjustments will be rounded down to the nearest one-half or whole percent. To make this adjustment, projections set forth in the loan feasibility study will be revised annually by RUS (beginning within four months after the end of the Forecast Period) to reflect updated revenue and expense factors based on the borrower’s current operating condition. Any such adjustment will be effective on July 1 of the year in which the adjustment was determined. If the Administrator determines that the borrower is capable of meeting the minimum TIER requirements of § 1735.22(f) at a loan interest rate of 5 percent on a loan made as described in this section, then the loan interest rate shall be fixed, for the remainder of the loan repayment period, at the standard interest rate of 5 percent.
§§ 1735.34-1735.39 [Reserved]
Subpart D – Terms of Loans
§ 1735.40 General.
Terms and conditions of loans are set forth in a mortgage, note, and loan contract. Provisions of the mortgage and loan contract are implemented by provisions in RUS Bulletins and Regulations. Forms of the mortgage, note, and loan contract can be obtained from RUS.
§ 1735.41 Notes.
Loans are represented by one or more notes. Interest accrues only on funds advanced. There are no loan commitment fees or charges. See RUS Bulletin 320-12 for additional information. This CFR part supersedes those portions of RUS Bulletin 320-12 “Loan Payments and Statements” with which it is in conflict.
§ 1735.42 [Reserved]
§ 1735.43 Payments on loans.
(a) Except as described in this paragraph (a), RUS loans approved after October 6, 1997 must be repaid with interest within a period that, rounded to the nearest whole year, equals the expected composite economic life of the facilities to be financed, as calculated by RUS; expected composite economic life means the depreciated life plus three years. The expected composite economic life shall be based on the depreciation rates for the facilities financed by the loan. In states where the borrower must obtain state regulatory commission approval of depreciation rates, the depreciation rates used shall be the rates currently approved by the state commission or rates for which the borrower has received state commission approval. In cases where a state regulatory commission does not approve depreciation rates, the expected composite economic life shall be based on the most recent median depreciation rates published by RUS for all borrowers (see 7 CFR 1737.70). Borrowers may request a repayment period that is longer or shorter than the expected composite economic life of the facilities financed. If the Administrator determines that a repayment period based on the expected composite economic life of the facilities financed is likely to cause the borrower to experience hardship, the Administrator may agree to approve a period longer than requested. A shorter period may be approved as long as the Administrator determines that the loan remains feasible.
(b) Borrowers that have demonstrated to the satisfaction of the Administrator an inability to maintain the funded reserve or net plant to secured debt ratio requirements, if any, contained in their mortgage, may elect to replace notes with an original maturity that exceeded the composite economic life of the facilities financed with notes bearing a shorter maturity approximating the expected composite economic life of the facilities financed, if this will result in a shorter maturity for the loan. The principal balance of the notes (hereinafter in this section called the “refunding notes”) issued to refund and substitute for the original notes would be the unpaid principal balance of the original notes. The refunding notes would mature at a date no later than the remaining economic life of the facilities financed by the loan, plus three years, as determined by the original feasibility study prepared in connection with the loan. Interest on the original note must continue to be paid through the closing date. All other payment terms, including the rate of interest on the refunding notes, would remain unchanged. Disposition of funds in the funded reserve will be determined by RUS at the closing date. RUS will notify the borrower in writing of the amendment of loan payment requirements and the terms and conditions thereof.
(c) A borrower qualifying under paragraph (b) of this section shall not be required to pay a prepayment premium on such portion of the payments under its new notes as exceeds the payments required under the notes being replaced.
(d) To apply for refunding notes, borrowers must send to the Area Office the following:
(1) A certified copy of a board resolution requesting an amendment of loan payment requirements and that certain notes be replaced;
(2) If applicable, evidence of approval by the regulatory body with jurisdiction over the telecommunications service provided by the borrower to issue refunding notes; and
(3) Such other documents as may be required by the RUS.
(e) Principal and interest will be repaid in accordance with the terms of the notes. Generally, interest is payable each month as it accrues. Principal payments on each note generally are scheduled to begin 2 years after the date of the note. After this deferral period, interest and principal payments on all funds advanced during this 2-year period are scheduled in equal monthly installments. Principal payments on funds advanced 2 years or more after the date of the note will begin with the first billing after the advance. The interest and principal payments on each of these advances will be scheduled in equal monthly installments. This CFR part supersedes those portions of RUS Bulletin 320-12, “Loan Payments and Statements” with which it is in conflict.
The loan documents normally provide that RUS insured loans may be repaid in full at any time without prepayment premiums. Depending upon the lender, there may be prepayment premiums on loans guaranteed by RUS. See RUS Bulletin 320-12 for additional information. This CFR part supersedes those portions of RUS Bulletin 320-12, “Loan Payments and Statements,” with which it is in conflict.
§ 1735.45 Extension of payments.
RUS may extend the time of payment of principal or interest on a loan. Under section 12 of the Rural Electrification Act, as amended, this extension may be up to 5 years after such payment is due. Under section 236 of the Disaster Relief Act of 1970 (Pub. L. 91-606) payment may be deferred by the Secretary of Agriculture as long as necessary in disaster situations so long as the final maturity date is not later than 40 years after the date of the loan. See RUS Bulletin 320-2 for additional information.
§ 1735.46 Loan security documents.
(a) Loans are to be repaid according to their terms. RUS generally obtains a first lien on all assets of the borrower. This lien shall be in the form of a mortgage by the borrower to the Government or a deed of trust made by and between the borrower and a trustee, satisfactory to the Administrator, together with such security agreements, financing statements, or other security documents as RUS may deem necessary in a particular case. Where a borrower is unable by reason of pre-existing encumbrances, or otherwise, to furnish a first mortgage lien on its entire system the Administrator may, if he determines such security to be reasonably adequate and the form and nature thereof otherwise appropriate, accept other forms of security. See RUS Bulletins 320-4, 320-22, 321-2, 322-2, 323-1, and 326-1 for details. See 7 CFR part 1744, subpart B for information on lien accommodations and subordinations.
(b) Loan security documents of borrowers with loans approved after October 6, 1997 will provide limits on allowable cash distributions in any calendar year as follows:
(1) No more than 25 percent of the prior calendar year’s net earnings or margins if the borrower’s net worth is at least 1 percent of its total assets after the distribution is made;
(2) No more than 50 percent of the prior calendar year’s net earnings or margins if the borrower’s net worth is at least 20 percent of its total assets after the distribution is made;
(3) No more than 75 percent of the prior calendar year’s net earnings or margins if the borrower’s net worth is at least 30 percent of its total assets after the distribution is made; or
(4) No limit on distributions if the borrower’s net worth is at least 40 percent of its total assets after the distribution is made.
(c) Borrowers that have not received a loan after October 6, 1997 may request the Administrator to apply these requirements to them. Borrowers may request in writing that RUS substitute the new requirements described in paragraphs (b)(1) through (b)(4) of this section. Upon request by the borrower, the provisions of the borrower’s loan documents restricting cash distributions or investments shall not be enforced to the extent that such provisions are inconsistent with this section.
(d) Rural development investments meeting the criteria set forth in 7 CFR part 1744, subpart D, will not be counted against a borrower’s allowable cash distributions in any calendar year (7 U.S.C. 926).
(e) References to a borrower’s mortgage in this section include deeds of trust and any other loan document applying the same requirements to a borrower.
(f) This section does not limit the rights of any parties to the mortgage other than RUS.
§ 1735.47 Rescissions of loans.
(a) Rescission of a loan may be requested by a borrower at any time. To rescind a loan, the borrower must demonstrate to RUS that:
(1) The purposes of the loan being rescinded have been completed;
(2) Sufficient funds are available from sources other than RUS or FFB to complete the purposes of the loan being rescinded; or
(3) The purposes of the loan are no longer required to extend or improve telephone service in rural areas.
(b) Borrowers submitting loan applications containing purposes previously covered by a loan that has been rescinded shall include in the application an explanation, satisfactory to RUS, of the change of conditions since the rescission that re-establishes the need for those purposes.
(c) RUS shall not initiate the rescission of a loan unless all of the purposes for which telephone loans have been made to the borrower under the Act have been accomplished with funds provided under the Act.
§§ 1735.48-1735.49 [Reserved]
Subpart E – Basic Requirements For Loan Approval
§ 1735.50 Administrative findings.
The RE Act requires that the Administrator make certain findings to approve a telephone loan or loan guarantee. The borrower shall provide the evidence determined by the Administrator to be necessary to make these findings. Details on the information required to support these findings are included in 7 CFR part 1737.
§ 1735.51 Required findings.
(a) Feasibility of and security for the Loan. The borrower shall provide RUS with satisfactory evidence to enable the Administrator to determine that the security for the loan is reasonably adequate and the loan will be repaid on time. This finding is based on the following factors:
(1) Self-liquidation of the loan within the loan amortization period; this requires that there be sufficient revenues from the borrower’s system, in excess of operating expenditures (including maintenance and replacement), to repay the loan with interest.
(2) Reasonable assurance of achieving the telephone market projections upon which the loan is based.
(3) Economic feasibility (based on projected revenues, expenses, net income, maximum debt service, and rate of return on investment) for the proposed system using local service rate schedules appropriate for the area served.
(4) Impact of the proposed loan and construction on the ratio of the borrower’s secured debt to assets.
(5) Projected growth in the borrower’s equity.
(6) Satisfactory experience and reputation of the system’s principal owners and manager.
(7) A first lien on the borrower’s total system or other adequate security.
(8) Fair market value of the borrower’s assets as represented in its financial reports to RUS.
(9) Appropriate financial and managerial controls included in the loan documents.
(10) Other factors determined to be relevant by RUS.
(b) Area coverage. The borrower shall provide RUS with satisfactory evidence to enable the Administrator to determine that adequate telephone service will be made available to the widest practical number of rural users during the life of the loan.
(c) Nonduplication or certificate requirement. The borrower shall provide RUS with satisfactory evidence to enable the Administrator to determine that no duplication of telephone service shall result from a particular loan.
§ 1735.52 Findings required for particular loan purposes.
Whenever a borrower proposes to use loan funds for the improvement, expansion, construction, or acquisition of telephone facilities within or for nonrural areas, the borrower shall provide RUS with satisfactory evidence to enable the Administrator to determine that such funds shall be necessary and incidental to furnishing or improving telephone service in rural areas.
§§ 1735.53-1735.59 [Reserved]
Subpart F – Mortgage Controls on Acquisitions and Mergers
§ 1735.60 Specific provisions.
(a) The standard form of RUS mortgage contains certain provisions concerning mergers and acquisitions:
(1) Article II, section 4(a) requires the borrower to obtain the written approval of the majority noteholders before taking any action to reorganize, or to consolidate with or merge into any other corporation.
(2) Article II, section 4(b), if made applicable, provides certain exceptions to the requirements of section 4(a).
(b) Similar provisions are contained in other forms of documents executed by borrowers that have not entered into the standard form of mortgage.
(c) Mortgages and loan contracts may contain other provisions concerning mergers and acquisitions.
§ 1735.61 Approval criteria.
(a) If a borrower is required by the terms of its mortgage or loan contract to obtain RUS approval of a merger or acquisition, the borrower shall request RUS approval and shall provide RUS with such data as RUS may request.
(b) If loan funds are requested, the borrower shall comply with subpart G of this part. If no additional loan funds are involved, the borrower shall comply with subpart H of this part.
(c) In considering whether to approve the request, RUS will take into account, among other matters:
(1) Whether the operation, management, and the economic and loan-repayment feasibility characteristics of the proposed system are satisfactory;
(2) Whether the merger or acquisition may result in any relinquishment, impairment, or waiver of a right or power of the Government;
(3) Whether the proposed merger or acquisition is in the best interests of the Government as note holder; and
(4) Whether the proposed purchase price and terms of an acquisition are reasonable, regardless of the source of funds used to pay for the purchase. RUS will consider the purchase price unreasonable if, in RUS’s opinion, it will endanger financial feasibility.
§ 1735.62 Approval of acquisitions and mergers.
(a) If a proposal is unsatisfactory to RUS, then RUS shall inform the borrower in writing of those features it considers objectionable and, as appropriate, recommend corrective action.
(b) If a proposal is satisfactory to RUS, then RUS shall inform the borrower in writing of its approval and any conditions of such approval. Among the conditions of approval are the following:
(1) RUS shall require a compensating benefit in return for any relinquishment, impairment, or waiver of its rights or powers.
(2) If the survivor is an affiliate of another company, RUS shall require any investments in, advances to, accounts receivable from, and accounts payable to the affiliated company contrary to mortgage provisions shall be eliminated in a manner satisfactory to the Administrator.
(3) RUS requires that the borrower agree not to extend credit to, perform services for, or receive services from any affiliated company unless specifically authorized in writing by the Administrator or pursuant to contracts satisfactory in form and substance to the Administrator.
(4) RUS may require the borrower to execute additional mortgages, loan agreements, and associated documentation.
§§ 1735.63-1735.69 [Reserved]
Subpart G – Acquisitions Involving Loan Funds
§ 1735.70 Use of loan funds.
(a) See 7 CFR part 1735 and 1737 for RUS’s general loan policies and requirements.
(b) RUS will finance an acquisition by a borrower only when the acquisition is necessary and incidental to furnishing or improving rural telephone service and the service area is eligible for RUS assistance.
(c) RUS does not make loans for the sole purpose of merging or consolidating telephone organizations. After a merger or consolidation, RUS will consider making loans to the telephone system to finance the improvement or extension of telephone service in rural areas.
(d) Generally, RUS will not make a loan for the acquisition of an existing borrower unless, in addition to all other requirements, such acquisition will improve the likelihood of repayment of an outstanding RUS loan and all outstanding balances of the previous RUS loans are paid in full.
(e) In determining the amount it will lend for each acquisition, RUS shall place a valuation on all telephone facilities that are to be acquired with loan funds. RUS may consider fair market value, the original cost less depreciation of the facilities, income generating potential, any improvement in the financial strength of the borrower as a result of the acquisition, and any other factors deemed relevant by RUS to determine the reasonableness of the acquisition price and the amount of loan funds RUS will provide for an acquisition. RUS shall not consider the acquisition price reasonable or approve a loan if, in the Administrator’s opinion, the acquisition price will endanger financial feasibility. If the acquisition price exceeds the amount RUS will lend, the borrower provides the remainder.
(f) When a borrower intends to request RUS loan funds for an acquisition, it shall present a proposal in writing to the Area Office as soon as possible. The borrower must either obtain RUS approval prior to making any binding commitments with the seller or make the commitments subject to RUS’s approval. Failure to comply with these requirements will disqualify the borrower from obtaining an RUS loan for the acquisition unless the Administrator determines there were extenuating circumstances.
§ 1735.71 Nonrural areas.
Loan funds may be approved for the acquisition and improvement of facilities to serve nonrural subscribers only if the principal purpose of the loan is to furnish and improve rural service and only if the use of loan funds to serve nonrural subscribers is necessary and incidental to the principal purpose of the loan. For example, when the acquisition of an existing system located in and serving a nonrural area is necessary to serve as the nucleus of an expanded system to furnish area coverage service in rural areas, the loan may include funds to finance the acquisition. Approval for the use of loan funds in these circumstances shall be made only on a case by case basis by the Administrator.
§ 1735.72 Acquisition agreements.
When borrowers are seeking RUS financing, acquisition agreements between the borrower and the seller must be in form and substance satisfactory to RUS and shall be expressly conditioned on approval of the agreement by RUS and on obtaining an RUS loan. Normally, the acquisition agreement will not be approved by RUS until the loan has been approved.
§ 1735.73 Loan design.
When loan funds are requested for an acquisition, details of the proposed acquisition shall be included in the Loan Design. See 7 CFR part 1737.
§ 1735.74 Submission of data.
(a) RUS will not approve any acquisition, other than of toll facilities (see subpart J of this part), financed in whole or in part with loan funds until the borrower submits the following data to the GFR:
(1) For any nonborrowers involved, their most recent balance sheets, operating statements, detail of plant accounts, reports to the state commission, and audits, if available.
(2) Completed RUS Form 507, “Report on Telephone Acquisition,” which provides system data, including the type of purchase and purchase price, a system description, and data by exchange. See § 1735.3 for information on obtaining copies of this form.
(3) A map (such as a road map) showing county lines, the boundaries of the proposed acquisition and the borrower’s existing service territory, and the names of other telephone companies serving adjoining areas.
(4) A brief statement of the plans for incorporating the acquired facilities into the borrower’s existing system.
(5) The number of subscribers currently receiving service in the area to be acquired and the number of new subscribers that will be served over the next 5 years as a result of the acquisition.
(6) The proposed purchase price.
(7) Two copies of any options, bills of sale, or deeds, and four copies of any acquisition agreements. All of these documents are subject to RUS approval. If the acquisition agreement is approved by RUS, two copies of it shall be returned to the borrower.
(8) An appraisal by the borrower’s consulting engineer or other qualified person of the physical plant to be acquired. The appraisal shall include the following:
(i) Inspection of each central office, noting the age and condition of the switch and associated equipment, and the extent and quality of maintenance of the equipment and premises.
(ii) Inspection of the outside plant, noting the general age and condition of cable and wire, poles and related hardware, pedestals, and subscriber drops. Any joint use or ownership shall be explained.
(iii) Inspection of miscellaneous items such as commercial office facilities, vehicles, furniture, tools and work equipment, and materials and supplies in stock, noting age and condition.
(iv) Inspection of all buildings and other structures (such as radio towers), noting age and condition.
(v) Detailed description of all real estate including the present market value that local real estate dealers, bankers, insurance agents, etc., place on the property.
(vi) Any widely accepted method, approved by RUS, may be used to estimate the condition of the facilities in paragraphs (a)(8)(i) through (a)(8)(iv) of this section. The “percent condition” method is recommended, but is not required.
(9) Copies of deeds to real estate to be acquired, with an explanation of the proposed use of the land.
(10) Copies of leases to be acquired.
(11) Copies of any existing mortgages with parties other than RUS, indentures, deeds of trust, or other security documents or financing agreements relating to the property to be acquired and any contracts or other rights or obligations to be assumed as part of the acquisition.
(12) A list of all counties in which the proposed system will have facilities.
(13) If the borrower is a cooperative-type organization, a description of its plans for taking subscribers in as members, membership fees, equity payments required because of the acquisition, and extent of membership support.
(14) A certification, signed by the president of the borrower, that the borrower is participating in the State’s telecommunications modernization plan (for information concerning the plan, see 7 CFR part 1751, subpart B). This certification is not required if the borrower is seeking a guaranteed loan.
(15) Any other data deemed necessary by the Administrator for an evaluation of the acquisition.
(b) For stock acquisitions, the borrower shall submit the following in addition to the items listed in (a) of this section:
(1) A list of all stockholders of the company to be acquired and the number of shares each owns.
(2) Guarantees and indemnifications to be obtained from the sellers of the stock.
§ 1735.75 Interim financing.
(a) A borrower may submit a written request for RUS approval of interim financing if it is necessary to close an acquisition before the loan to finance the acquisition is approved. Loan funds shall not be used to reimburse acquisition costs unless RUS has granted approval of interim financing prior to the closing of the acquisition.
(b) RUS will approve interim financing of acquisitions only in cases where loan funds cannot be made available in time for the closing.
(c) RUS will not approve interim financing unless the following information is acceptable:
(1) A written request for approval of interim financing, including a brief description of the acquisition, an explanation of the urgency of proceeding with the acquisition, and the source of funds to be used.
(2) A completed RUS Form 490, “Application for Telephone Loan or Loan Guarantee.” See 7 CFR part 1737.
(3) The portions of the Loan Design that cover the proposed acquisition, including cost estimates and information on any investments in nonrural areas. See 7 CFR 1737.
(4) The information required in § 1735.74 (a)(1) through (a)(8), (a)(14) and (b)(1).
(5) Any other data deemed necessary by the Administrator to approve the interim financing of the acquisition.
(d) Furthermore, RUS will not approve interim financing if, in RUS’s judgment, the proposed acquisition will not qualify for RUS financing or the proposed interim financing presents unacceptable loan security risks to RUS.
(e) Because RUS approval of interim financing is not a commitment to make a loan, RUS will not approve interim financing unless the borrower is prepared to assume responsibility for financing all obligations incurred.
(f) If the borrower plans to proceed with the closing after receiving RUS approval of interim financing, it must first receive preliminary approval from RUS. See § 1735.90
(g) See 7 CFR part 1737 for regulations on interim financing for construction.
(h) See 7 CFR part 1744, subpart B for conditions under which RUS will provide shared first lien and/or a lien accommodation for non-RUS lenders.
§ 1735.76 Acquisition of affiliates.
A borrower shall not use RUS loan funds to acquire any stock or any telephone plant of an affiliate.
§ 1735.77 Release of loan funds, requisitions, advances.
(a) RUS will not approve the advance of loan funds until the borrower has fulfilled all loan contract provisions to the extent deemed necessary by RUS.
(b) The first advance of loan funds pursuant to the loan contract normally shall provide funds needed for the acquisition. Unless the borrower has received approval of interim financing, it must submit the requisition in time for the advance to be made by the closing date.
(c) After the borrower has closed the acquisition, it shall furnish RUS all documents necessary to demonstrate to RUS’s satisfaction that the transaction has been closed.
(d) Advances for improvements or expansion of the acquired facilities will not be approved until RUS has determined that the transaction has been closed and the borrower has obtained satisfactory title to the acquired facilities.
(e) See 7 CFR part 1737 (or RUS Bulletin 320-4) for additional requirements for releases of loan funds and 7 CFR part 1744, subpart C for additional requirements for requisitions and advances.
§§ 1735.78-1735.79 [Reserved]
Subpart H – Acquisitions or Mergers Not Involving Additional Loan Funds
§ 1735.80 Submission of data.
When a borrower is not requesting loan funds for an acquisition or merger, the borrower shall first notify RUS and submit for review by RUS the documents and information listed in (a) through (l) of this section required by RUS.
(a) For any nonborrowers involved, their most recent balance sheets, operating statements, detail of plant accounts, reports to the state commission, and audits, if available.
(b) Completed RUS Form 507, “Report on Telephone Acquisition.”
(c) A map (such as a road map) showing county lines, the boundaries of the proposed acquisition and the borrower’s existing service territory, and the names of other telephone companies serving adjoining areas.
(d) A brief statement of the plans for incorporating the acquired facilities into the borrower’s existing system.
(e) The number of subscribers currently receiving service in the areas involved in the acquisition or merger and the number of new subscribers that will be served over the next 5 years as a result of the acquisition or merger.
(f) Copies of deeds of real estate to be acquired, with an explanation of the proposed use of the land.
(g) Copies of security documents of any other lenders involved and any contracts or other rights of obligations to be assumed by the survivor.
(h) A list of all counties in which the proposed system will have facilities.
(i) If Article II, section 4(b) of the standard mortgage has not been made applicable, plans for operating the unified system.
(j) In the case of a merger, the proposed articles of merger that are to be used.
(k) In the case of an acquisition, the proposed purchase price, plus two copies of any options, bills of sale, or deeds, and two copies of any acquisition agreements. All of these documents are subject to RUS approval. If the acquisition agreement is approved by RUS, two copies of it shall be returned to the borrower.
(l) Any other data deemed necessary by the Administrator for an evaluation of the acquisition or merger.
§§ 1735.81-1735.89 [Reserved]
Subpart I – Requirements for All Acquisitions and Mergers
§ 1735.90 Preliminary approvals.
(a) In cases where the borrower’s schedule for completion of the proposed action leaves insufficient time for RUS to prepare and process the required documentation, including new mortgages and replacement notes, the borrower may request RUS to give preliminary approval to the acquisition or merger. However, the borrower may not obtain additional loan funds until the documentation is completed to RUS’s satisfaction.
(b) Consideration of preliminary approvals generally will not be practicable in cases in which compensating benefits are required.
(c) RUS will not give preliminary approval when the lien of the mortgage on after-acquired property may be affected.
(d) Before RUS will grant preliminary approval, the borrower shall submit:
(1) Merger or acquisition documents required by state law;
(2) Acquisition agreements covering the transaction;
(3) Any required franchises, licenses, and permits;
(4) All required regulatory body approvals;
(5) All required corporate actions;
(6) Leases, contracts, and evidence of titles to be assigned to the purchaser; and
(7) The latest audited financial statements for any nonborrowers involved.
(e) If the information in (d) of this section is acceptable to RUS, the borrower may proceed with the closing.
§ 1735.91 Location of facilities.
Telephone facilities to be acquired must be located so that they can be efficiently operated by the borrower and provide adequate security for the RUS loan.
§ 1735.92 Accounting considerations.
(a) Proper accounting shall be applied to all acquisitions and mergers, as required by the regulatory commission having jurisdiction, or in the absence of such a commission, as required by RUS based on Generally Accepted Accounting Principles or other accounting conventions as deemed necessary by RUS.
(b) If RUS determines that the plant accounts are not properly depreciated, the borrower should adjust its depreciation rates. Depending upon the characteristics of the case, commission jurisdiction and requirements, and similar factors, one of the following actions shall be taken:
(1) In states where commission approval of depreciation rates is required, a covenant shall be included in the loan contract that requires the borrower to:
(i) Have the consulting engineer make an original cost less depreciation inventory and appraisal of retained plant as part of the final inventory, and
(ii) Request commission approval of adjustments to its records on the basis of this inventory.
(2) In states where commission approval is not required, informal discussions between RUS and the borrower may be undertaken to reach satisfactory voluntary adjustments. If this does not resolve the situation to RUS’s satisfaction, a covenant similar to that in paragraph (b)(1)(i) of this section shall be included in the loan contract and the borrower shall agree to submit evidence satisfactory to the Administrator that it has adjusted its records on the basis of the inventory.
§ 1735.93 Notes.
Substitute notes may be required in the case of an acquisition or merger, regardless of the source of funds.
§ 1735.94 Final approval and closing procedure.
(a) Legal documents relating to the acquisition or merger, including copies of required franchises, commission orders, permits, licenses, leases, title evidence, corporate proceedings, and contracts to be assigned to the purchaser shall be forwarded to the Area Office prior to closing.
(b) The Administrator will not give final approval to any acquisition or merger until all RUS requirements relating to the transactions are satisfied.
(c) Following the Administrator’s final approval of the proposal, the Area Office shall inform the borrower in writing of the necessary legal and other actions required for the advance of loan funds to finance the acquisition, including the submission, in form and substance satisfactory to the Administrator, of (1) all information and documents necessary to demonstrate that the transaction has been completed, and (2) all loan contracts, notes, mortgages, and related documents and materials required by RUS.
(d) Deeds reflecting the change in ownership, executed bills of sale, and opinions of counsel shall be forwarded to the Area Office following closing.
(e) RUS will not advance loan funds to furnish or improve service in the acquired or merged areas until the Administrator has given final approval and the transaction has been closed. RUS may, however, advance funds if it determines that loan security will not be jeopardized.
(f) At the discretion of RUS, a GFR may be present at the closing to assist the borrower and protect the interests of RUS. Under certain circumstances the closing may take place prior to RUS granting final approval for the transaction and the execution of amended loan security documents.
§ 1735.95 Unadvanced loan funds.
(a) The unadvanced loan funds of a borrower that will not be a survivor of an acquisition or merger shall be advanced only to the survivor and only under the following circumstances.
(1) If the funds are to be used for purposes approved in prior loans, the funds shall be advanced after the effective date of the proposed action only when all loan contract prerequisites have been met and documents have been submitted in form and substance satisfactory to the Administrator.
(2) If the funds are to be used for new purposes, then in addition to the requirements in (a)(1) of this section, RUS must also approve the change in purpose.
(b) No loan or other money in the construction fund shall be used to finance facilities outside areas to be served by projects approved by RUS.
§§ 1735.96-1735.99 [Reserved]
Subpart J – Toll Line Acquisitions
§ 1735.100 Use of loan funds.
An acquisition of toll line facilities financed with loan funds must be necessary and incidental, as determined by the Administrator, to furnishing or improving telephone service in rural areas. The borrower shall submit to RUS the acquisition agreement, the original cost less depreciation of the facilities, any concurrences with the connecting companies involved, and a detailed inventory of the facilities to be purchased. The borrower must submit to RUS evidence, satisfactory to the Administrator, of the borrower’s ownership of the toll line facilities before loan funds for improvement of those facilities will be advanced.
§ 1735.101 With nonloan funds.
When an acquisition is limited to toll line facilities and loan funds are not involved, RUS approval of the acquisition is not required. The borrower, however, shall submit to RUS for its approval all concurrences with the connecting companies involved and any other proof of ownership of the toll facilities required by RUS.
PART 1737 – PRE-LOAN POLICIES AND PROCEDURES COMMON TO INSURED AND GUARANTEED TELECOMMUNICATIONS LOANS
Subpart A – General
§ 1737.1 General statement.
(a) This part prescribes policies, procedures and responsibilities relating to applications for RUS loans to finance the improvement and extension of telephone service in rural areas. Requirements for both initial and subsequent loans are discussed, with differences pointed out.
(b) This part sets forth the policies, procedures, and requirements of RUS during the period from the receipt of a completed loan application until the advance of funds. This part sets forth the factors RUS considers in determining the characteristics of a loan, such as the amount of the loan, and conditions to the advance of funds. Involved in this determination are:
A loan budget, feasibility study, characteristics letter, loan recommendation, and release of funds. This CFR part supersedes all RUS Bulletins that are in conflict with it.
(c) See 7 CFR part 1735 on general loan policies, 7 CFR part 1737 for details on submitting a loan application, and 7 CFR part 1744 on the advance of funds.
§ 1737.2 Definitions.
As used in this part:
Access line means a transmission path between user terminal equipment and a switching center that is used for local exchange service. For multiparty service, the number of access lines equals the number of lines/paths terminating on the mainframe of the switching center.
Acquisition means the purchase of another telephone system, lines, or facilities whether by acquiring telephone plant in service or majority stock interest of one or more organizations.
Administrator means the Administrator of RUS.
Area Coverage means the provision of adequate telephone service to the widest practical number of rural users during the life of the loan.
Advance of funds means the transferring of funds by RUS to the borrower’s construction fund.
Borrower means any organization which has an outstanding loan made or guaranteed by RUS, on which is seeking such financing.
Characteristics letter means the letter informing the borrower of the characteristics of the proposed loan before the loan is recommended.
Feasibility study means the pro forma financial analysis performed by RUS to determine the economic feasibility of a loan.
Forecast period means the time period beginning on the date (base date) of the borrower’s balance sheet used in preparing the feasibility study and ending on a date equal to the base date plus the number of years estimated in the feasibility study for the completion of the project. Feasibility projections are usually for 5 years, see § 1737.70(a). For example, the forecast period for a loan based on a December 31, 1990 balance sheet and having a 5-year estimated project completion time is the period from December 31, 1990 to December 31, 1995.
Guaranteed loan means a loan guaranteed by RUS under section 306 of the RE Act bearing interest at a rate agreed to by the borrower and the lender.
Hardship loan means a loan made by RUS under section 305(d)(1) of the RE Act bearing interest at a rate of 5 percent per year.
Initial loan means the first loan made to a borrower.
Interim construction means the purchase of equipment or the conduct of construction under an RUS-approved plan of interim financing.
Interim financing means funding for a project which RUS has acknowledged will be included in a loan, should said loan be approved, but for which RUS loan funds have not yet been made available.
Loan means any loan made or guaranteed by RUS.
Project means the improvements and telephone facilities financed by a particular RUS loan.
RE Act means the Rural Electrification Act of 1936, as amended (7 U.S.C. 901 et seq.).
Release of funds means determination by RUS that a borrower has complied with all of the conditions prerequisite to the advances as set forth in the loan contract to the extent deemed necessary by RUS for approval of the use of loan funds and any required equity or other nonloan funds.
Reserves means loan or nonloan funds that have not been encumbered. Funds are encumbered when they have been set aside for by RUS for a particular loan purpose.
Rural area means any area of the United States, its territories and possessions (including any area within the Federated States of Micronesia, the Republic of the Marshall Islands, and the Republic of Palau) not included within the boundaries of any incorporated or unincorporated city, village or borough having a population exceeding 5,000 inhabitants, and which excludes certain populations pursuant to 7 U.S.C. 1991(a)(13)(H) and (I). The population figure is obtained from the most recent decennial Census of the United States. If the applicable population figure cannot be obtained from the most recent decennial Census, RD will determine the applicable population figure based on available population data. For purposes of the “rural area” definition, the character of an area is determined as of a time the initial loan for the system is made.
RUS cost-of-money loan means a loan made under section 305(d)(2) of the RE Act bearing an interest rate as determined under 7 CFR 1735.31(c).
Special project means facilities involving investment in excess of $100,000 for any single subscriber.
Subscriber means the same as access line.
Subsequent Loan means any loan to a borrower which has already received a loan.
Telephone service means any communication service for the transmission or reception of voice, data, sounds, signals, pictures, writing, or signs of all kinds by wire, fiber, radio, light, or other visual or electromagnetic means and includes all telephone lines, facilities and systems to render such service. It does not mean:
(1) Message telegram service;
(2) Community antenna television system services or facilities other than those intended exclusively for educational purposes; or
(3) Radio broadcasting services or facilities within the meaning of section 3(o) of the Communications Act of 1934, as amended.
Times Interest Earned Ratio (TIER) means the ratio of a borrower’s net income (after taxes) plus interest expense, all divided by interest expense. For the purpose of this calculation, all amounts will be annual figures and interest expense will include only interest on debt with a maturity greater than one year.
§ 1737.3 Availability of RUS forms.
Single copies of RUS forms and publications cited in this part are available from Administrative Services Division, Rural Utilities Service, United States Department of Agriculture, Washington, DC 20250. These RUS forms and publications may be reproduced. The terms “RUS form”, “RUS standard form”, and “RUS specification” have the same meanings as the terms “REA form” “REA standard form”, and “REA specification”, respectively, unless otherwise indicated.
§§ 1737.4-1737.9 [Reserved]
Subpart B – Preapplication Stage
§ 1737.10 Initial contact.
Initial loan applicants seeking assistance should write the Rural Utilities Service, United States Department of Agriculture, Washington, DC 20250. A field representative will be assigned by RUS to visit the applicant and discuss its financial needs and eligibility. Existing borrowers initiate the contact directly with their assigned field representative. Borrowers consult with RUS field representatives and headquarters staff, as necessary.
§ 1737.11 Preapplication determinations.
Before submitting an application to RUS, the borrower should consider the following:
(a) Area to be served. The proposed service area should neither include subscribers already receiving adequate service from another telephone system nor leave out unserved pockets of potential subscribers who have indicated an interest in service and are located between the proposed system and neighboring systems. See 7 CFR 1735.11 on Area Coverage and 7 CFR 1735.12 on Nonduplication. In establishing service area boundaries, borrowers should consider the location of adjoining systems, natural boundaries such as rivers and mountains, and economic and cultural features such as trading and community centers.
(b) Number of subscribers. The borrower must estimate the number of subscribers that will request service from the proposed system.
(c) Acquisitions. A borrower considering an acquisition should refer to 7 CFR 1735.20 and RUS Bulletins 320-4, 321-2, 325-1, and 326-1.
(d) Mergers and consolidations. A borrower considering a merger or consolidation should refer to 7 CFR 1735.19.
(e) Refinancing. Restrictions on the use of loan funds for refinancing are contained in 7 CFR 1735.21.
(f) Service for nonrural subscribers. In some situations, RUS loan funds may be used to finance facilities to serve nonrural subscribers. See 7 CFR 1735.13.
(g) Loan amount. The initial loan request is based on the borrower’s best estimate of financing needs. RUS requires detailed studies by the borrower to complete the application and the initial estimate is subject to revision.
(h) Loans for a portion of a system. If it is impractical to finance facilities to provide adequate service throughout the borrower’s entire telephone service area, RUS will consider a loan application to finance improvements to a portion of a borrower’s system.
(i) Telecommunications modernization plan. A borrower applying for hardship or concurrent RUS cost-of-money loans should refer to 7 CFR part 1751, subpart B.
§§ 1737.12-1737.19 [Reserved]
Subpart C – The Loan Application
§ 1737.20 [Reserved]
§ 1737.21 The completed loan application.
(a) The completed loan application consists of four parts:
(1) A completed RUS Form 490.
(2) A market survey called the Area Coverage Survey (ACS).
(3) The plan and associated costs for the proposed construction, called the Loan Design (LD).
(4) Various supplementary information specified in 7 CFR 1737.22.
(b) The RUS field representative assists the borrower in assembling this information. Certain information is required from initial loan applicants but usually not from borrowers seeking subsequent loans. Borrowers are to submit all information in paragraph (a) of this section to their RUS field representatives, who will review and then forward the packages to RUS headquarters.
(c) RUS will make a determination of completeness of the application package and will notify the borrower of this determination within 10 working days of receipt of the information at RUS headquarters. If the application package is not complete, RUS will notify the borrower of what information is needed in order to complete the application package. If the information required to complete the application package is not received by RUS within 90 working days from the date the borrower was notified of the information needed, RUS may return the application package to the borrower. Returned applications are without prejudice and borrowers may resubmit the completed application.
§ 1737.22 Supplementary information.
RUS requires additional information in support of the loan application form. The information listed in paragraphs (a), (b), and (c) of this section must be submitted as part of the loan application as specified in 7 CFR 1737.21.
(a) The following must be submitted by all initial loan applicants. Borrowers seeking subsequent loans must submit any changes in these items since they were last submitted.
(1) Name of attorney and manager, and certified copies of board resolutions selecting them.
(2) Certified copy of articles of incorporation showing evidence of filing with the Secretary of State and in county records.
(3) Certified copies of bylaws and board minutes showing their adoption.
(4) Certified sample stock certificates.
(5) Amounts of common and preferred stock issued and outstanding.
(6) Names, addresses, business affiliations, and stockholdings of the manager, officers, directors, and other principal stockholders (those owning at least 20 percent of borrower’s voting stock).
(7) Certified copies of real estate deeds showing all recording information.
(8) Service agreements, such as for management or system maintenance.
(9) Certified copies of existing leases, except those for vehicles, furniture and office equipment, and computer equipment.
(10) Certified copies of existing franchises.
(11) Information on any franchises required as a result of the proposed loan project.
(12) Federal Communications Commission (FCC) authorizations.
(13) For toll, operator office, traffic, and EAS agreements, the names of all parties to the agreement, the type of agreement, and the effective and termination dates of the agreement and annexes, and the exchanges involved.
(14) Copies of rate schedules. (A copy of the tariff must be available for review by the RUS field representative.)
(15) Executed copy of RUS Form 291, “Certification of Nonsegregated Facilities”.
(16) A sketch or map showing the existing and proposed service areas.
(17) Executed assurance that the borrower will comply with the Uniform Relocation Assistance and Real Property Acquisitions Policies Act of 1970, as amended (see 49 CFR 24.4).
(18) A certification (which is included on RUS Form 490, “Application for Telephone Loan or Guarantee”) that the borrower has been informed of the collection options listed below that the Federal government may use to collect delinquent debt. RUS and other government agencies are authorized to take any or all of the following actions in the event that a borrower’s loan payments become delinquent or the borrower defaults (OMB Circular A-129 defines “delinquency” for direct or guaranteed loans as debt more than 31 days past due on a scheduled payment):
(i) Report the borrower’s delinquent account to a credit bureau.
(ii) Assess additional interest and penalty charges for the period of time that payment is not made.
(iii) Assess charges to cover additional administrative costs incurred by the Government to service the borrower’s account.
(iv) Offset amounts owed to the borrower under other Federal programs.
(v) Refer the borrower’s debt to the Internal Revenue Service for offset against any amount owed to the borrower as an income tax refund.
(vi) Refer the borrower’s account to a private collection agency to collect the amount due.
(vii) Refer the borrower’s account to the Department of Justice for litigation in the courts.
(19)(i) A certification, signed by the president of the borrower, that the borrower is participating in the State’s telecommunications modernization plan (for additional information concerning the plan, see 7 CFR part 1751, subpart B). This certification is not required if the borrower is seeking a guaranteed loan.
(ii) All of the actions in paragraph (a)(18) of this section can and will be used to recover any debts owed when it is determined to be in the interest of the Government to do so. The notification and the required form of certification in paragraph (a)(18) of this section are included on RUS Form 490, Application for Telephone Loan or Guarantee.
(b) The following must be submitted by borrowers seeking subsequent loans:
(1) Certified financial statements for the last 3 years.
(2) Toll settlement statements and related data.
(3) Present exchange rates and any pending changes.
(4) Environmental review documentation in accordance with 7 CFR part 1970.
(5) A “Certification Regarding Lobbying” for loans, or a “Statement for Loan Guarantees and Loan Insurance” for loan guarantees, and when required, an executed Standard Form LLL, “Disclosure of Lobbying Activities,” (see section 319, Public Law 101-121 (31 U.S.C. 1352)).
(6) Executed copy of Form AD-1047, “Certification Regarding Debarment, Suspension, and Other Responsibility Matters – Primary Covered Transactions.”
(7) Borrower’s determination of loan maturity, including information noted in § 1735.43(a) of this chapter as required.
(8) Approved depreciation rates for items under regulatory authority jurisdiction.
(9) A statement that the borrower is or is not delinquent on any Federal debt, such as 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. RUS Form 490, “Application for Telephone Loan or Guarantee,” contains a section for providing the required statement and any appropriate explanation.
(10) Any other supporting data required by the Administrator.
(c) For borrowers requesting funds for construction or refinancing, in addition to the information included in paragraphs (a) and (b) of this section, the following must be submitted:
(1) Copies of all bonds, notes, mortgages, and contracts covering outstanding indebtedness proposed to be refinanced.
(2) For each note or bond, the name of the creditor, original amount of debt and amount as of last year-end, purpose of debt, dates incurred and due, interest rates, and repayment terms.
(3) Justification for refinancing and evidence that the underlying loan to be refinanced would have been eligible for RUS financing under the RE Act.
(d) Loan requests whose sole purpose is to refinance loans under Titles II and VI of the RE Act must submit the following:
(1) Certified financial statements for the last 3 years.
(2) Five-year financial projections consisting of Income Statement, Balance Sheet, and Cash Flow Statement.
(3) A “Certification Regarding Lobbying” for loans, or a “Statement for Loan Guarantees and Loan Insurance” for loan guarantees, and when required, an executed Standard Form LLL, “Disclosure of Lobbying Activities,” (see section 319, Pub. L. 101-121 (31 U.S.C. 1352)).
(4) Executed copy of Form AD-1047, “Certification Regarding Debarment, Suspension, and Other Responsibility Matters – Primary Covered Transactions.”
(5) Borrower’s determination of loan maturity.
(6) A statement that the borrower is or is not delinquent on any Federal debt, such as 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. RUS Form 490, “Application for Telephone Loan or Guarantee,” contains a section for providing the required statement and any appropriate explanation.
(7) Any other supporting data required by the Administrator.
(e) Borrowers requesting loan funds for acquisitions should refer to RUS bulletins 320-4, 321-2, 325-1, and 326-1 for requirements.
(f) For all applications that request funding for retail broadband as defined in 7 CFR 1735.2, the application must include all information required for the public notice as stated in 7 CFR 1735.23(a).
§§ 1737.23-1737.29 [Reserved]
Subpart D – Preloan Studies – Area Coverage Survey and Loan Design
§ 1737.30 General.
In support of a loan application, the borrower shall prepare and submit to RUS: (a) A market forecast to determine service requirements (the Area Coverage Survey) and (b) engineering studies to determine the system design that provides service most efficiently (the Loan Design). The RUS field representative confers with the borrower and its engineer to schedule the completion and submission of these studies.
§ 1737.31 Area Coverage Survey (ACS).
(a) The Area Coverage Survey (ACS) is a market forecast of service requirements of subscribers in a proposed service area.
(b) The objective of the ACS is to determine the location, number and telephone service requirements of subscribers in a service area. RUS will use the ACS to appraise the proposed plan for area coverage and to determine the largest practical number of rural subscribers which can be served on an economically feasible basis. Preparation of the ACS requires:
(1) A field survey of the service area to locate and identify on maps all business and residential establishments, whether currently served or not. The location and identification of future establishments are also recorded on the maps.
(2) A forecast of the number of telephone subscribers, in the entire service area, by exchange, grade and class of service, projected for the end of the 5-year study period.
(c) The results of the survey and forecast shall be:
(1) Shown on maps (maps for those service areas previously financed by RUS do not have to be included in the ACS provided that the borrower’s records contain sufficient information as to subscriber development to enable cost estimates for the proposed facilities to be prepared);
(2) Tabulated on RUS Form 569 “Area Coverage Survey Report,” or its equivalent; and
(3) Supported by a narrative (see § 1737.32(f)(1)(ii)) containing information on the bases for the service requirement forecasts in each exchange.
(d) Guidelines on preparing an ACS are provided in RUS Telecommunications Engineering and Construction Manual section 205.
(e) The RUS field representative reviews and approves the borrower’s ACS. The borrower should make sure this is done before proceeding with the Loan Design in order to prevent unnecessary expense should the ACS not be approved. The borrower’s engineer must use the RUS-approved ACS in preparing the Loan Design.
§ 1737.32 Loan Design (LD).
(a) A loan application requires supporting data collectively called a “Loan Design.” The LD contains a forecast of service requirements and a narrative with supporting exhibits. Most of the items included in the LD are similar for all loan applications. However, as noted below, there are certain additional requirements for initial loans and for any exchange areas not previously financed by RUS, and other additional requirements for subsequent loans for areas previously financed by RUS. The LD must conform to the borrower’s state telecommunications modernization plan unless the borrower is seeking a guaranteed loan (for additional information concerning the plan, see 7 CFR part 1751, subpart B).
(b) Because of the importance and complexity of the engineering studies necessary for the LD, it should be prepared by a competent experienced telecommunications engineer. While the LD is subject to RUS approval, the borrower’s selection of an engineer to perform preloan work is not. Note: The borrower’s selection of an engineer to perform postloan work is subject to RUS approval. This should be considered when selecting a preloan engineer, if the same individual or company is to perform both services. See 7 CFR 1753.17.
(c) An LD for initial loans or for any exchange areas not previously financed by RUS requires an Outside Plant Design that provides:
(1) The most economical and practical design for a telephone system that meets immediate service demands; and
(2) The basis for orderly expansion of the system to serve the widest practical number of rural establishments.
(d) The LD for a subsequent loan (which only includes areas previously financed by RUS) does not require a detailed Outside Plant Design. The detailed Outside Plant Design for these subsequent loans may be completed for RUS review and approval after loan approval, but before staking is started and plans and specifications are prepared. By scheduling preparation of the outside plant design closer to preparation for construction, the need for redesign resulting from changing conditions and its attendant costs are reduced.
(e) Guidelines on preparing an LD are provided in RUS Telecommunications Engineering and Construction Manual section 205.
(f) The LD shall include a narrative, several exhibits, and a certification, as explained below:
(1) Narrative. This section discusses the following topics, as appropriate.
(i) General. The purposes and amount of the proposed construction and both immediate and long range plans must be covered. The source and amount of any nonloan funds to be used for this construction must be discussed.
(ii) Subscriber data. The basis for the subscriber forecast, including any unusual factors expected to influence growth, must be discussed. Reasons for growth projections which vary from historic trends must be explained.
(iii) Proposed construction. All proposed construction must be described fully. Reference to the BER must be made here.
(iv) Service area. For subsequent loans only, proposed construction which is not within the boundaries of prior loan projects must be discussed. New areas to be served (even if from existing exchanges) must be shown on maps submitted with the proposal.
(v) Toll and EAS. Proposed new toll or extended area service (EAS) facilities, including any changes from the existing trunking arrangements, must be described fully. Minutes of meetings and correspondence with connecting companies, and connecting company concurrences, if any, must be included.
(vi) Radio telephone service. Proposed radio telephone service must be discussed. Results of studies demonstrating demand and/or need most be included as an exhibit.
(vii) Special projects. Facilities involving investment in excess of $100,000 for any single subscriber must be discussed fully. Contractual arrangements with the subscriber, including a termination agreement providing for (A) the full recovery by the borrower of its capital costs of the facilities no later than the maturity date of the note representing the loan, (B) the immediate repayment of all remaining capital costs, if terminated, and (C) repayment to RUS of the outstanding amount of the special note shall be submitted. Usually a separate short-term note is prepared for loans to finance Special Projects.
(viii) Investment in nonrural areas. (A) For initial loans, or loans for areas not previously financed by RUS, the borrower must fully discuss proposed improvements or expansions in an exchange serving a community over 5,000 population. The name of the community, the number of existing and projected new subscribers by grades of service within the community, detailed cost estimates of the facilities involved, and information sufficient to establish the necessity for the use of loan funds must be provided.
(B) For subsequent loans, the borrower must fully discuss as specified in paragraph (f)(1)(viii)(A) of this section proposed improvements or expansions in an exchange serving a community over 5,000 population which had a population of more than 5,000 at the time the facilities to serve the community were first financed by RUS. The population determination is based on the corporate limits or boundaries of unincorporated areas in existence at the time the facilities to serve the community were first financed by RUS.
(C) For subsequent loans, the borrower shall state whether the population of a community, which is currently more than 5,000, was considered rural at the time RUS first financed the facilities to serve the community. Detailed cost estimates are not required if the population was considered rural at the time RUS first financed facilities to serve the community, see 7 CFR 1735.13(d).
(ix) Prior loan project. For subsequent loans only, the reason for and amount of additional loan funds needed to complete construction in progress which was part of a prior loan project in central office areas not included in the current LD must be discussed fully.
(x) Route miles. Route miles of outside plant in central office areas not shown on RUS Form 495 must be provided.
(xi) Future plans. Where the loan application is to finance part of a system-wide upgrading plan, plans for those remaining exchanges not included in the current loan proposal must be discussed.
(2) Exhibits. (i) An RUS Form 569, “Area Coverage Survey Report,” or its equivalent shall be included for the total system and for each exchange in which system improvements or additions are proposed.
(ii) An RUS Form 495, “Construction Cost Estimates,” or its equivalent shall be prepared for each exchange in which system improvements or additions are proposed. An explanation of the method used in developing these cost estimates must be included.
(iii) RUS Form 494, “Loan Design Summary,” or its equivalent shall be prepared for each loan. This must show all expected 5-year construction costs, loan and nonloan.
(iv) A schematic trunking diagram shall be included showing the number and type, length, ownership and makeup of existing and proposed toll and EAS trunks, plus transmission and traffic data for each trunk group.
(v) Detailed outside plant design maps must be submitted for all central office areas of initial loan applicants and for areas not previously served by existing borrowers or financed by RUS. These design maps must be in sufficient detail to substantiate the construction cost estimates.
(vi) For subsequent loans only, if a change in system boundaries is proposed, a map must be furnished showing present and proposed boundaries, and existing establishments and subscribers in the new areas.
(vii) Any other special exhibits needed to support particular items in the loan proposal must be included.
(3) Certification. The following certification shall be signed by a principal of the engineering firm and the borrower:
We, the undersigned, certify that the data in this Loan Design are correct to the best of our knowledge and belief and reasonably reflect the cost to serve the subscribers as proposed on the Forms 569, “Area Coverage Survey Report,” which are integral parts hereof, and that this Loan Design adheres to RUS engineering and construction standards and practices.
(g) The RUS field representative shall review and make a recommendation on each LD.
(1) After completion of the LD, the borrower arranges a meeting with its engineer and RUS’s field representative to review:
(i) Design and cost estimates.
(ii) Reserves available from prior loans, if any, or internally generated funds which may be applied against the requirements of the current application.
(2) One copy of RUS Form 567, “Checklist for Review of Loan Design,” completed and signed by the borrower’s engineer must be attached to the LD submitted to the RUS field representative.
(3) The RUS field representative recommends acceptance of the LD as the basis for RUS financing.
(4) Three copies of the final LD with the RUS field representative’s recommendation are then sent to the relevant Area Office in RUS. A fourth copy is retained by the RUS field representative.
(5) A transmittal letter from the borrower must accompany the LDs, requesting that the application previously submitted be amended so as to be consistent with the approved LD.
(6) Final approval of the LD is given by the relevant Area Office in RUS. To be approved, the LD must be cost effective, include appropriate technology, and provide area coverage.
(7) Upon receipt of the LD and any other required information, RUS makes a preliminary analysis of the loan proposal. Before final consideration of the loan, RUS reviews the results of its preliminary analysis with the borrower.
§§ 1737.33-1737.39 [Reserved]
Subpart E – Interim Financing of Construction of Telephone Facilities
§ 1737.40 General.
(a) Under special circumstances a borrower may request that RUS approve interim financing for interim construction. This subpart describes the circumstances in which RUS will consider approving interim financing of construction, the information to be submitted to RUS to support the borrower’s request, RUS’s requirements relating to interim construction, and related matters.
(b) For a borrower to preserve the option of obtaining loan funds for reimbursement of interim financing, it must obtain prior RUS approval of its interim financing plan and follow the procedures in 7 CFR 1737.41 and 7 CFR 1737.42.
(c) RUS will approve interim financing only for projects which must be performed immediately.
(d) RUS approval of interim financing is not a commitment that RUS will make loan funds available.
(e) Equal employment opportunity requirements apply to interim construction. See RUS Bulletin 320-15.
§ 1737.41 Procedure for obtaining approval.
(a) The borrower shall submit to the RUS Area Office a written request for approval of interim financing. This request shall include:
(1) A description of the construction proposed under interim financing.
(2) An explanation of the urgency of proceeding with the proposed construction.
(3) An estimate of the cost.
(4) The source of funds to be used for interim financing.
(b) RUS will not approve interim financing until it has reviewed and found acceptable:
(1) All of the information required under § 1737.21; or
(2) The following documents:
(i) The loan application (RUS Form 490) clearly marked “in support of interim financing request.”
(ii) The Loan Design (LD), or the portion thereof that covers the proposed construction if the completed LD is not available. See 7 CFR 1737.32.
(iii) Evidence that the borrower has complied with the environmental review requirements in accordance with 7 CFR part 1970.
(iv) A statement that the borrower is or is not delinquent on any Federal debt, such as income tax obligations or a 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 interim financing, see 7 CFR 1737.22(b)(9).
(v) A “Certification Regarding Lobbying” for loans, or a “Statement for Loan Guarantees and Loan Insurance” for loan guarantees, and when required, an executed Standard Form LLL, “Disclosure of Lobbying Activities,” (see section 319, Pub. L. 101-121 (31 U.S.C. 1352)).
(vi) Executed copy of Form AD-1047, “Certification Regarding Debarment, Suspension, and Other Responsibility Matters – Primary Covered Transactions.”
(vii) Any other supporting data required by the Administrator.
(c) RUS will not approve a borrower’s request for approval of interim financing if, in RUS’s judgment:
(1) The proposed interim financing does not comply with the requirements of this subpart.
(2) The proposed interim construction will not qualify for RUS financing.
(3) The proposed interim financing presents unacceptable loan security risks to RUS, or otherwise is not in the best interests of RUS.
§ 1737.42 Procedure for construction.
(a) If RUS approves the interim financing, interim construction shall be conducted in accordance with 7 CFR part 1753, 7 CFR part 1788, RUS Bulletin 320-15, and RUS Bulletins 381-1, 381-2, 381-4, 381-7, 381-8, 381-9, 381-10, 381-11, 381-13, 382-1, 382-2, 382-3, 383-1, 383-4, 384-1, 384-2, 384-3, 385-1, 385-2, 385-3, 385-4, 385-5, 385-6, 387-1, 387-2, 387-3, 387-4, and 387-5) except for the following:
(1) All sellers and contractors invited to bid must be informed that funds from sources other than RUS will be used to pay for construction.
(2) Contracts involving the interim construction must contain a provision, in form and substance satisfactory to RUS, stating that RUS is not committed to lend or advance funds to finance the project.
(3) Contracts will not be approved by RUS until the borrower demonstrates to RUS’s satisfaction that funds from sources other than RUS will be available when needed to pay invoices submitted in accordance with contract payment terms.
(4) The borrower shall not begin interim construction until all necessary licenses, permits, and other governmental approvals have been obtained.
(b) After RUS loan funds are released, the borrower can obtain reimbursement for interim financing by submitting a Financial Requirement Statement. See 7 CFR part 1744, subpart C (or RUS Bulletin 327-1).
(1) The first advance of loan funds to a borrower that has received interim financing approval generally will be limited to funds to repay any interim financing indebtedness and such additional amounts as RUS deems necessary. RUS will make no further advances of loan funds until the borrower has submitted evidence, in form and substance satisfactory to the Administrator, that (i) any indebtedness created by the interim financing and any liens associated therewith have been fully discharged of record and (ii) the borrower has satisfied all other conditions on the advance of additional loan funds.
(2) If the source of funds for interim financing is the borrower’s internally generated funds, the borrower may request reimbursement of those funds along with advances for other purposes on the first Financial Requirement Statement.
§§ 1737.43-1737.49 [Reserved]
Subpart F – Review of Application Procedures
§ 1737.50 Review of completed loan application.
(a) The completed loan application consists of:
(1) A completed RUS Form 490, “Application for Telephone Loan or Loan Guarantee;”
(2) A completed certification Form AD-1047, “Certification Regarding Debarment, Suspension, and Other Responsibility Matters – Primary Covered Transactions;”
(3) A market survey called the Area Coverage Survey (ACS);
(4) The plan and associated costs for the proposed construction, called the Loan Design (LD);
(5) Evidence that the borrower is participating in a telecommunications modernization plan in the state where the proposed construction will occur, unless the borrower is seeking a guaranteed loan; and
(6) Various supplementary information.
(b) RUS shall review the completed loan application, particularly noting subscriber data, grades of service, extended area service (EAS), connecting company commitments, commercial facilities, system and exchange boundaries, and proposed acquisitions. RUS shall review the LD to determine that the system design is acceptable to RUS, that the design is technically correct, that the cost estimates are reasonable, and that the design provides for area coverage service. RUS shall also review the population and incorporation status of all communities served or to be served by the borrower to determine if any nonrural areas are served and if municipal franchises are required. Any RUS lending for nonrural areas must be in accordance with 7 CFR part 1735. RUS shall also check the “List of Parties Excluded from Federal Procurement of Nonprocurement Programs”, compiled, maintained and distributed by General Services Administration, to determine whether the borrower is debarred, suspended, ineligible, or voluntarily excluded (see 2 CFR 180.430).
(c) RUS will notify the borrower if RUS recommends major changes in subscriber projections, design, cost estimates, or other significant matters. RUS will not continue loan processing until RUS and the borrower agree on all major changes.
§ 1737.51 Approval of loan design.
RUS shall notify the borrower when the preloan data concerning the system design and costs and subscriber projections have been approved. If found acceptable, RUS will approve the LD with any required changes. A copy of the approved LD, with any significant changes, as determined by RUS, will be returned to the borrower.
§§ 1737.52-1737.59 [Reserved]
Subpart G – Project Cost Estimation Procedures
§ 1737.60 Telephone loan budget.
(a) RUS shall prepare a “Telephone Loan Budget” (RUS Form 493) showing all costs for the proposed project and the amount of loan and nonloan funds to be used. The budget shall show, as applicable, amounts for central offices, outside plant and station equipment, right-of-way procurement, land, buildings, removal costs, special projects, engineering, vehicles and work equipment, office equipment, operating funds, refinancing with loan funds, debt retirement with nonloan funds, acquisitions, and contingencies. The amount of funds included in any loan shall be limited for certain items:
(1) Operating funds for working capital or current operating deficiencies shall be included only in cases of financial hardship as determined by the Administrator.
(2) Contingencies shall not exceed 3 percent of the total amount of loan funds to be used for construction, engineering, operating equipment and operating funds.
(b) RUS shall prepare the cost estimates based on the data in RUS Form 494, “Loan Design Summary,” and RUS Form 495, “Construction Cost Estimates,” or their equivalents, and other parts of the LD submitted by the borrower, and on other pertinent information. See subpart D of this part. The amounts included in the proposed budget shall be the estimated costs, less the value of materials and supplies on hand or acquired that can be used in the proposed construction. The cost estimates in the LD may be adjusted by RUS in consultation with the borrower. See § 1737.50(c).
(c) Generally, the new loan shall be reduced by any required equity funds and funds available in reserves no longer needed for prior loan purposes to determine the proposed loan requirement.
(d) When amounts are available in reserves no longer needed for prior loan purposes, RUS may, at its option, deny further advances of these funds if they will be used to finance projects in the proposed loan.
(e) The budget shall also show, if applicable, the reserves for each budget item as of the date of the latest RUS Form 481, “Financial Requirement Statement,” submitted by the borrower. To ensure that sufficient funds are included in the budget to finance all proposed construction, RUS includes in the budget any funds deposited by the borrower for approved interim financing.
§ 1737.61 Cost allocation for rural and nonrural areas.
(a) Pursuant to the requirements in 7 CFR part 1735, if loan funds are proposed for facilities to serve subscribers in nonrural areas, RUS shall allocate costs between rural and nonrural areas. This allocation will be used to determine whether the use of loan funds in nonrural areas is necessary and incidental to furnishing and improving telephone service in rural areas. Cost estimates shall be provided by the borrower in the LD. See subpart D of this part. RUS will use the following method to review the cost breakdowns and to determine their appropriateness:
(1) The costs of facilities associated directly with particular subscribers shall be allocated to those subscribers.
(2) The costs of facilities that serve both rural and nonrural subscribers shall be allocated based on the relative number of rural and nonrural subscribers receiving service from those facilities.
(3) When a borrower’s exchange that includes a nonrural community will have an extended area of service (EAS) with other exchanges of the borrower, the breakdown of subscribers and funds in the allocation for rural and nonrural areas included in the proposed loan shall show the number of rural and nonrural subscribers and the costs to serve each group, as determined per paragraphs (a)(1) and (a)(2) of this section, in the subject exchange and in all exchanges connected by EAS.
(b) If RUS determines that costs cannot be adequately allocated using the procedures in paragraphs (a)(1) through (a)(3) of this section, RUS shall, on a case by case basis, allocate costs between the rural and nonrural subscribers using whatever methodology it deems reasonable. All allocations in paragraphs (a) and (b) of this section shall be documented.
§§ 1737.62-1737.69 [Reserved]
Subpart H – Feasibility Determination Procedures
§ 1737.70 Description of feasibility study.
(a) In connection with each loan RUS shall prepare a feasibility study that includes sections on consolidated loan estimates, operating statistics, projected telecommunications, plant, projected retirement computations, and projected revenue and expense estimates (including detailed estimates of depreciation and amortization expense, scheduled debt service payments, toll and access charge revenues, and local service revenues). Normally, projections will be for a 5-year period and used to determine the ability of the borrower to repay its loans in accordance with the terms thereof. RUS will not require borrowers to raise local service rates. Local service revenue projections will be based on the borrower’s existing local service rates or regulatory body approved rates not yet in effect but to be implemented within the Forecast period. In the latter case, if a borrower is not required to obtain regulatory body approval for the implementation of such rates, RUS will require a resolution of the board of directors indicating when those rates will be in effect.
(b) RUS makes loans only to rural telephone systems that are financially feasible. RUS shall consider the factors discussed in paragraphs (c) through (j) of this section in determining feasibility.
(c) The revenue and expense estimates for the feasibility study generally will be based on the borrower’s operating experience provided that:
(1) Adjustments are made for any nonrecurring revenues and expenses that are not representative of the borrower’s past operations and would thus make the borrower’s experience data inappropriate for the forecast; and
(2) Adjustments are made for any special or new characteristics or other considerations deemed necessary by the Administrator.
(d) [Reserved]
(e) Depreciation expense will be determined using depreciation rates appropriate to the normal operation of the borrower, based on:
(1) The borrowers regulatory body approved depreciation rates; and
(2) Where such rates as described in paragraph (e)(1) of this section do not exist for items which the borrower is seeking financing, the most recent median depreciation rates published by RUS for all borrowers. RUS will publish such depreciation rates annually in RUS’s “Statistical Report, Rural Telephone Borrowers.”
(f) Projected scheduled debt service payments will generally be based on all of the borrower’s outstanding and proposed loans from RUS and all other lenders as of the end of the feasibility Forecast period (i.e. for a 5-year Forecast period, the amount of debt outstanding in year 5).
(g) The financial and statistical data are derived from RUS Form 479, “Financial and Statistical Data for Telephone Borrowers,” or for initial loans, the data may be obtained from the borrower’s financial statements and other reports, and from other information supplied with the completed loan applications (see 7 CFR 1737.21 and 1737.22).
(h) When, in RUS’s opinion, the borrower’s operating experience is not adequate or the borrower’s current operations are not representative, the estimates in the feasibility study normally will be developed from state and regional standards based on the experience of RUS borrowers. These standards are included in the Borrower’s Statistical Profile (BSP), which is revised annually by RUS. If the borrower’s operating experience is not the basis for one or more per-subscriber estimates used in the feasibility study, the estimates generally may not vary from the standard by more than 20 percent to reflect the particular characteristics of the loan applicant. Any variation from the standard shall be documented.
(i) In cases where these per-subscriber standards do not represent a reasonable forecast of a particular borrower’s operations (for example, when a variation greater than 20 percent is necessary), estimates based upon a special analysis of the borrower’s projected operations shall be used. The special analysis will accompany the feasibility study.
(j) When it is reasonably expected that a subscriber, classified as a special project, may discontinue service, a second feasibility study will be prepared, for comparison purposes, omitting revenues and expenses from this subscriber.
(k) RUS may obtain and review commercially available credit reports on applicants for a loan or loan guarantee to verify income, assets, and credit history, and to determine whether there are any outstanding delinquent Federal or other debts. Such reports will also be reviewed for parties that are or propose to be joint owners of a project with a borrower.
(l) If it is determined that loan feasibility cannot be proven as described in this section, the loan application will be returned to the borrower with an explanation. A borrower whose application has been returned will have 90 working days, from the date the application was returned, to revise and resubmit its application. If a revised application is not received by RUS within the 90-day period described above, the application will be canceled and a new application will need to be submitted if the borrower wishes further consideration.
§ 1737.71 Interest rate to be considered for the purpose of assessing feasibility for loans.
(a) For purposes of determining the creditworthiness of a borrower for RUS cost-of-money, the Administrator shall assume that the loan, if made, would bear interest at the Treasury rate on the date of determination as described in paragraph (b) of this section. If the Treasury rate exceeds 7 percent, the interest rate used to determine eligibility for the RUS cost-of-money loan will be 7 percent.
(b) The 30-year Treasury rate will be used in all feasibility studies for loans with a final maturity of at least 30 years. A straight-line interpolation between other Treasury rates will be used to determine the rate used in feasibility studies for loans with final maturities of less than 30 years.
(c) The Treasury rate will be obtained each Tuesday, or as soon as possible thereafter, from the Federal Reserve. The rate for the current week, from the column labeled “This week” in the Federal Reserve statistical release, will be used from that Wednesday through the following Tuesday.
(d) As used in this section, the “date of determination” means the date of the feasibility study used in support of the loan recommendation.
§§ 1737.72-1737.79 [Reserved]
Subpart I – Characteristics Letter
§ 1737.80 Description of characteristics letter.
(a) After all of the studies and exhibits for the proposed loan have been prepared, but before the loan is recommended, RUS shall inform the borrower, in writing, of the characteristics of the proposed loan. The purpose of the characteristics letter is to inform the borrower and obtain its concurrence, before further consideration by RUS of the loan approval and the preparation of legal documents relating to the loan, in such matters as the amount of the proposed loan, its purposes, rate of interest, loan security requirements, and other prerequisites to the advance of loan funds. The letter, whether or not concurred in by the borrower, does not commit RUS to approve the loan on these or any other terms.
(b) The Forecast of Revenues and Expenses and a copy of RUS Form 493, “Telephone Loan Budget,” shall be enclosed with the characteristics letter. This copy of the budget shall be subject to change by RUS with the borrower’s agreement.
§§ 1737.81-1737.89 [Reserved]
Subpart J – Final Loan Approval Procedures
§ 1737.90 Loan approval requirements.
(a) In addition to requirements set forth in 7 CFR part 1735, 7 CFR part 1737 and other applicable parts of 7 CFR chapter XVII, the following are certain additional requirements that must be met before RUS will approve a loan:
(1) If the borrower had 100 or more employees as of the prior December 31, it must submit the current annual Employer Information Report EEO-1, Standard Form 100, as required by the Department of Labor; see 29 CFR 1602.7 through 1602.14.
(2) The borrower must be in compliance with regulations on nondiscrimination. See 7 CFR part 1790 (or RUS Bulletin 320-19).
(3) For subsequent loans, RUS must determine whether the borrower’s accounting records are adequate. If the records are not adequate, as determined by RUS based on Generally Accepted Accounting Principles or other accounting conventions as deemed necessary by RUS, a provision will be included in the loan contract requiring the borrower to improve its records to an adequate level.
(4) The borrower must not have any receivables, loans, guarantees, investments, or other obligations that are contrary to the mortgage provisions or any RUS regulations including, but not limited to, 7 CFR part 1758 (or RUS Bulletins 320-4, 320-22, 321-2, 322-2, 323-1, or 326-1). If the borrower has any of these items, the loan contract shall contain a provision requiring that they be eliminated prior to the release of funds. See 7 CFR part 1744 for conditions under which RUS will provide a shared first lien and/or a lien accommodation for non-RUS lenders.
(5) RUS must make a determination on flood insurance requirements. In accordance with the National Flood Insurance Act of 1968, as amended by the Flood Disaster Protection Act of 1973, as amended (the “Flood Insurance Act”), RUS shall not approve financial assistance for the acquisition, construction, repair or improvement of any building or any machinery, equipment, fixtures or furnishings contained or to be contained in any such building located in an area which has been identified by the Director of the Federal Emergency Management Agency (the “Director of FEMA”) pursuant to the Flood Insurance Act as an area having special flood hazards unless:
(i) Flood insurance has been made available, pursuant to the Flood Insurance Act, in the area in which the acquisition, construction, repair or improvement is proposed to occur; and
(ii) The borrower has obtained flood insurance coverage with respect to such building, machinery, equipment, fixtures or furnishings as may be required pursuant to the Flood Insurance Act.
(6) All environmental review requirements must be met in accordance with 7 CFR part 1970. The Agency may obligate, but not disperse, funds under the program pursuant to 7 U.S.C. 950cc-1, before the completion of the otherwise required environmental, historical, or other types of reviews if the Secretary of Agriculture determines that subsequent site-specific review shall be adequate and easily accomplished for the location of towers, poles, or other broadband facilities in the service area of the awardee without compromising the project or the required reviews.
(b) [Reserved]
§ 1737.91 Approval.
(a) A loan is approved when the Administrator, or whoever is delegated authority, signs the administrative findings and the letter to the borrower announcing the loan.
(b) If the loan is not approved, RUS shall notify the borrower, in writing, of the reasons.
§ 1737.92 Loan documents.
Following approval of the loan, RUS shall forward the necessary loan documents to the borrower for execution, delivery, recording, and filing, as directed by RUS. See 7 CFR part 1758 for details (or RUS Bulletins 320-4, 320-22, 321-2, 322-2, 323-1, or 326-1).
§§ 1737.93-1737.99 [Reserved]
Subpart K – Release of Funds Procedure
§ 1737.100 Prerequisites to the release and advance of funds.
(a) Standard prerequisites to the advance of funds, generally applied to all loans, are set forth in Article II of the form of loan contract attached as appendix A to 7 CFR part 1758. Additional prerequisites may be added on a case by case basis to the loan contract.
(b) Before any loan funds can be advanced, RUS must approve a release of funds.
(c) RUS approves the release of funds only after it determines that all prerequisites to the advance of loan funds have been met or funds should be advanced even though certain loan contract prerequisites remain unsatisfied.
(d) Following release approval, loan funds and related nonloan funds may be advanced in accordance with 7 CFR part 1744.
(e) The borrower may be required to discharge indebtedness and/or to close acquisitions before advances are made for construction purposes. In such cases, the borrower shall submit evidence that these actions have been completed. If the evidence is satisfactory to RUS, RUS shall allow the remaining loan funds to be advanced in accordance with 7 CFR part 1744.
§ 1737.101 Amounts spent for preloan activities.
If the borrower desires to credit amounts spent for preloan activities against any equity or general funds required by the loan contract, it shall submit an itemized statement of such expenditures to the Area Office. These expenditures will be accounted for on RUS Form 503, “Release of Telephone Loan Funds,” if RUS determines that the amounts spent are reasonable based on normal industry practice and that the procedures set forth in 7 CFR part 1737, subpart D, have been complied with. Statements of preloan expenditures will be verified as to accuracy by loan fund audits.
§§ 1737.102-1737.109 [Reserved]
PART 1738 – RURAL BROADBAND LOANS, LOAN/GRANT COMBINATIONS, AND LOAN GUARANTEES
Subpart A – General
§ 1738.1 Overview.
(a) The Rural Broadband Program furnishes loans, loan/grant combinations, and loan guarantees for the costs of construction, improvement, or acquisition of facilities and equipment needed to provide service at the broadband lending speed in eligible rural areas. This part sets forth the general policies, eligibility requirements, types and terms of loans, loan/grant combinations and loan guarantees, and program requirements under 7 U.S.C. 901 et seq.
(b) Additional information and application materials regarding the Rural Broadband Program can be found on the Rural Development website.
§ 1738.2 Definitions.
(a) The following definitions apply to this part:
Acquisition means the purchase of assets by an eligible entity as defined in § 1738.51 to acquire facilities, equipment, operations, licenses, or majority stock interest of one or more organizations. Stock acquisitions must be arm’s-length transactions.
Administrator means the Administrator of the Rural Utilities Service (RUS).
Advance means the transfer of loan or grant funds from the Agency to the Awardee.
Affiliate or affiliated company of any specified person or entity means any other person or entity directly or indirectly controlling of, controlled by, under direct or indirect common control with, or related to, such specified entity, or which exists for the sole purpose of providing any service to one company or exclusively to companies which otherwise meet the definition of affiliate. For the purpose of this definition, “control” means the possession directly or indirectly, of the power to direct or cause the direction of the management and policies of a company, whether such power is exercised through one or more intermediary companies, or alone, or in conjunction with or pursuant to an agreement with, one or more other companies, and whether such power is established through a majority or minority ownership voting of securities, common directors, officers, or stockholders, voting trust, or holding trusts (other than money exchanged) for property or services.
Agency means the Rural Utilities Service (RUS).
Applicant means an entity requesting approval of assistance under this part.
Assistance means a request for a loan, loan/grant combination, or loan guarantee.
Associated loan means any loan that is granted in association with a grant. Every grant will have an associated loan.
Award means a loan, loan/grant combination, or loan guarantee made under this part.
Award documents means, as applicable, all associated loan agreements, loan/grant combination agreements, or loan guarantee documents.
Award term means the term of the loan as defined in the Award documents. The Award term shall be equal to the composite economic life of the facilities being financed with RUS loan or grant funding plus 3 years.
Awardee means an entity that has applied for and been awarded assistance under this part.
Borrower means an entity that has applied for and been awarded loan funding under this part.
Broadband grant means a Community Connect, Broadband Initiatives Program, ReConnect Program, or Rural Broadband Program grant approved by the Agency.
Broadband lending speed means the minimum bandwidth requirements, as published by the Agency in its latest notice in the
Broadband loan means any loan approved under Title VI of the Rural Electrification Act of 1936, as amended (RE Act).
Broadband service means any technology identified by the Administrator as having the capacity to provide transmission facilities that enable the subscriber to receive a minimum level of service equal to at least a downstream transmission capacity of 25 Mbps and an upstream transmission capacity of 3 Mbps. The Agency will publish the minimum transmission capacity with respect to terrestrial service that will qualify as broadband service in a notice in the
Build-out means the construction, improvement, or acquisition of facilities and equipment, except for customer premises equipment (CPE).
Competitive analysis means a study that identifies service providers and products in the service area that will compete with the Applicant’s operations.
Composite economic life means the weighted (by dollar amount of each class of facility in the requested assistance) average economic life as determined by the Agency of all classes of facilities financed by the award.
Current Ratio (CR) means the current assets divided by the current liabilities.
Customer premises equipment (CPE) means any network-related equipment used by a customer to connect to a service provider’s network.
Debt Service Coverage Ratio (DSCR) means the ratio of the sum of the Awardee’s total net income or margins, depreciation and amortization expense, and interest expense, minus an allowance for funds used during construction and amortized grant revenue, all divided by the sum of interest on funded debt, other interest, and principal payment on debt and capital leases.
Density means the total population to be served by the project divided by the total number of square miles to be served by the project. If multiple service areas are proposed, the density calculation will be made on the combined areas as if they were a single area, and not the average densities.
Development costs mean the pre-application costs associated with construction, design of the system, and other professional labor, as approved by the Agency. Further guidance on what constitutes approved development costs will be outlined in the Agency’s application guide.
Economic life means the estimated useful service life of an asset financed by the loan or grant, as determined by the Agency.
Feasibility study means the pro forma financial analysis performed by the Agency, based on the financial projections prepared by the Applicant, to determine the financial feasibility of a loan or loan/grant combination request.
Financial feasibility means the Applicant’s ability to generate sufficient revenues to cover its expenses, sufficient cash flow to service its debts and obligations as they become due and meet the Net worth and minimum Times Interest Earned Ratio (TIER), CR, or DSCR requirements of § 1738.206(b)(2)(i) by the end of the forecast period. Financial feasibility of an application is based on a projection that spans the forecast period and the entire operation of the Applicant, not just the proposed project.
Fiscal year refers to the Applicant or awardee’s fiscal year, unless otherwise indicated.
Forecast period means the time period used in the feasibility study to determine if an application is financially feasible.
GAAP means generally accepted accounting principles in the United States of America.
Grant documents means the grant contract and security agreement between the Agency and the Awardee securing the grant.
Grantee means an entity that has an outstanding broadband grant made by the Agency, with outstanding obligations under the Award documents.
Incumbent service provider means a service provider that provides terrestrial broadband service to at least 5 percent of the households in the proposed funded service area at the time of application submission. Resellers are not considered incumbent service providers. If an Applicant proposes an acquisition, the Applicant will be considered a service provider for that area. The Agency will not consider mobile or satellite providers when determining the incumbent service providers in the area.
Indefeasible right to use (IRU) means the long-term agreement of the rights to capacity, or a portion thereof specified in terms of a certain amount of bandwidth or number of fibers.
Interim financing means funds used for eligible Award purposes after an Award offer has been extended to the Applicant by the Agency. Such funds may be eligible for reimbursement from Award funds if an Award is made.
Loan guarantee means Federal assistance in the form of a guarantee of a loan, or a portion thereof, made by another lender.
Loan funds means funds provided pursuant to a broadband loan made or guaranteed under this part by the Agency.
Market survey means the collection of information on the supply, demand, usage, and rates for proposed services to be offered by an Applicant in support of the Applicant’s financial projections.
Net worth means the difference between an entity’s total assets and total liabilities.
Project means all work to be performed to bring broadband service to all premises in the proposed funded service area under the Application that is approved for assistance. This includes the construction, purchase and installation of equipment, and professional services including engineering and accountant/consultant fees. A project may be funded with Federal assistance or other funds.
Project completion means that all Award funds for construction of the broadband system, excluding those funds for subscriber connections and CPE, have been advanced to the Awardee by RUS.
Proposed funded service area means the geographic service territory within which the Applicant is proposing to offer service at the broadband lending speed.
RE Act means the Rural Electrification Act of 1936, as amended (7 U.S.C. 901 et seq.).
Reseller means a company that purchases network services from service providers in bulk and resells them to commercial businesses and residential households. Resellers are not considered incumbent service providers.
Rural area(s) means any area which is not located within:
(i) A city, town, or incorporated area that has a population of greater than 20,000 inhabitants; or
(ii) An urbanized area contiguous and adjacent to a city or town that has a population of greater than 50,000 inhabitants. For purposes of this definition, an urbanized area means a densely populated territory as defined in the latest decennial census of the U.S. Census Bureau; and
(iii) Which excludes certain populations pursuant to 7 U.S.C. 1991(a)(13)(H) and (I).
RUS Borrower or RUS Grantee means any recipient of a loan or grant administered by the RUS Telecommunications Program that has a loan outstanding, or a grant which still has unadvanced funds available.
Security documents means any mortgage, deed of trust, security agreement, financing statement, or other document which grants or perfects to the Agency a security interest in collateral given as security for the assistance under this part.
Service area or Service territory means the geographic area within which a service provider offers broadband service.
Service provider means an entity providing broadband service.
System of accounts means the Agency’s system of accounts for maintaining financial records as described in 7 CFR part 1770, subpart B.
TIER means times interest earned ratio. TIER is the ratio of an Applicant’s net income (after taxes) plus interest expense, all divided by interest expense and with all financial terms customarily-required by GAAP or by the Uniform System of Accounts (USOA).
Total project cost means all eligible costs associated with the project that are laid out in the application budget schedule, including RUS loan and grant funding and non-RUS funds, as approved by the Agency.
(b) Accounting terms not otherwise defined in this part shall have the commonly-accepted meaning under GAAP and shall be recorded using the Agency’s system of accounts.
§ 1738.3 Funding parameters.
(a) The amount of funds available for assistance, as well as the maximum and minimum Award amounts, will be published in the
(b) An Applicant that provides telecommunications or broadband service to at least 20 percent of the households in the United States is limited to an Award amount that is no more than 15 percent of the funds available to the Rural Broadband Program for the Federal fiscal year.
§§ 1738.4-1738.50 [Reserved]
Subpart B – Eligibility Requirements
§ 1738.51 Eligible entities.
(a) To be eligible for funding, an Applicant may be either a nonprofit or for-profit organization, and must take one of the following forms:
(1) Corporation;
(2) Limited liability company (LLC);
(3) Cooperative or mutual organization;
(4) Indian tribe or tribal organization as defined in 25 U.S.C. 5304; or
(5) State or local government, including any agency, subdivision, or instrumentality thereof.
(b) For loan guarantees, the underlying loan must be issued to an entity that meets the requirements in this part.
§ 1738.52 Eligible projects.
To be eligible for assistance under this part, the Applicant must:
(a) Agree to complete the build-out of the broadband system described in the application within 5 years from the day the Applicant is notified that funds are available. Under the terms of the Award documents, this 5-year period will commence from the date that the legal documents are cleared, and funds are made available to the Awardee. The application must demonstrate that all proposed construction can be completed within this 5-year period with the exception of CPE;
(b) Demonstrate an ability to provide service at the broadband lending speed to all premises in the proposed funded service area; and
(c) Provide additional equity, if necessary, to ensure financial feasibility (see § 1738.204) as determined by the Administrator.
(d) For loan guarantees, the underlying loan must be issued on a project that meets all eligibility requirements required in this part.
§ 1738.53 Eligible service area.
(a) A service area may be eligible for assistance as follows:
(1) For loan and loan/grant combinations, the proposed funded service area is completely contained within a rural area. For loan guarantee applications, the proposed funded service area must be contained within an area with a population of 50,000 or less, as defined in 7 U.S.C. 1991(a)(13);
(2) For loan/grant combinations, at least 90 percent of the households in the proposed service area must not have access to broadband service. For loans and loan guarantees, at least 50 percent of the households in the proposed service area must not have access to broadband service;
(3) No part of the proposed funded service area has three or more incumbent service providers; and
(4) No part of the proposed funded service area overlaps with the service area of current RUS borrowers or grantees with outstanding obligations. Notwithstanding, after October 1, 2020, the service areas of grantees that are providing service that is less than 10 Mbps downstream or less than 1 Mbps upstream will be considered unserved unless, at the time of the proposed application, the grantee has begun to construct broadband facilities that will meet the minimum acceptable level of service established in § 1738.55.
(b) Non-contiguous areas in the same application will be considered separate service areas and must be treated separately for the purpose of determining service area eligibility. If one or more non-contiguous areas within an application are is determined to be ineligible, the Agency may consider the remaining areas in the application for eligibility.
(c) When determining the eligibility of a proposed funded service area, the Agency will use the information submitted through the public notice response (see § 1738.106) as well as all available information collected through various means by the Agency, including but not limited to consultation with other Federal and State agencies and RUS’ own site-specific assessment of the level of service in an area.
(d) Mobile and satellite services will not be considered in making the determination that households in the proposed service area do not have access to broadband service.
§ 1738.54 Eligible service area exceptions for broadband facility upgrades.
(a) Applicants upgrading existing broadband facilities in their existing service area are exempt from the requirement concerning the limit of incumbent service providers in § 1738.53(a)(3). Additionally, applicants for loans or loan guarantee funding that have received a broadband loan under Section 601 of the RE Act are exempt from the requirement concerning the number of households in § 1738.53(a)(2) without access to broadband service.
(b) Applicants submitting one application to upgrade existing broadband facilities and to expand service beyond their existing service area must segregate the upgrade and expansion into two service areas, even if the upgrade and expansion areas are contiguous. The expansion service area will not be subject to any exemptions.
(c) Applicants will be asked to remove areas determined to be ineligible from their proposed funded service area. The application will then be evaluated based on what remains if the resultant service territory is de minimis in change. Otherwise, the Applicant will be requested to provide additional information to the Agency relating to the ineligible areas, such as updated pro forma financials. If the Applicant fails to respond, the application may be returned.
§ 1738.55 Broadband lending speed requirements.
(a) Projects must meet the broadband build-out standards in paragraphs (a)(1) through (5) of this section in order to be considered for assistance.
(1) Projects with an Award term of less than 5 years must provide service at the broadband lending speed;
(2) Projects with an Award term of 5 to 10 years must provide service at four times the broadband lending speed;
(3) Projects with an Award term of 11 to 15 years must provide service at six times the broadband lending speed;
(4) Projects with an Award term of 16 to 20 years must provide service at eight times the broadband lending speed; and
(5) Projects with an Award term over 20 years must provide service at ten times the broadband lending speed.
(b) If an Applicant demonstrates that it would be cost prohibitive to meet the broadband lending speed in paragraph (a) of this section in the proposed funded service area due to the unique characteristics of the service territory, the Administrator may agree to utilize substitute service standards. In such cases, Applicants must document in their application why the unique characteristics of such an area make it cost prohibitive to provide service at the broadband lending speed. Note that the proof of burden on Applicants will be extremely high.
§ 1738.56 Eligible assistance purposes.
Assistance under this part may be used to pay for any of the following expenses:
(a) To fund the construction, improvement, or acquisition of all facilities required to provide service at the broadband lending speed to rural areas, including facilities required for providing other services over the same facilities.
(b) To fund the cost of leasing facilities required to provide service at the broadband lending speed if such lease qualifies as a capital/finance lease under GAAP. Notwithstanding, assistance can only be used to fund the cost of the capital/finance lease for no more than the first three years of the lease period. If an IRU qualifies as a capital/finance lease, the entire cost of the lease will be amortized over the life of the lease and only the first 3 years of the amortized cost can be funded.
(c) To fund an acquisition, provided that:
(1) The acquisition is necessary for furnishing or improving service at the broadband lending speed;
(2) The acquired service area, if any, meets the eligibility requirements set forth in § 1738.53;
(3) The acquisition cost does not exceed 50 percent of the broadband assistance; and
(4) For the acquisition of another entity, the purchase provides the Applicant with a controlling majority interest in the entity acquired.
(d) To refinance an outstanding obligation of the Applicant on another telecommunications loan made under the RE Act or on a non-RUS loan if that loan would have been for an eligible purpose under the Rural Broadband Program provided that:
(1) No more than 50 percent of the broadband assistance amount is used to refinance a non-RUS loan;
(2) The Applicant is current with its payments on the RUS telecommunications loan(s) to be refinanced; and
(3) The amortization period for that portion of the broadband loan that will be needed for refinancing will not exceed the remaining amortization period for the loan(s) to be refinanced. If multiple notes are being refinanced, an average remaining amortization period will be calculated based on the weighted dollar average of the notes being refinanced.
(e) To fund development costs in an amount not to exceed 5 percent of the total Award amount excluding amounts requested to refinance outstanding telecommunications loans. Development costs may be reimbursed only if they are incurred prior to the date on which notification of a complete application is issued (see § 1738.203) and a loan contract is entered into with RUS. Entities that meet the requirements in § 1738.101(d) may request this funding be provided as a grant. Otherwise, the funding will be provided in the form of a loan.
§ 1738.57 Ineligible assistance purposes.
Assistance under this part must not be used for any of the following purposes:
(a) To fund operating expenses of the Applicant except for eligible development costs under § 1738.56(e).
(b) To fund any costs associated with the project incurred prior to the date on which notification of a complete application is issued (see § 1738.203), except for eligible development costs under § 1738.56(e).
(c) To fund the acquisition of the stock of an affiliate.
(d) To fund the purchase or acquisition of any facilities or equipment of an affiliate.
(e) To fund the purchase of CPE and the installation of associated inside wiring, unless the CPE will be owned by the Applicant throughout its economic life.
(f) To fund the purchase or lease of any vehicle unless it is used primarily in construction or system improvements.
(g) To fund the cost of systems or facilities that have not been designed and constructed in accordance with the Award contract and other applicable requirements.
(h) To fund broadband facilities leased under the terms of an operating lease, a short-term lease, or more than 3 years of a capital/finance lease.
(i) To fund merger or consolidation of entities.
(j) To fund non-capitalized labor in accordance with 2 CFR part 200 except for eligible development costs under § 1738.56(e).
(k) To provide grant funding, a subsidized loan or payment assistance to cover the costs to refinance an outstanding loan.
§§ 1738.58-1738.100 [Reserved]
Subpart C – Award Requirements
§ 1738.101 Grant assistance.
(a) To be eligible for grant funding, the Applicant must:
(1) Submit an application for an associated loan component under Title I, Title II, or Title VI of the RE Act; and
(2) Not be the recipient of any other broadband grant from RUS with unadvanced grant funds.
(b) The amount of grant funding on any project shall not exceed:
(1) 75 percent of the total project cost when the proposed funded service area has a density of fewer than 7 people per square mile;
(2) 50 percent of the total project cost when the proposed funded service area has a density of 7 or more and fewer than 12 people per square mile; and
(3) 25 percent of the total project cost with respect to an area with a density of 12 or more and 20 or fewer people per square mile.
(c) Subsequent density determinations, as well as density requirements for projects on tribal lands will be set by notice in the
(d) The Agency may provide additional grant funding of up to 75 percent of the development costs of projects requesting funding under Title VI that serve rural areas that:
(1) Lack access to broadband service with speeds of at least 10 Mbps downstream and 1 Mbps upstream; and
(2) Meet any one of the priorities set forth in § 1738.105(a)(3)(i).
§ 1738.102 Payment assistance for loans.
(a) Grant funding may also be used to provide assistance to Title VI Awardees in the form of subsidized loans at such rates as the Agency will issue from time to time by notice in the
(b) Subsidized loans shall only be available to projects which will serve rural areas lacking access to service with speeds of at least 10 Mbps downstream and 1 Mbps upstream and meets any one of the priorities set forth in § 1738.105(a)(3)(i).
(c) The Agency may determine, at its sole discretion, to provide a payment assistance loan which shall require no interest and principal payments or such nominal payments as the Secretary determines to be appropriate. Such loans will only be provided to projects which will serve rural areas lacking access to service of speeds of 10 Mbps downstream and 1 Mbps upstream and meets any two of the priorities set forth in § 1738.105(a)(3)(i). When considering the authority to provide a payment assistance loan, the Agency will consider how such assistance will:
(1) Improve the Applicant’s compliance with the commitments of the Agency’s standard Award agreement, in addition to any additional requirements imposed by the Agency specific to the project;
(2) Promote the completion of the broadband project;
(3) Protect taxpayer resources; and
(4) Support the integrity of the Agency’s broadband programs.
(d) The Agency and recipients of payment assistance loans must agree to specific milestones and objectives for the project which must be met, in addition to the other requirements of this part. Such terms may be amended by mutual agreement for good cause. Failure to meet the agreed upon terms, upon the Agency’s determination that such failure was a direct result of the Awardee’s own actions, may result in the Agency’s request to the return of all, or any portion, of the grant funds used for the payment assistance loan.
(e) Additionally, Applicants with an associated loan under Title I and Title II of the RE Act and which are seeking any grant assistance under this part, are not eligible for a subsidized loan or payment assistance loans.
§ 1738.103 Substantially Underserved Trust Areas (SUTA).
Applicants seeking assistance may request consideration under the SUTA provisions in 7 U.S.C. 936f.
(a) If the Administrator determines that a community within “trust land” (as defined in 38 U.S.C. 3765) has a high need for the benefits of the Rural Broadband Program, he/she may designate the community as a “substantially underserved trust area” (as defined in section 306F of the RE Act).
(b) To receive consideration under SUTA, the Applicant must submit to the Agency a completed application that includes all of the information requested in 7 CFR part 1700, subpart D. In addition, the Applicant must notify the Agency in writing that it seeks consideration under SUTA and identify the discretionary authorities of 7 CFR part 1700, subpart D, it seeks to have applied to its application. Note, however, that the two years of historical audited financial statements and Net worth requirement for loan and loan/grant combination Applicants in § 1738.206(b)(2)(i) cannot be waived.
§ 1738.104 Technical assistance.
Projects which will serve communities that meet, at least, three of the priorities as identified in § 1738.105(a)(3)(i) may request technical assistance and training from the Agency to:
(a) Prepare reports and surveys necessary to request grants, loans, and loan guarantees for broadband deployment;
(b) Improve management, including financial management, relating to the proposed broadband deployment;
(c) Prepare applications for grants, loans, and loan guarantees; and
(d) Assist with other areas of need as identified by the Agency through a notice in the
§ 1738.105 Priorities for approving assistance.
(a) The Agency will compare and evaluate all applications for assistance and shall give priority to applications in the manner set out in paragraphs (a)(1) through (4) of this section, which shall be scored as outlined in a notice published in the
(1) Applicant’s providing broadband service to rural areas that do not have access to service of at least 10 Mbps upstream and 1 Mbps downstream.
(2) Projects that provide the maximum level of broadband service to the greatest proportion of rural households.
(3) Projects that:
(i) Serve rural areas:
(A) With a population of less than 10,000 permanent residents;
(B) Are experiencing outmigration and have adopted a strategic community investment plan under section 379H(d) of the Consolidated Farm and Rural Development Act (7 U.S.C. 2008v) that includes considerations for improving and expanding broadband service;
(C) With a high percentage of low-income families or persons (as defined in section 501(b) of the Housing Act of 1949 (42 U.S.C. 1471(b)));
(D) That are isolated from other significant population centers; or
(E) That provide rapid and expanded deployment of fixed and mobile broadband on cropland and ranchland within a service territory for use in various applications of precision agriculture; and
(ii) Were developed with the participation of, and will receive a substantial portion of the funding for the project from two or more stakeholders, including:
(A) State, local, and tribal governments;
(B) Nonprofit institutions; and
(C) Community anchor institutions, such public libraries, schools, institutions of higher education, health care facilities, private entities, philanthropic organizations and cooperatives.
(4) New construction projects requesting no refinancing.
(b) The Agency may assign special consideration priority points that will be issued in a notice in the
(c) With respect to two or more applications that have the same priority, as outlined in paragraphs (a) and (b) of this section, the Agency shall give priority to the application that requests the least amount of grant funding as calculated based on the total amount of grant funds requested.
§ 1738.106 Public notice.
(a) The Agency will publish a public notice of each application requesting assistance under this part. The application must provide a summary of the information required for such public notice including all of the following information:
(1) The identity of the Applicant;
(2) A map of each proposed funded service area showing the rural area boundaries and the areas without broadband service using the Agency’s mapping tool;
(3) The amount and type of support requested;
(4) The estimated number of households in each proposed funded service area without broadband service, excluding mobile and satellite service; and
(5) A description of all the types of services that the Applicant proposes to offer in each proposed funded service area.
(b) The public notice will remain available for 45 calendar days on the Agency’s website, and will request existing service providers to submit to the Agency, within the same period, the following information:
(1) The number of residential and business customers within the Applicant’s proposed funded service area that are currently offered, and that are purchasing, broadband service by the existing service provider, and the cost of each level of broadband service charged by the existing service provider;
(2) The number of residential and business customers within the Applicant’s proposed funded service area that receive non-broadband services from the existing service provider, and the associated rates for these other services; and
(3) A map showing where the existing service provider’s services coincide with the Applicant’s proposed funded service area using the Agency’s mapping tool.
(c) For purposes of 5 U.S.C. 552, information received from existing service providers under paragraph (b) of this section shall be exempt from disclosure.
(d) If an application is approved, an additional notice will be published on the Agency’s website that will include the following information:
(1) The name of the entity receiving the financial assistance;
(2) The amount and type of assistance being received;
(3) The purpose of the assistance; and
(4) Each annual report submitted under § 1738.107, redacted as appropriate to protect any proprietary information in the report.
§ 1738.107 Additional reporting requirements for Awardees.
(a) Entities receiving assistance from the USDA to provide retail broadband service must submit annual reports for 3 years after project completion. The reports must include the following information:
(1) The purpose of the financing, including new equipment and capacity enhancements that support high-speed broadband access for educational institutions, health care providers, and public safety service providers (including the estimated number of end users who are currently using or forecasted to use the new or upgraded infrastructure); and
(2) The progress towards fulfilling the objectives for which the assistance was granted, including:
(i) The number of service points that will receive new broadband service, existing network service improvements, and facility upgrades resulting from the Federal assistance;
(ii) The speed of broadband services;
(iii) The average price of the most subscribed tier of broadband service in each proposed service area; and
(iv) The number of new subscribers generated from the project.
(b) Awardees must provide complete, reliable, and precise geolocation information that indicates the location of new broadband service that is being provided or upgraded within the service territory supported by the assistance no later than 30 days after the earlier of the date of:
(1) Completion of the project milestone established in the applicable assistance contract; or
(2) Project completion.
(c) Any other reporting requirements established by the Administrator by notice in the
§ 1738.108 Environmental reviews.
(a) Federal agencies are required to analyze the potential environmental impacts, as required by the National Environmental Policy Act (NEPA) and the National Historic Preservation Act (NHPA) for Applicant projects or proposals seeking funding. Please refer to 7 CFR part 1970 for all of Rural Development’s environmental policies. All Applicants are required to provide environmental review documents, provide a description of program activities, and to submit all other required environmental documentation as requested in the application system or by the Agency after the application is submitted. It is the Applicant’s responsibility to obtain all necessary Federal, tribal, State, and local governmental permits and approvals necessary for the proposed work to be conducted. Applicants are expected to design their projects so that they minimize the potential for adverse impacts to the environment. Applicants also will be required to cooperate with the granting agencies in identifying feasible measures to reduce or avoid any identified adverse environmental impacts of their proposed projects. The failure to do so may be grounds for not making an Award.
(b) The Agency may obligate, but not disperse, funds under Title VI of the Rural Electrification Act of 1936, before the completion of the otherwise required environmental historical, or other types of reviews if the Secretary determines that subsequent site-specific review shall be adequate and easily accomplished for the location of towers, poles, or other broadband facilities in the service area of the awardee without compromising the project or the required reviews.
§ 1738.109 Civil rights procedures and requirements.
(a) Equal opportunity and nondiscrimination. The agency 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 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 under this part 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 for 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.
§§ 1738.110-1738.150 [Reserved]
Subpart D – Loan and Loan/Grant Combination Award Terms
§ 1738.151 General.
Direct loans shall be in the form of a cost-of-money loan except as detailed in § 1738.152.
§ 1738.152 Interest rates.
(a) Direct cost-of-money loans shall bear interest at a rate equal to the cost of borrowing to the Department of Treasury for obligations of comparable maturity unless the project qualifies for a reduced interest rate as detailed in § 1738.102. The applicable interest rate will be set at the time of each advance.
(b) The interest rate for Applicants receiving payment assistance or Substantially Underserved Trust Areas (SUTA) consideration will be set at the time of the Award.
§ 1738.153 Terms and conditions.
Terms and conditions of the loan and loan/grant combinations are set forth in a mortgage, note, and loan contract. Samples of the mortgage, note, and loan contract can be found on the Agency’s website.
(a) Unless requested to be shorter by the Applicant, loans must be repaid with interest within a period that, rounded to the nearest whole year, is equal to the expected composite economic life of the assets to be financed, as determined by the Agency based upon acceptable depreciation rates. Expected composite economic life means the weighted average economic life of all classes of facilities necessary to complete construction of the broadband facilities plus 3 years.
(b) Principal payments for each advance are amortized over the remaining term of the loan and are due monthly. Principal payments will be deferred until 3 years after the date of the first advance of loan funds. Interest begins accruing when the first advance of loan funding is made and interest payments are due monthly, with no deferral period.
(c) Awardees are required to carry fidelity bond coverage. Generally, this amount will be 15 percent of the loan or loan/grant combination Award amount, not to exceed $5 million. The Agency may reduce the percentage required if it determines that the amount is not commensurate with the risk involved.
§ 1738.154 Security.
(a) The broadband loan or loan/grant combination must be secured by the assets purchased with the loan or loan/grant combination funds, as well as all other assets of the Applicant and any other cosigner of the Award documents except as allowed under section 601(h)(2) of the RE Act. With respect to loan/grant combinations, all grant assets must also be covered by a security interest in favor of the Government for the average composite economic life of all project assets financed with assistance, regardless of whether the loan is paid off before the maturity date. Additionally, the sale of all such grant assets shall be governed by 2 CFR part 200, regardless of the entity type of the Awardee.
(b) The Agency must be given an exclusive first lien, in form and substance satisfactory to the Agency, on all of the Applicant’s property and revenues and such additional security as the Agency may require. The Agency may share its first lien position with another lender on a pari passu, prorated basis if security arrangements are acceptable to the Agency.
(c) Unless otherwise designated by the Agency, all property purchased with loan and loan/grant combination funds must be owned by the Applicant.
(d) In the case of loan and loan/grant combinations that include financing of facilities that do not constitute self-contained operating systems, the Applicant shall furnish assurance, satisfactory to the Agency, that continuous and efficient service that meets the broadband build-out requirements as noted in § 1738.55 will be rendered.
(e) The Agency will require adequate financial, investment, operational, reporting, and managerial controls in the Award documents.
§ 1738.155 Advance of funds.
RUS loan and grant advances are made at the request of the Awardee according to the procedures stipulated in the Award documents. For loan and loan/grant combination Awards, all non-RUS funds must be expended first, followed by loan funds and then grant funds, except for RUS approved development costs. Grant funds for eligible development costs, if any, will be used only on the first advance request.
§ 1738.156 Buy American requirement.
Awardees shall use in connection with the expenditure of loan and grant funds only such unmanufactured articles, materials, and supplies, as have been mined or produced in the United States or in any eligible country, and only such manufactured articles, materials, and supplies as have been manufactured in the United States or in any eligible country, substantially all from articles, materials, or supplies mined, produced, or manufactured, as the case may be, in the United States or in any eligible country. For purposes of this section, an “eligible country” is any country that applies with respect to the United States an agreement ensuring reciprocal access for United States products and services and United States suppliers to the markets of that country, as determined by the United States Trade Representative. The Buy American regulations may be found at, and any requests for waiver must be submitted pursuant to, 7 CFR part 1787.
§§ 1738.157-1739.200 [Reserved]
Subpart E – Loan and Loan/Grant Combination Application Review and Underwriting
§ 1738.201 Application submission.
(a) Loan and loan/grant combination applications must be submitted through the Agency’s online application system.
(b) The Agency may publish additional application submission requirements in the
§ 1738.202 Elements of a complete application.
(a) Online application system. Loan and loan/grant combination applications must be submitted through RUS’ online application system and include all information as required by that system and detailed in the Rural Broadband Program Application Guide (the Application Guide), available on the Agency’s website, so that applications can be uniformly evaluated and compared.
(b) DUNS registration. All Applicants must register for a Dun and Bradstreet Universal Numbering System (DUNS) number as part of the application. The Applicant can obtain the DUNS number free of charge by calling Dun and Bradstreet. Go to http://fedgov.dnb.com/webform for more information on assignment of a DUNS number or confirmation.
(c) SAM registration. Prior to submitting an application, all Applicants requesting loan/grant combination funds must register in the System for Award Management (SAM) at https://www.sam.gov/SAM/ and supply a Commercial and Government Entity (CAGE) code number as part of the application. SAM registration must be active with current data at all times, from the application review throughout the active Federal Award funding period. To maintain active SAM registration, the Applicant must review and update the information in the SAM database annually from the date of initial registration or from the date of the last update. The Applicant must ensure that the information in the database is current, accurate, and complete.
(d) Contents of the application. A complete application will include the following information as requested in the RUS online application system and Application Guide:
(1) General information on the Applicant and the project including:
(i) A description of the project that will be made public consistent with the requirements in this part; and
(ii) The estimated dollar amount of the funding request.
(2) An executive summary of the proposed project. The summary shall include, but not be limited to, a detailed description of the existing operations, discussion of key management, description of the workforce and a detailed description of the proposed project.
(3) A description of the proposed funded service area including the number of premises passed.
(4) Subscriber projections including the number of subscribers for broadband, video and voice services and any other service that may be offered. A description of the proposed service offerings and the associated pricing plan that the Applicant proposes to offer, and an explanation showing that the proposed service offerings are affordable.
(5) A map, utilizing the RUS mapping tool, of the proposed funded service areas identifying the areas lacking access to broadband service and the areas lacking access to service of speeds of at least 10 Mbps downstream and 1 Mbps upstream and any non-funded service areas of the Applicant
(6) A competitive analysis of the entire proposed service territory(ies) as required by § 1738.205.
(7) A network design which includes a description of the proposed technology used to deliver service at the required broadband lending speed (see § 1738.55) to all premises in the proposed funded service area, a network diagram, a build-out timeline and milestones for implementation of the project, and a capital investment schedule showing that the system can be built within 5 years from the date funds are made available to the Awardee. All of which must be certified by a professional engineer who is certified in at least one of the states where the project is to be constructed. The certification from the professional engineer must clearly state that the proposed network can deliver service at the required broadband lending speed (see § 1738.55) to all premises in the proposed funded service area.
(8) All environmental information as required by § 1738.108.
(9) Resumes of key management personnel, a description of the organization’s readiness to manage a broadband services network, and an organizational chart showing all parent organizations and/or holding companies (including parents of parents, etc.) and all subsidiaries and affiliates.
(10) A legal opinion that addresses the Applicant’s ability to enter into loan or loan/grant combination as requested in the application for financial assistance, to pledge security as required by the Agency, to describe all pending litigation matters, and such other requirements as are detailed in the Application Guide.
(11) A summary and itemized budgets of the infrastructure costs of the proposed project, including if applicable, the ratio of loans to grants, and any other sources of outside funding.
(12) A detailed description of working capital requirements and the sources of those funds.
(13) Complete copies of audited financial statements for the two years preceding the application submission as detailed in § 1738.206.
(14) The historical and projected financial information required in § 1738.206.
(15) Documentation proving that all required licenses and regulatory approvals for the proposed operation have been obtained, or the status of obtaining such licenses or approvals.
(16) If service is being proposed on tribal land, a certification from the proper tribal official that they are in support of the project and will allow construction to take place on tribal land. The certification must:
(i) Include a description of the land proposed for use as part of the proposed project;
(ii) Identify whether the land is owned, held in Trust, land held in fee simple by the Tribe, or land under a long-term lease by the Tribe;
(iii) If owned, identify the land owner; and
(iv) Provide a commitment in writing from the land owner authorizing the Applicant’s use of that land for the proposed project.
(17) Scoring sheet, analyzing the scoring criteria set forth in this part and most recent funding opportunity announcement.
(18) Additional items that may be required by the Administrator through a notice in the
(e) Material representations. The application, including certifications and all forms submitted as part of the application, will be treated as material representations upon which RUS will rely in awarding loans and loan/grant combinations.
§ 1738.203 Notification of completeness.
If all proposed funded service areas in a loan or loan/grant combination application are eligible, the Agency will review the application for completeness. The completeness review will include an assessment of whether all required documents and information have been submitted and whether the information provided is of adequate quality to allow further analysis.
(a) If the application contains all documents and information required by this part and is sufficient, in form and substance acceptable to the Agency, the Agency will notify the Applicant, in writing, that the application is complete. A notification of completeness is not a commitment that assistance will be approved. By submitting an application, the Applicant acknowledges that no obligation to enter into an agreement exists until the actual Award documents have been executed.
(b) If the application is considered to be incomplete or inadequate, the Agency will notify the Applicant, in writing, with detailed information regarding the reasons the applications was found to be incomplete or inadequate.
§ 1738.204 Evaluation for feasibility.
After a loan or loan/grant combination Applicant is notified that the application is complete, the Agency will evaluate the application’s financial and technical feasibility. Only applications that, as determined by the Agency, are technically and financially feasible will be considered for funding.
(a) The Agency will determine financial feasibility by evaluating the impact of the facilities financed with the proceeds of the loan and the associated debt, the Applicant’s equity, competitive analysis, financial information – including the Applicant’s ability to meet the Agency’s Net worth and TIER, DSCR, or CR requirements in § 1738.206(b)(2)(i) – and other relevant information in the application.
(b) The Agency will determine technical feasibility by evaluating the Applicant’s network design and other relevant information in the application.
§ 1738.205 Competitive analysis.
The Applicant must submit a competitive market analysis for each service area regardless of projected penetration rates. Each analysis must identify all existing service providers and all resellers in each service area regardless of the provider’s market share, for each type of service the Applicant proposes to provide. The analysis must compare the rates, services, and the quality of that service being offered by competitors against those that will be offered by the Applicant. The analysis must also discuss strategies the Applicant will use to compete, as well as the impacts of the competitors on the projected penetration rates for the project.
§ 1738.206 Financial information.
(a) The Applicant must submit financial information acceptable to the Agency that demonstrates that the Applicant has the financial capacity to fulfill the loan or loan/grant combination requirements in this part and to successfully complete the proposed project.
(1) Applicants must provide complete copies of audited financial statements (opinion letter, balance sheet, income statement, statement of changes in financial position, and notes to the financial statement) for the two years preceding the application submission. For governmental entities financial statements must be accompanied with certifications identifying unrestricted cash that will be available on a yearly basis to the Applicant. Subsidiary operations formed from existing utility providers may provide audited financial statements for the two previous years from the parent company, as long as the parent will be a cosigner of the loan or loan/grant documents, pledging its assets in accordance with § 1738.154(a), or will guarantee the debt.
(2) If the Applicant relies on services provided by a parent or affiliated operation, it must also provide complete copies of audited financial statements for those entities for the fiscal year preceding the application submission. If audited statements are not available, unaudited statements and tax returns for the previous year must be submitted.
(3) Applicants must provide detailed information for all outstanding obligations. Copies of existing notes, loan agreements, security agreement, or other legal documents covering loans, grants, leases, or other loan guarantees must be included in the application.
(4) Applicants must provide a detailed description of working capital requirements and the source of these funds, if internally generated funds are insufficient.
(b) Applicants must submit the following documents that demonstrate the proposed project’s financial viability and ability to repay the requested loan.
(1) Customer projections for the 5-year forecast period that substantiate the projected revenues for each service that is to be provided. The projections must be provided on at least an annual basis and must be developed separately for each service area and must be clearly supported by evidence such as market surveys or current company take rates.
(2) Pro forma financial forecast, including a balance sheet, income statement, and statement of cash flows. For non-regulated entities, the pro forma should be prepared in conformity with U.S. GAAP and the Agency’s guidance on grant accounting found at https://www.rd.usda.gov/files/AccountingGuidance10.pdf. Regulated telecommunications providers may follow the USOA and RUS accounting standards for their pro forma, including accounting for grant-funded assets as a contribution, in accordance with 47 CFR 32.2, if the project assets will be treated as regulated plant. The pro forma should validate the sustainability of the project by including subscriber estimates related to all proposed service offerings; annual financial projections with balance sheets, income statements, and cash flow statements; supporting assumptions for a 5-year forecast period and a depreciation schedule for existing facilities and those funded with Federal assistance, and other funds. This pro forma should indicate the committed sources of capital funding and include a bridge year prior to the start of the forecast period. This bridge year is the year in which the application is submitted and serves as a buffer between the historical financial information and the forecast period. Including the bridge year, the pro forma statements span a 6-year period.
(i) The financial projections submitted by Applicants must demonstrate that their entire operation will be able to meet two of the following three ratio requirements: A minimum TIER, CR, or DSCR equal to 1.25 by the end of the 5-year forecast period. Additionally, the projections must demonstrate the Applicant’s ability to maintain a Net worth of at least 20 percent throughout the forecast period. Demonstrating that the operation can achieve a projected Net worth of 20 percent and TIER, CR, or DSCR of 1.25 does not ensure that the Agency will approve the loan or loan/grant combination.
(ii) If the financial analysis suggests that the operation will not be able to achieve the Net worth requirement or two of the required TIER, CR, or DSCR in paragraph (b)(2)(i) of this section, the Agency will not approve the loan or loan/grant combination Award without additional capital, additional cash, additional security, and/or a change in the Award terms.
(c) Based on the financial evaluation, the Award documents will specify the Net worth and TIER, CR, or DSCR requirements in paragraph (b)(2)(i) of this section that must be met throughout the amortization period.
§ 1738.207 Network design.
(a) Applications for loan or loan/grant combinations must include a network design that demonstrates the project’s technical feasibility. The network design must fully support the delivery of service to meet the broadband build-out requirements specified in § 1738.55, together with any other services to be provided. In measuring speed, the Agency will take into account industry and regulatory standards. The design must demonstrate that the project will be complete within the 5-year forecast period and must include the following items:
(1) A detailed description of the proposed technology that will be used to provide service at the broadband lending speed. This description must clearly demonstrate that all premises in the proposed funded service area will be able to receive service at the broadband lending speed;
(2) A detailed description of the existing network. This description should provide a synopsis of the current network infrastructure;
(3) A detailed description of the proposed network. This description should provide a synopsis of the proposed network infrastructure;
(4) A description of the approach and methodology for monitoring ongoing service delivery and service quality for the services being deployed;
(5) Estimated project costs detailing all facilities that are required to complete the project. These estimated costs must be broken down to indicate costs associated with each proposed service area and must specify how Agency and non-Agency funds will be used to complete the project;
(6) A construction build-out schedule of the proposed facilities by service area on an annual basis. The build-out schedule must include:
(i) A description of the workforce that will be required to complete the proposed construction;
(ii) A timeline demonstrating project completion within the forecast period; and
(iii) Detailed information showing that all premises within the proposed funded service area will be offered service at the broadband lending speed when the system is complete;
(7) A depreciation schedule for all facilities financed with loan and loan/grant combination funds;
(8) An environmental report prepared in accordance with 7 CFR part 1970; and
(9) Any other system requirements required by the Administrator through a notice published in the
(b) The network design must be prepared by a registered Professional Engineer with telecommunications experience who is certified in at least one of the states where a project is to be constructed or by qualified personnel on the Applicant’s staff. If the network design is prepared by the Applicant’s staff, the application must clearly demonstrate the staff’s qualifications, experience, and ability to complete the network design. To be considered qualified, staff must have at least 3 years of experience in designing the type of broadband system proposed in the application.
§ 1738.208 Award determinations.
(a) If the loan or loan/grant combination application meets all statutory and regulatory requirements and the feasibility study demonstrates that the Net worth and TIER, CR, or DSCR requirements in § 1738.206(b)(2)(i) can be satisfied and the business plan is sustainable, the application will be submitted to the Agency’s credit committees for consideration according to the priorities in § 1738.105. Such submission of an application to the Agency’s credit committees does not guarantee that a loan or loan/grant combination will be approved. In making a loan and/or loan/grant combination Award determination, the Administrator shall consider the recommendations of the credit committees.
(b) The Applicant will be notified of the Agency’s decision in writing. If the Agency does not approve the loan or loan/grant combination, a rejection letter will be sent to the Applicant, and the application will be returned with an explanation of the reasons for the rejection.
§§ 1738.209-1738.250 [Reserved]
Subpart F – Closing, Servicing, and Reporting for Loan and Loan/Grant Combination Awards
§ 1738.251 Offer and closing.
The Agency will notify the Applicant of the loan or loan/grant combination offer in writing, and the date by which the Applicant must accept the offer. If the Applicant accepts the terms of the offer, a loan or loan/grant combination contract, note, security agreement, and any other necessary documents will be executed by the Agency and sent to the Applicant. The Applicant must execute the Award documents and satisfy all conditions precedent to closing within the timeframe specified by the Agency. If the conditions are not met within this timeframe, the loan or loan/grant combination offer may be terminated, unless the Applicant requests and the Agency approves, an extension. The Agency may approve such a request if the Applicant has diligently sought to meet the conditions required for closing and has been unable to do so for reasons outside its control.
§ 1738.252 Construction.
(a) Construction paid for with loan or loan/grant combination funds must comply with 7 CFR parts 1787, 1788, and 1970, the RUS Broadband Construction Procedures located at https://reconnect.usda.gov, and any other guidance from the Agency.
(b) Once the Agency has extended a loan or loan/grant combination offer, the Applicant, at its own risk, may start construction that is included in the application on an interim financing basis. For this construction to be eligible for reimbursement with loan or loan/grant combination funds, all construction procedures contained in this part must be followed. Note, however, that the Agency’s extension of a loan or loan/grant combination offer is not a guarantee that a loan or loan/grant combination will be made, unless and until a contract has been entered into between the Applicant and RUS.
(c) All Awardees must complete build-out within 5 years from the date that funds have been made available. Build-out is considered complete when the network design has been fully implemented, the service operations and management systems infrastructure is operational, and the awardee is ready to support the activation and commissioning of individual customers to the new system.
§ 1738.253 Servicing of loan and loan/grant combinations.
(a) Borrowers must make payments on the broadband loan as required in the note.
(b) Awardees must comply with all terms, conditions, affirmative covenants, and negative covenants contained in the Award documents.
(c) In the event of default of any required payment or other term or condition:
(1) The Agency may exercise the default remedies provided in the Award documents and any remedy permitted by law but is not required to do so.
(2) If the Agency chooses not to exercise its default remedies, it does not waive its right to do so in the future.
§ 1738.254 Accounting, reporting, and monitoring requirements.
(a) Loan and loan/grant combination Awardees must adopt a system of accounts for maintaining financial records acceptable to the Agency, as described in 7 CFR part 1770, subpart B.
(b) Loan and loan/grant combination Awardees must submit annual audited financial statements along with a report on compliance and on internal control over financial reporting and management letter in accordance with the requirements of 7 CFR part 1773. The Certified Public Accountant (CPA) conducting the annual audit is selected by the awardee and must be approved by RUS as set forth in 7 CFR 1773.4.
(c) Loan and loan/grant combination Awardees must submit to RUS 30 calendar days after the end of each calendar year quarter, balance sheets, income statements, statements of cash flow, rate package summaries, and the number of customers subscribing to broadband service from the Awardee utilizing RUS’ online reporting system. These reports must be submitted throughout the loan amortization period.
(d) Loan and loan/grant combination Awardees must submit annually updated service area maps through the RUS mapping tool showing the areas where construction has been completed and premises are receiving service until the entire proposed funded service area can receive service at the broadband lending speed. At the end of the project, Awardees must submit a service area map indicating that all construction has been completed as proposed in the application. If parts of the proposed funded service area have not been constructed, RUS may require a portion of the Award to be rescinded and/or paid back.
(e) Loan and loan/grant combination Awardees must comply with all reasonable Agency requests to support ongoing monitoring efforts. The Awardee shall afford RUS, through its representatives, reasonable opportunity, at all times during business hours and upon prior notice, to have access to and the right to inspect the broadband system, and any other property encumbered by the mortgage or security agreement, and 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 the possession of the Awardee or in any way pertaining to its property or business, including its subsidiaries, if any, and to make copies or extracts therefore.
(f) Awardee records shall be retained and preserved in accordance with the provisions of 7 CFR part 1770, subpart A.
§ 1738.255 Default and deobligation.
If a default under the loan or loan/grant combination documents occurs and such default has not been cured within the timeframes established in the Award documents, the Applicant acknowledges that the Agency may, depending on the seriousness of the default, take any of the following actions:
(a) To the greatest extent possible recover the maximum amount of grant and loan funds;
(b) De-obligate all funds that have not been advanced or demonstrate an insufficient level of performance or fraudulent spending; and
(c) Reallocate recovered funds to the extent possible.
§§ 1738.256-1738.300 [Reserved]
Subpart G – Loan Guarantee
§ 1738.301 General.
(a) To be eligible for a loan guarantee, the Applicant must submit an application that meets the requirements in this part along with the requirements as stated in 7 CFR part 4279, subparts A and B, as well as any additional requirements published in the
(b) The Agency may approve Rural Broadband Program loan guarantees in excess of $10 million but less than $25 million when the project meets one of the priorities in § 1738.105(a)(3)(i).
(c) The lender will service the loan in accordance with 7 CFR part 4287, subpart B.
(d) Any reference to priorities in 7 CFR part 4279 or 4287 shall have the meaning as stated in § 1738.105 and any reference to Administrator or Agency shall have the meaning as defined in § 1738.2.
§ 1738.302 Fees.
The Agency shall charge and collect from the lender fees in such amounts as to bring down the costs of subsidies for guaranteed loans, except that such fees shall not act as a bar to participation in the programs nor be inconsistent with current practices in the marketplace.
§§ 1738.303-1738.349 [Reserved]
§ 1738.350 OMB control number.
The information collection requirements in this part are approved by the Office of Management and Budget (OMB) and assigned OMB control number 0572-0154.
PART 1739 – BROADBAND GRANT PROGRAM
Subpart A – Community Connect Grant Program
§ 1739.1 Purpose.
(a) The provision of broadband service is vital to the economic development, education, health, and safety of rural Americans. The purpose of the Community Connect Grant Program is to provide financial assistance in the form of grants to eligible applicants that will provide, on a “community-oriented connectivity” basis, broadband service that fosters economic growth and delivers enhanced educational, health care, and public safety benefits. The Agency will give priority to rural areas that have the greatest need for broadband services, based on the criteria contained herein and in the RUS Community Connect Program application guide and/or the Community Connect Program website and in the funding opportunity announcement (FOA) posted on www.Grants.gov.
(b) Grant authority will be used for the deployment of service to all premises in eligible rural areas at the Broadband Grant Speed on a “community-oriented connectivity” basis. In addition to providing service to all premises the “community-oriented connectivity” concept will stimulate practical, everyday uses and applications of broadband by cultivating the deployment of new broadband services that improve economic development and provide enhanced educational and health care opportunities in rural areas. Such an approach will also give rural communities the opportunity to benefit from the advanced technologies that are necessary to achieve these goals.
§ 1739.2 Funding availability and application dates and submission.
(a) The Agency will post a FOA on www.Grants.gov that will set forth the total amount of funding available; the maximum and minimum funding for each grant; funding priority; the application submission dates; and the appropriate addresses and agency contact information. The FOA will also outline and explain the procedures for submission of applications, including electronic submissions. The Agency may publish more than one FOA should additional funding become available. This information will also be made available in the RUS Community Connect Grant program application guide and on the RUS Community Connect Grant program website.
(b) Notwithstanding paragraph (a) of this section, the Agency may, in response to a surplus of qualified eligible applications which could not be funded from the previous fiscal year, decline to post a FOA for the following fiscal year and fund said applications without further public notice.
§ 1739.3 Definitions.
As used in this subpart:
Agency or RUS shall mean the Rural Utilities Service, which administers the United States Department of Agriculture (USDA) Rural Development Utilities Programs.
Broadband Grant Speed means the minimum bandwidth described in the funding opportunity that an applicant must propose to deliver to every customer in the proposed funded service area in order for the Agency to approve a broadband grant. The Broadband Grant Speed may be different for fixed and mobile broadband services and from the minimum rate of data transmission required to determine the availability of broadband service when qualifying a service area.
Broadband service means any terrestrial technology having the capacity to provide transmission facilities that enable subscribers of the service to originate and receive high-quality voice, data, graphics, and video at the minimum rate of data transmission described in the funding opportunity. Satellite and mobile services are not considered broadband service. The broadband service speed may be different from the broadband grant speed for the Community Connect program.
Community Center means a building within the Proposed Funded Service Area that provides access to the public, or a section of a public building with at least two (2) Computer Access Points and wireless access, that is used for the purposes of providing free access to and/or instruction in the use of broadband Internet service, and is of the appropriate size to accommodate this purpose. The community center must be open and accessible to area residents before, during, and after normal working hours and on Saturdays or Sunday.
Computer Access Point means a new computer terminal with access to service at the Broadband Grant Speed.
Critical Community Facilities means an essential community facility as defined pursuant to section 306(a) of the Consolidated Farm and Rural Development Act (7 U.S.C. 1926(a)).
Eligible applicant shall have the meaning as set forth in § 1739.10.
Eligible grant purposes shall have the meaning as set forth in § 1739.12.
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.
Matching contribution means the applicant’s qualified contribution to the Project, as outlined in § 1739.14 of this part.
Project means the delivery of service at the Broadband Grant Speed financed by the grant and Matching Contribution for the Proposed Funded Service Area.
Proposed Funded Service Area (PFSA) means the contiguous geographic area within an eligible Rural Area or eligible Rural Areas, in which the applicant proposes to provide service at the Broadband Grant Speed.
Rural area means any area, as confirmed by the most recent decennial Census of the United States (decennial Census), which is not located within:
(1) A city, town, or incorporated area that has a population of greater than 20,000 inhabitants; or
(2) An urbanized area contiguous and adjacent to a city or town that has a population of greater than 50,000 inhabitants, and which excludes certain populations pursuant to 7 U.S.C. 1991(a)(13)(H) and (I). For purposes of the definition of rural area, an urbanized area means a densely populated territory as defined in the most recent decennial Census.
§§ 1739.4-1739.7 [Reserved]
§ 1739.8 Buy American requirement.
Awardees shall use in connection with the expenditure of grant funds only such unmanufactured articles, materials, and supplies, as have been mined or produced in the United States or in any eligible country, and only such manufactured articles, materials, and supplies as have been manufactured in the United States or in any eligible country, substantially all from articles, materials, or supplies mined, produced, or manufactured, as the case may be, in the United States or in any eligible country. For purposes of this section, an “eligible country” is any country that applies with respect to the United States an agreement ensuring reciprocal access for United States products and services and United States suppliers to the markets of that country, as determined by the United States Trade Representative. The Buy American regulations may be found at, and any requests for waiver must be submitted pursuant to, 7 CFR part 1787.
§ 1735.9 USDA Rural Development State Director notification.
Applicants shall complete a notification form which will be a public document that the RUS provides to USDA Rural Development State Directors and others in the state(s) of the PFSA. The notification shall include a brief project description and the location of the PFSA.
§ 1739.10 Eligible applicant.
To be eligible for a Community Connect competitive grant, the applicant must:
(a) Be legally organized as an incorporated organization, an Indian tribe or tribal organization, as defined in 25 U.S.C. 450b(e), a state or local unit of government, or other legal entity, including cooperatives or private corporations or limited liability companies organized on a for-profit or not-for-profit basis.
(b) Have the legal capacity and authority to own and operate the broadband facilities as proposed in its application, to enter into contracts and to otherwise comply with applicable federal statutes and regulations.
(c) As required by the Office of Management and Budget (OMB), all applicants for grants must supply a Dun and Bradstreet Data Universal Numbering System (DUNS) number when applying. The Standard Form 424 (SF-424) contains a field for you to use when supplying your DUNS number. Obtaining a DUNS number costs nothing and requires a short telephone call to Dun and Bradstreet. Please see http://www.grants.gov/applicants/request_duns_number.jsp for more information on how to obtain a DUNS number or how to verify your organization’s number.
(d) Register in the System for Award Management (SAM) (formerly Central Contractor Registry (CCR)).
(1) In accordance with 2 CFR part 25, applicants, whether applying electronically or by paper, must be registered in the SAM prior to submitting an application. Applicants may register for the SAM at https://www.sam.gov/.
(2) The SAM registration must remain active, with current information, at all times during which an entity has an application under consideration by an agency or has an active Federal Award. To remain registered in the SAM database after the initial registration, the applicant is required to review and update, on an annual basis from the date of initial registration or subsequent updates, its information in the SAM database to ensure it is current, accurate and complete.
§ 1739.11 Eligible Community Connect Competitive Grant Project.
To be eligible for a Community Connect competitive grant, the Project must:
(a) Serve a PFSA in which Broadband Service does not currently exist;
(b) Offer service at the Broadband Grant Speed to all residential and business customers within the PFSA ;
(c) Offer free service at the Broadband Grant Speed to all Critical Community Facilities located within the PFSA for at least 2 years starting from the time service becomes available to each Critical Community Facility;
(d) Provide a Community Center with at least two (2) Computer Access Points and wireless access at the Broadband Grant Speed, free of all charges to all users for at least 2 years; and
(e) Not overlap with the service areas of current RUS borrowers and grantees.
§ 1739.12 Eligible grant purposes.
Grant funds may be used to finance the following:
(a) The construction, acquisition, or leasing of facilities, including spectrum, land or buildings, used to deploy service at the Broadband Grant Speed to all residential and business customers located within the PFSA and all participating Critical Community Facilities, including funding for up to ten Computer Access Points to be used in the Community Center. Buildings constructed with grants funds must reside on property owned by the awardee. Leasing costs will only be covered through the advance of funds period included in the award documents;
(b) The improvement, expansion, construction, or acquisition of a Community Center and provision of Computer Access Points. Grant funds for the Community Center will be limited to ten percent of the requested grant amount. If a community center is constructed with grant funds, the center must reside on property owned by the awardee;
(c) The cost of providing the necessary bandwidth for service free of charge to the Critical Community Facilities for 2 years.
§ 1739.13 Ineligible grant purposes.
Operating expenses not specifically permitted in § 1739.12.
§ 1739.14 Matching contributions.
(a) At the time of closing of the award, the awardee must contribute or demonstrate available cash reserves in an account(s) of the awardee equal to at least 15% of the grant. Matching contributions must be used solely for the Project and shall not include any financial assistance from federal sources unless there is a federal statutory exception specifically authorizing the federal financial assistance to be considered as such. An applicant must provide evidence of its ability to comply with this requirement in its application.
(b) At the end of every calendar quarter, the award must submit a schedule to RUS that identifies how the match contribution was used to support the project until the total contribution is expended.
§ 1739.15 Completed application.
Applications should be prepared in conformance with the provisions of this part and all applicable regulations, including 2 CFR part 200, as adopted by USDA through 2 CFR part 400. Applicants must also conform to the requirements of the FOA posted on www.Grants.gov, the RUS Community Connect Grant program application guide, and the Community Connect Grant program website. Applicants should refer to the FOA and the application guide for submission directions. The application guide contains instructions and forms, as well as other important information needed to prepare an application and is updated on an annual basis. Paper copies of the application guide can be requested by contacting the Loan Origination and Approval Division at 202-720-0800. Completed applications must include the following documentation, studies, reports and information, in form and substance satisfactory to the Agency:
(a) An Application for Federal Assistance. A completed Standard Form 424;
(b) An executive summary of the Project. A general project overview that addresses the following categories:
(1) A description of why the Project is needed;
(2) A description of the applicant;
(3) An explanation of the total Project costs;
(4) A general overview of the broadband telecommunications system to be developed, including the types of equipment, technologies, and facilities to be used;
(5) Documentation describing the procedures used to determine the unavailability of existing Broadband Service; and
(6) A list of the Critical Community Facilities that will take service from the Applicant at the Broadband Grant Speed, and evidence that any remaining Critical Community Facility located in the PFSA has rejected the offer;
(c) Scoring Criteria Documentation. A narrative, with documentation where necessary, addressing the elements listed in the scoring criteria of § 1739.17;
(d) System design. A system design of the Project that is economical and practical, including a detailed description of the facilities to be funded, technical specifications, data rates, and costs. In addition, a network diagram detailing the proposed system must be provided. The system design must also comply with the environmental review requirements in accordance with 7 CFR part 1970 and as supplemented by 7 CFR 1738.108;
(e) Service Area Demographics. The following information about the PFSA:
(1) A map, submitted electronically through RUS’ web-based Mapping Tool, which identifies the Rural Area boundaries of the PFSA; and
(2) The total population, number of households, and number of businesses located within the PFSA;
(f) Scope of work. A description of the scope of work, which at a minimum must include:
(1) The specific activities and services to be performed under the Project;
(2) Who will carry out the activities and services;
(3) A construction build-out schedule and project milestones, showing the time-frames for accomplishing the Project objectives and activities on a quarterly basis; and
(4) A budget for all capital and administrative expenditures reflecting the line item costs for Eligible Grant Purposes and other sources of funds necessary to complete the Project;
(g) Community-oriented connectivity plan. A community-oriented connectivity plan consisting of the following:
(1) A listing of all participating Critical Community Facilities to be connected. The applicant must also provide documentation that it has consulted with the appropriate agent of every Critical Community Facility in the PFSA, and must provide statements from each one as to its willingness to participate, or not to participate, in the proposed Project;
(2) A description of the services the applicant will make available to local residents and businesses; and
(3) A list of any other telecommunications provider (including interexchange carriers, cable television operators, enhanced service providers, wireless service providers and providers of satellite services) that is participating in the delivery of services and a description of the consultations and the anticipated role of such provider in the Project;
(h) Financial information and sustainability. A narrative description demonstrating the sustainability of the Project: from the commencement of construction to completion, and beyond the grant period; the sufficiency of resources; how and when the matching requirement is met; and the expertise necessary to undertake and complete the Project. The following financial information is required:
(1) If the applicant is an existing company, it must provide complete copies of audited financial statements, if available, for the two fiscal years preceding the application submission. If audited statements are unavailable, the applicant must submit unaudited financial statements for those fiscal years. Applications from start-up entities must, at minimum, provide an opening balance sheet dated within 30 days of the application submission date; and
(2) Annual financial projections in the form of balance sheets, income statements, and cash flow statements for a forecast period of five years, which prove the sustainability of the Project for that period and beyond. These projections must be inclusive of the applicant’s existing operations and the Project, and must be supported by a detailed narrative that fully explains the methodology and assumptions used to develop the projections, including details on the number of subscribers projected to take the applicant’s services. Applicants submitting multiple applications for funding must demonstrate that each Project is feasible and sustainable on its own, funds are available to cover each of the matching requirements and that all Projects for which funding is being requested are financially feasible as a whole;
(i) Statement of experience. A statement of experience which includes information on the owners’ and principal employees’ relevant work experience that would ensure the success of the Project. The applicant must also provide a written narrative demonstrating its capability and experience, if any, in operating a broadband telecommunications system;
(j) Legal authority. Evidence of the applicant’s legal authority and existence, and its ability to enter into a grant agreement with the RUS, and to perform the activities proposed under the grant application;
(k) Additional funding. Evidence that funding agreements have been attained, if the Project requires funding commitment(s) from sources other than the grant. An applicant submitting multiple applications for funding must demonstrate its financial wherewithal to support all applications, if accepted, and that it can simultaneously complete and operate all of the Projects under consideration. Additionally, commitments for outside funding must be explicit that they will be available if all applications are not funded;
(l) Public notice. The Agency will publish a public notice of each application requesting assistance under this part. The application must provide a summary of the information required for such public notice. The information required can be found in 7 CFR 1738.106.
(m) Federal compliance. Evidence of compliance with other federal statutes and regulations including, but not limited to the following:
(1) 7 CFR part 15, subpart A – Nondiscrimination in Federally Assisted Programs of the Department of Agriculture – Effectuation of Title VI of the Civil Rights Act of 1964;
(2) 2 CFR part 200, as adopted by USDA through 2 CFR part 400.
(3) 2 CFR part 417 – Nonprocurement Debarment and Suspension;
(4) 2 CFR part 418 – New Restrictions on Lobbying;
(5) 2 CFR part 421 – Requirements for Drug-Free Workplace (Financial Assistance);
(6) Certification regarding Architectural Barriers;
(7) Certification regarding Flood Hazard Precautions;
(8) Environmental review documentation prepared in accordance with 7 CFR part 1970 and as supplemented by 7 CFR 1738.108.
(9) A certification that grant funds will not be used to duplicate lines, facilities, or systems providing Broadband Service;
(10) Federal Obligation Certification on Delinquent Debt; and
(11) Assurance Regarding Felony Conviction or Tax Delinquent Status for Corporate Applicants.
§ 1739.16 Review of grant applications.
(a) All applications for grants must be delivered to the Agency at the address and by the date specified in the FOA, the Community Connect Grant program application guide and the Community Connect Grant program website (see § 1739.2) to be eligible for funding. The Agency will review each application for conformance with the provisions of this part, and may contact the applicant for clarification of information in the application.
(b) Incomplete applications as of the deadline for submission will not be considered. If an application is determined to be incomplete, the applicant will be notified in writing and the application will be returned with no further action.
(c) If the Agency determines that the Project is technically or financially infeasible or unsustainable, the Agency will notify the applicant, in writing, and the application will be returned with no further action.
(d) Applications conforming with this part will be evaluated competitively by the Agency and will be ranked in accordance with § 1739.17. Applications will then be awarded generally in rank order until all grant funds are expended, subject to paragraphs (e) and (f) of this section.
(e) In addition to scoring, the Agency may take geographic distribution into consideration when making final award determinations.
(f) An award may be made out of rank order if a higher ranked application would require an award that exceeded available funding or would consume a disproportionate amount of funds available relative to its ranking.
(g) The Agency reserves the right to offer an applicant a lower amount than proposed in the application.
§ 1739.17 Scoring of applications.
The ranking of the “community-oriented connectivity” benefits of the Project will be based on documentation in support of the need for services, benefits derived from the proposed services, characteristics of the PFSA, local community involvement in planning and implementation of the Project, and the level of experience of the management team. In ranking applications the Agency will consider the following criteria based on a scale of 100 possible points:
(a) An analysis of the challenges of the following criteria, laid out on a community-wide basis, and how the Project proposes to address these issues (up to 50 points):
(1) The economic characteristics;
(2) Educational challenges;
(3) Health care needs; and
(4) Public safety issues;
(b) The extent of the Project’s planning, development, and support by local residents, institutions, and Critical Community Facilities. Documentation must include evidence of community-wide involvement, as exemplified by community meetings, public forums, and surveys. In addition, applicants should provide evidence of local residents’ participation in the Project planning and development (up to 40 points).
(c) The level of experience and past success of operating broadband systems for the management team. (up to 10 points)
(d) In making a final selection among and between applications with comparable rankings and geographic distribution, the Administrator may take into consideration the characteristics of the PFSA. Only information provided in the application will be considered. Applicants should therefore specifically address each of the following criteria to differentiate their applications:
(1) Persistent poverty counties that will be served within the PFSA;
(2) Out-migration Communities that will be served within the PFSA;
(3) The rurality of the PFSA;
(4) The speed of service provided by the project;
(5) Substantially underserved trust areas that will be served within the PFSA;
(6) Community members with disabilities that will be served within the PFSA; and
(7) Any other additional factors that may be outlined in the FOA, the Community Connect Grant program application guide, and the Community Connect Grant program website.
§ 1739.18 Grant documents.
The terms and conditions of grants shall be set forth in grant documents prepared by the Agency. The documents shall require the applicant to own all equipment and facilities financed by the grant. Among other matters, the Agency may prescribe conditions to the advance of funds that address concerns regarding the Project feasibility and sustainability. The Agency may also prescribe terms and conditions applicable to the construction and operation of the Project and the delivery of service at the Broadband Grant Speed to eligible Rural Areas, as well as other terms and conditions applicable to the individual Project. Dividend distributions will not be allowed until all grant funds and matching contributions have been expended.
§ 1739.19 Reporting and oversight requirements.
(a) A project performance activity report will be required of all recipients on an annual basis until the Project is complete and the funds are expended by the applicant. The reporting period will start with the calendar year the award is made and continue for every calendar year through the term of the award. The report must be submitted by January 31 of the following year of the reporting period. Recipients are to submit an original and one copy of all project performance reports, including, but not limited to, the following:
(1) A comparison of actual accomplishments to the objectives established for that period;
(2) A description of any problems, delays, or adverse conditions which have occurred, or are anticipated, and which may affect the attainment of overall Project objectives, prevent the meeting of time schedules or objectives, or preclude the attainment of particular Project work elements during established time periods. This disclosure shall be accompanied by a statement of the action taken or planned to resolve the situation; and
(3) Objectives and timetable established for the next reporting period.
(b) A final project performance report must be provided by the recipient. It must provide an evaluation of the success of the Project in meeting the objectives of the program. The final report may serve as the last annual report.
(c) The Agency will monitor recipients, as it determines necessary, to assure that Projects are completed in accordance with the approved scope of work and that the grant is expended for Eligible Grant Purposes.
(d) Recipients shall diligently monitor performance to ensure that time schedules are being met, projected work within designated time periods is being accomplished, and other performance objectives are being achieved.
(e) The applicant must have the necessary processes and systems in place to comply with the reporting requirements for first-tier sub-awards and executive compensation under the Federal Funding Accountability and Transparency Act of 2006 in the event the applicant receives funding unless such applicant is exempt from such reporting requirements pursuant to 2 CFR 170.110(b). The reporting requirements under the Transparency Act pursuant to 2 CFR part 170 are as follows:
(1) First Tier Sub-Awards of $25,000 or more in non-Recovery Act funds (unless they are exempt under 2 CFR part 170) must be reported by the Recipient to http://www.fsrs.gov no later than the end of the month following the month the obligation was made.
(2) The Total Compensation of the Recipient’s Executives (5 most highly compensated executives) must be reported by the Recipient (if the Recipient meets the criteria under 2 CFR part 170) to http://www.sam.gov by the end of the month following the month in which the award was made.
(3) The Total Compensation of the Subrecipient’s Executives (5 most highly compensated executives) must be reported by the Subrecipient (if the Subrecipient meets the criteria under 2 CFR part 170) to the Recipient by the end of the month following the month in which the subaward was made.
(f) Entities that receive assistance from the Agency under this part to provide retail broadband service must submit annual reports for 3 years after project completion. The information required can be found in 7 CFR 1738.107(a) and (c).
§ 1739.20 Audit requirements.
A grant recipient shall provide the Agency with an audit for each 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 existing Telecommunications or Electric Borrower with the Agency, or any other entity not covered by the following paragraph, the recipient shall provide an independent audit report in accordance with 7 CFR part 1773, “Policy on Audits of the Agency’s Borrowers.” Please note that the first audit submitted to the Agency and all subsequent audits must be comparative audits as described in 7 CFR part 1773.
(b) If the recipient is a Tribal, State or local government, or non-profit organization, the recipient shall provide an audit in accordance with subpart F of 2 CFR part 200, as adopted by USDA through 2 CFR part 400.
§ 1739.21 OMB control number.
The information collection requirements in this part are approved by the Office of Management and Budget (OMB) and assigned OMB control number 0572-0127.
Subpart B [Reserved]
PART 1740 – RURAL ECONNECTIVITY PROGRAM
Subpart A – General
§ 1740.1 Overview.
(a) The Rural eConnectivity Program, hereinafter referred to as Program, provides funding in the form of loans, grants, and loan/grant combinations for the costs of construction, improvement, or acquisition of facilities and equipment needed to facilitate broadband deployment in rural areas. One of the essential goals of the Program is to expand broadband service to rural areas that do not have sufficient access to broadband. This part sets forth the general policies, eligibility requirements, types and terms of loans, grants, and loan/grant combinations and program requirements.
(b) Additional information and application materials regarding the Program can be found on the Rural Development website.
§ 1740.2 Definitions.
(a) The following definitions apply to this part:
Administrator means the Administrator of the Rural Utilities Service, or the Administrator’s designee.
Agency means the Rural Utilities Service (RUS).
Applicant means an entity requesting funding under this part.
Application means the Applicant’s request for federal funding, which may be approved in whole or in part by RUS.
Award documents mean, as applicable, all associated grant agreements, loan agreements, or loan/grant agreements.
Award means a grant, loan, or loan/grant combination made under this part.
Awardee means a grantee, borrower, or borrower/grantee that has applied and been awarded federal assistance under this part.
Broadband loan means, for purposes of this regulation, a loan that has been approved or is currently under review by RUS after the beginning of Fiscal Year 2000 in the Telecommunications Infrastructure Program, Farm Bill Broadband Program, Broadband Initiatives Program or this Program.
Broadband loans that were rescinded or defaulted on, or the terms and conditions of which were not met, are not included in this definition, so long as the entity under consideration for an award under this part has not previously defaulted on, or failed to meet the terms and conditions of, an RUS loan or had an RUS loan rescinded.
Broadband service means any fixed terrestrial technology, including fixed wireless, having the capacity to transmit data to enable a subscriber to the service to originate and receive high quality voice, data, graphics and video.
CALEA means the Communications Assistance for Law Enforcement Act, 47 U.S.C. 1001 et seq.
Composite economic life means the weighted (by dollar amount of each class of facility) average economic life of all classes of facilities necessary to complete construction of the broadband facilities in the proposed funded service area.
Current ratio means the current assets divided by the current liabilities.
Debt Service Coverage Ratio (DSCR) means the ratio of the sum of the Awardee’s total net income or margins, depreciation and amortization expense, and interest expense, minus an allowance for funds used during construction and amortized grant revenue, all divided by the sum of interest on funded debt, other interest and principal payment on debt and capital leases.
Economic life means the estimated useful service life of an asset as determined by RUS.
Eligible service area means any contiguous proposed funded service area where 90 percent of the households to be served do not have sufficient access to broadband service. For eligibility purposes, if an applicant is applying for multiple proposed funded service areas, each service area will be evaluated on a stand-alone basis.
Equity means total assets minus total liabilities as reflected on the Applicant’s balance sheet.
Fixed wireless service means a wireless system between two fixed locations (e.g., fixed transmitting tower to fixed customer premise equipment).
Forecast period means the five-year period of projections in an application, which shall be used by RUS to determine financial and technical feasibility of the application.
GAAP means accounting principles generally accepted in the United States of America.
Grant means any federal assistance in the form of a grant made under this part.
Grant agreement means the grant contract and security agreement between RUS and the Awardee securing the Grant awarded under this part, including any amendments thereto, available for review on the Agency’s web page.
Indefeasible Right to Use (IRU) means the long-term agreement of the rights to capacity, or a portion thereof specified in the terms of a certain amount of bandwidth or number of fibers.
Loan means any federal assistance in the form of a loan made under this part.
Loan agreement means the loan contract and security agreement between RUS and the Awardee securing the Loan, including all amendments thereto, available for review on the Agency’s web page.
Loan/grant means any federal assistance in the form of a loan/grant combination made under this part.
Loan/grant agreement means the loan/grant contract and security agreement between RUS and the Awardee securing the loan/grant, including all amendments thereto, available for review on the Agency’s web page.
Non-funded service area (NFSA) means any area in which the applicant offers broadband service or intends to offer broadband service during the forecast period but is not a part of its proposed funded service area.
Pre-application expenses means any reasonable expenses, as determined by RUS, incurred after the release of a
Premises means households, farms, and businesses.
Project means all of the work to be performed to bring broadband service to all premises in the proposed funded service area under the Application, including construction, the purchase and installation of equipment, and professional services including engineering and accountant/consultant fees, whether funded by federal assistance, matching, or other funds.
Proposed funded service area (PFSA) means the area (whether all or part of an existing or new service area) where the applicant is requesting funds to provide broadband service. Multiple service areas will be treated as separate standalone service areas for the purpose of determining how much of the PFSA does not have sufficient access to broadband. Each service area must meet the minimum requirements for the appropriate funding category to be an eligible area.
RE Act means the “Rural Electrification Act of 1936,” as amended (7 U.S.C. 901 et seq.).
Rural area means any area that is not located within:
(i)(A) A city, town, or incorporated area that has a population of greater than 20,000 inhabitants; or
(B) An urbanized area contiguous and adjacent to a city or town that has a population of greater than 50,000 inhabitants as defined in the Agency mapping tool.
(ii) In determining a rural area, all areas shall exclude certain populations pursuant to 7 U.S.C. 1991(a)(13)(H) and (I).
RUS Accounting Requirements shall mean compliance with GAAP, acceptable to RUS, the system of accounting prescribed by RUS Bulletin 1770B-1 and the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, found at 2 CFR part 200. For all Awardees the term “grant recipient” in 2 CFR 200 shall also be read to encompass “loan recipient” and “loan/grant recipient”, such that 2 CFR 200 shall be applicable to all Awardees under this part.
Sufficient access to broadband means a rural area in which households have broadband service at the minimum acceptable level of broadband, as set forth in the latest
TIER means times interest earned ratio. TIER is the ratio of an Applicant’s net income (after taxes) plus interest expense, all divided by interest expense and with all financial terms defined by GAAP.
(b) Unless otherwise provided in the award documents, all financial terms not defined herein shall have the meaning as defined by GAAP.
§ 1740.3 Funding parameters.
(a) For the purposes of this part:
(1) Ninety (90) percent of the PFSA must not have sufficient access to broadband service;
(2) Applicants must propose to build a network that is capable of providing broadband service to every premises located in the PFSA at the time the application is submitted at a speed defined in the latest
(3) The Agency reserves the right to make funding offers or seek consultations to resolve partially overlapping applications. RUS may contact the applicant for additional information during the review process. If additional information is requested, the applicant will have up to 30 calendar days to submit the information. If such information is not timely submitted, RUS may reject the application.
(b) The amount and types of funds available for assistance, as well as the maximum and minimum award amounts will be published in the
§ 1740.4 Certifications.
The Applicant must certify to the following within the online application system:
(a) That it is authorized to submit the application on behalf of the eligible entity(ies) listed in the Application;
(b) That the Applicant has examined the Application;
(c) That all information in the Application, including certifications and forms submitted are, at the time furnished, true and correct in all material respects;
(d) That the entity requesting funding will comply with the terms, conditions, purposes, and federal requirements of the program;
(e) That a false, fictitious, or fraudulent statement or claim on the Application is grounds for denial or termination of an award, and/or possible punishment by a fine or imprisonment as provided in 18 U.S.C. 1001 and civil violations of the False Claims Act (31 U.S.C. 3729 et seq.);
(f) That the Applicant will comply with all applicable federal, tribal, state, and local laws, rules, regulations, ordinances, codes, orders, and programmatic rules and requirements relating to the project, and acknowledges that failure to do so may result in rejection or de-obligation of the award, as well as civil liability or criminal prosecution, if applicable, by the appropriate law enforcement authorities.
§§ 1740.5-1740.8 [Reserved]
Subpart B – Eligibility Requirements
§ 1740.9 Eligible and ineligible entities.
(a) To be eligible for funding, an Applicant may be either a nonprofit or for-profit organization, and must take one of the following forms:
(1) Corporation;
(2) Limited Liability Company and Limited Liability Partnership;
(3) Cooperative or mutual organization;
(4) States or local governments, including any agency, subdivision, instrumentality, or political subdivision thereof;
(5) A territory or possession of the United States; or
(6) An Indian tribe, as defined in section 4 of the Indian Self-Determination and Education Assistance Act (25 U.S.C. 450b).
(b) Individuals and legal general partnerships that are formed with individuals are not eligible entities.
(c) Co-Applicants are not eligible entities. If two entities would like to partner with each other in delivering broadband to areas without sufficient access, then one entity must take the lead on submitting an application. Inter-company agreements can be used to account for revenues and expenses on the applicant’s financial projections. However, based on the existing financial and security arrangements, the Agency may require that both, or other entities, be parties to the award documents, or guarantee the award.
§ 1740.10 Eligible projects.
To be eligible for funding assistance under the part, the Applicant must:
(a) Submit a complete application and provide all supporting documentation including unqualified, comparative, audited financial statements for the previous year from the date the application is submitted as detailed in § 1740.63.
(b) Demonstrate that the project can be completely built out within five years from the date funds are first made available.
(c) Demonstrate that the project is technically feasible as detailed in § 1740.64.
(d) Demonstrate that all project costs can be fully funded or accounted for as detailed in § 1740.63.
(e) Submit documentation which enables RUS to determine that the project is financially feasible and sustainable as detailed in § 1740.61.
(f) Demonstrate that the following service requirements will be met:
(1) Facilities funded with grant funds will provide broadband service proposed in the application for the composite economic life of the facilities, as approved by RUS, or as provided in the Award Documents.
(2) Facilities funded with loan funds must provide broadband service through the amortization period of the loan.
§ 1740.11 Eligible and ineligible service areas.
(a) Eligible service areas. (1) Applicants must propose to provide broadband service directly to all premises in the PFSA.
(2) If any part of the applicant’s PFSA is ineligible, RUS, in its sole discretion, may request that an applicant modify its application, if RUS believes the modification is feasible. Otherwise, RUS will reject the application.
(b) Ineligible service areas – (1) Overlapping service areas. RUS will not fund more than one project that serves any one given geographic area. Invariably, however, applicants will propose service areas that overlap, varying from small de minimis areas of the territory, but which may be significant with respect to households involved, to larger areas of the service territory, but which may contain few households or businesses, if any. As a result, devising a procedure that will cover every overlap circumstance is not practicable. Nevertheless, it is the agency’s intent to make as many eligible applications viable for consideration as possible. That may mean the agency may:
(i) Determine the overlap to be so insignificant that no agency action is necessary;
(ii) Request one or more applications to be revised to eliminate the overlapping territory;
(iii) Choose one application over another given the amount of assistance requested, the number of awards already chosen in the area or State, or the need for the project in the specific area due to other factors; or
(iv) Simply choose the project that scores higher or in the judgement of the agency is more financially feasible.
(2) Prior funded service areas to include: (i) RUS Broadband loans. Service areas of borrowers that have RUS Broadband loans, as defined in this part, are ineligible for all other applicants, and can be found on the Agency web page for the program. However, RUS Broadband Borrowers that have built out their service areas consistent with their application and award documents, but were not required to provide, and are currently not providing, sufficient access to broadband pursuant to this regulation are eligible to apply for funding for these service areas; provided that they have not defaulted on, and have materially complied with, in the sole discretion of RUS, their prior Broadband loan award requirements. Current RUS Broadband Borrowers that have received funding to provide sufficient access to broadband but have not yet built out their system are ineligible to apply for funding for these service areas.
(ii) RUS Community Connect Grants. Service areas that received grants under the RUS Community Connect Grant Program are eligible if they do not have sufficient access to broadband, except for those grants still under construction. Service areas still under construction can be found on the Agency’s web page.
(iii) RUS BIP Grants. Service areas that received a 100 percent grant under the RUS Broadband Initiatives Program are eligible if they do not have sufficient access to broadband.
(c) Service areas with other funding. (1) Applicants are encouraged to work with the Governor’s office for the states, and tribal governments for the tribal areas where they are proposing to provide broadband service and submit information detailing where state funding has been provided.
(2) Service areas that have received federal grant funds, or funds from the Federal Communications Commission, to provide broadband service will be restricted from funding, if such funding is principally to construct facilities throughout the service area that provide broadband service at the threshold level of service. If additional service areas are restricted from funding, these areas will be identified in the funding opportunity announcement that opens an application window.
§ 1740.12 Eligible and ineligible cost purposes.
Award and any matching funds must be used to pay only eligible costs incurred post award, except for approved pre-application expenses. Eligible costs must be consistent with the cost principles identified in 2 CFR 200, Subpart E, Cost Principles. In addition, costs must be reasonable, allocable, and necessary to the project. Any application that proposes to use any portion of the award or matching funds for any ineligible costs may be rejected.
(a) Eligible award costs. Award funds under this part may be used to pay for the following costs:
(1) To fund the construction or improvement of facilities, including buildings and land, required to provide fixed terrestrial broadband service, including fixed wireless service, and any other facilities required for providing other services over the same facilities, such as equipment required to comply with CALEA;
(2) To fund reasonable preapplication expenses in an amount not to exceed five percent of the award. Preapplication expenses must be included in the first request for advance of award funds and will be funded with either grant or loan funds. If the funding category applied for has a grant component, then grant funds will be used for this purpose. If preapplication expenses are not included in the first request for advance of award funds, they will become an ineligible purpose; and
(3) To fund the acquisition of an existing system that does not currently provide sufficient access to broadband for upgrading that system to meet the requirements of this regulation. The cost of the acquisition is limited to 40 percent of the award amount requested. Acquisitions can be considered for 100 percent loans.
(b) Ineligible award costs. Award funds under this part may not be used for any of the following purposes:
(1) To fund operating expenses of the Awardee;
(2) To fund costs incurred prior to the date on which the application was submitted other than eligible preapplication expenses;
(3) To fund an acquisition of an affiliate, or the purchase or acquisition of any facilities or equipment of an affiliate. Note that if affiliated transactions are contemplated in the application, approval of the application does not constitute approval to enter into affiliated transactions, nor acceptance of the affiliated arrangements that conflict with the obligations under the award documents;
(4) To fund the acquisition of a system previously funded by RUS without prior written approval of RUS before an application is submitted;
(5) To fund the purchase or lease of any vehicle other than those used primarily in construction or system improvements;
(6) To fund broadband facilities leased under the terms of an operating lease or an indefeasible right of use (IRU) agreement;
(7) To fund the merger or consolidation of entities;
(8) To fund costs incurred in acquiring spectrum as part of a Federal Communication Commission (FCC) auction or in a secondary market acquisition. Spectrum that is part of a system acquisition may be considered;
(9) To fund facilities that provide mobile services;
(10) To fund facilities that provide satellite service including satellite backbone services;
(11) To fund the acquisition of a system that is providing sufficient access to broadband; or
(12) To refinance outstanding debt.
§§ 1740.13-1740.24 [Reserved]
Subpart C – Award Requirements
§ 1740.25 Substantially Underserved Trust Areas (SUTA).
Applicants seeking assistance may request consideration under the SUTA provisions in 7 U.S.C. 936f.
(a) If the Administrator determines that a community within “trust land” (as defined in 38 U.S.C. 3765) has a high need for the benefits of the Program, the Administrator may designate the community as a “substantially underserved trust area” (as defined in section 306F of the RE Act).
(b) To receive consideration under SUTA, the applicant must submit to the Agency a completed application that includes all information requested in 7 CFR part 1700, subpart D. In addition, the application must identify the discretionary authorities within subpart D that it seeks to have applied to its application. Note, however, the following:
(1) Given the prohibition on funding operating expenses in the Program, requests for waiver of the equity requirements cannot be considered; and
(2) Due to the statutory requirements that established the Program, waiver of the nonduplication requirements cannot be considered.
§ 1740.26 Public notice.
(a) To ensure transparency for the Program, the Agency’s mapping tool will include the following information from each application, and be displayed for the public:
(1) The identity of the applicant;
(2) The areas to be served, including identification of the associated census blocks;
(3) The type of funding requested;
(4) The status of the application; and
(5) The number of households without sufficient access to broadband.
(b) The Agency will publish a public notice of each application requesting assistance under this part in accordance with the requirements of 7 U.S.C. 950cc. All applicants must provide the following information, which will be posted publicly on RUS’ fully searchable website, in addition to the status of the application:
(1) A description of the proposed broadband project;
(2) A map of the PFSA;
(3) The amount and type of support requested by the applicant;
(4) The estimated number and proportion of service points in the proposed service territory without fixed broadband service, whether terrestrial or wireless; and
(5) Any other information required of the applicant in a funding notice.
(c) The public notice referenced under paragraph (b) of this section will be published after application submission and will remain available for 45 calendar days on the Agency’s web page. During this period, existing service providers are requested to submit the following information through the Agency’s mapping tool:
(1) The number of residential and business customers within the applicant’s service area currently purchasing sufficient access to broadband, the rates of data transmission being offered, and the cost of each level of broadband service charged by the existing service provider;
(2) The number of residential and business customers within the applicant’s service area receiving voice and video services and the associated rates for these other services;
(3) A map showing where the existing service provider’s services coincide with the applicant’s service area using the Agency’s Mapping Tool; and
(4) Test results for the service area in question for a minimum of at least the prior three months demonstrating that sufficient access to broadband is being provided. The test results shall be for different times of the day.
(d) The Agency may contact service providers that respond under paragraph (b) of this section to validate their submission, and so responding service providers should be prepared to:
(1) Provide additional information supporting that the area in question has sufficient access to broadband service;
(2) Have a technician on site during the field validation by RUS staff;
(3) Run on site tests with RUS personnel being present, if requested; and
(4) Provide copies of any test results that have been conducted in the last six months and validate the information submitted in the public notice response months.
(e) If no broadband service provider submits information pursuant to a pending application or if the existing provider does not provide the information requested under paragraphs (b) and (c) of this section, RUS will consider the number of providers and extent of broadband service using any other data available through reasonable efforts, including utilizing the National Telecommunications and Information Administration National Broadband Availability Map and FCC broadband availability map. That may include the agency conducting field validations so as to locate facilities in the PFSA and determine, to the extent possible, if those facilities can provide sufficient access to broadband. Notwithstanding, conclusive evidence as to the existence of sufficient access to broadband will be taken only through the public notice process. As a result, the Agency highly recommends that existing service providers in a proposed funded service territory submit responses to the public notice to ensure that their service is considered in the determination of eligibility on an application.
(f) The Agency will notify respondents who are existing service providers whether their challenge was successful or not and allow for an opportunity to respond.
(g) The information submitted by an existing service provider under paragraph (c) of this section will be treated as proprietary and confidential and not subject to disclosure, pursuant to 7 U.S.C. 950cc(b)(3).
(h) For all applications that are approved, the following information will be made available to the public:
(1) The information provided in paragraph (a) of this section;
(2) Each annual report required under § 1740.80(g) will be redacted to protect any proprietary information; and
(3) Such other information as the Administrator of the RUS deems sufficient to allow the public to understand the assistance provided.
(a) Federal Agencies are required to analyze the potential environmental impacts, as required by the National Environmental Policy Act (NEPA), for Applicant projects or proposals seeking funding. Please refer to 7 CFR part 1970 for all of Rural Development’s environmental policies. All Applicants must follow the requirements in 7 CFR part 1970 and are required to complete an Environmental Questionnaire, to provide a description of program activities, and to submit all other required environmental documentation as requested in the application system or by the Agency after the application is submitted. It is the Applicant’s responsibility to obtain all necessary federal, tribal, state, and local governmental permits and approvals necessary for the proposed work to be conducted.
(b) Applications will be reviewed to ensure that they contain sufficient information to allow Agency staff to conduct a NEPA analysis so that appropriate NEPA documentation can be submitted to the appropriate federal and state agencies, along with the recommendation that the proposal is in compliance with applicable environmental and historic preservation laws.
(c) Applicants proposing activities that cannot be covered by existing environmental compliance procedures will be informed whether NEPA requirements and other environmental requirements can otherwise be expeditiously met so that a project can proceed within the timeframes anticipated under the Program.
(d) If additional information is required after an application is accepted for funding, funds can be withheld by the agency under a special award condition requiring the Awardee to submit additional environmental compliance information sufficient for the Agency to assess any impacts that a project may have on the environment.
§ 1740.28 Civil rights procedures and requirements.
(a) Equal opportunity and nondiscrimination. The agency 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 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 under this part 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 for 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 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.
§§ 1740.29-1740.41 [Reserved]
Subpart D – Award Terms
§ 1740.42 Interest rates.
Interest rates for the different funding options that will become available will be included in the
(a) Direct cost-of-money loans shall bear interest at a rate equal to the cost of borrowing to the Department of Treasury for obligations of comparable maturity.
(b) The agency may offer 100 percent loans at a reduced interest rate, and in such cases, the applicable interest rate will be stated in the
§ 1740.43 Terms and conditions.
Terms and conditions of loans, grants, or loan/grant combinations are set forth in the non-negotiable standard loan, grant, or loan/grant agreements and the corresponding note, and/or mortgage, if applicable, which may be found on the Agency’s web page.
(a) Unless the Applicant requests a shorter repayment period, loans must be repaid with interest within a period that, rounded to the nearest whole year, is equal to the expected Composite Economic Life of the project assets, as determined by RUS based upon acceptable depreciation rates, plus three years. Acceptable depreciation rates can be found in the Program Construction Procedures found on the Agency’s web page.
(b) Interest begins accruing on the date of each loan advance. Any deferral period for loans will be set in the
(c) All proposed construction (including construction with matching and other funds) and all advance of funds must be completed no later than five years from the time funds are made available.
(d) No funds will be disbursed under this program until all other sources of funding have been obtained and any other pre-award conditions have been met. Failure to obtain one or more sources of funding committed to in the Application or to fulfill any other pre-award condition within 90 days of award announcement may result in withdrawal of the award. The RUS may modify this requirement in the
§ 1740.44 Security.
(a) Loans and loan/grant combinations. The loan portion of the award must be adequately secured, as determined by RUS.
(1) For Corporations and limited liability entities, the loan and loan/grant combinations must be secured by all assets of the Awardee.
(i) RUS must be given an exclusive first lien, in form and substance satisfactory to RUS, on all assets of the Awardee, including all revenues.
(ii) RUS may share its first lien position with one or more lenders on a pari passu basis, except with respect to grant funds, if security arrangements are acceptable to RUS.
(iii) Applicants must submit a certification that their prior lender or lienholder on any Awardee assets has already agreed to sign the RUS’ standard intercreditor agreement or co-mortgage found on the Agency’s web page.
(iv) RUS will not share a lien position on assets with any related party or affiliate of the Awardee.
(2) For Tribal entities and municipalities, RUS will develop appropriate security arrangements.
(3) Unless otherwise approved by RUS in writing, all property and facilities purchased with award funds must be owned by the Awardee.
(b) Grant security. The grant portion of the award must also be adequately secured, as determined by RUS.
(1) The government must be provided an exclusive first lien on all grant funded assets during the service obligation of the grant, and thereafter any sale or disposition of grant assets must comply with the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, codified in 2 CFR part 200. Note that this part will apply to ALL grant funds of an Awardee, regardless of the entity status or type of organization.
(2) All Awardees must repay the grant if the project is sold or transferred without receiving written approval from RUS during the service obligation of the grant.
(c) Substitution of Collateral and Irrevocable Letter of Credit – (1) Loans and combination loan and grant. The Agency’s standard loan/grant documents require that applicants pledge all assets and revenues of their operations as collateral. Applicants may propose other forms of collateral as long as the amount of the collateral is equal to the full amount of the loan. The collateral must be pledged to the Agency. Acceptable forms of substitute collateral are limited to following: Certificates of Deposit, with the Agency named as the beneficiary on the certificate, or Bonds with a AAA rating from an accredited rating agency. All other conditions of the standard loan documents will apply. A copy of the Substitution Documents can be found on the Agency’s web page.
(2) Grants. For grant-only applications, applicants may request that standard grant security arrangements be replaced with an Irrevocable Letter of Credit (ILOC), to ensure that the project is completed. The ILOC must be for the full amount of funding requested and must remain in place until project completion. If an ILOC is offered as security, applicants will not be required to provide financial projections, meet any financial ratios requirements as part of the application process, or submit the maps for their NFSAs. Although the ILOC will replace security for the grant security arrangements, all other requirements of the standard grant agreement will remain the same. A copy of the ILOC award documents can be found on the Agency’s web page.
§ 1740.45 Advance of funds.
RUS loan and grant advances are made at the request of the Awardee according to the procedures stipulated in the Award Documents. All non-RUS funds, to include matching funds and cash provided in lieu of RUS loan funds, must be expended first, followed by loan funds and then grant funds, except for RUS-approved pre-application expenses. RUS may modify this requirement in the
§ 1740.46 Buy American requirement.
Awardees shall use in connection with the expenditure of loan and grant funds only such unmanufactured articles, materials, and supplies, as have been mined or produced in the United States or in any eligible country, and only such manufactured articles, materials, and supplies as have been manufactured in the United States or in any eligible country, substantially all from articles, materials, or supplies mined, produced, or manufactured, as the case may be, in the United States or in any eligible country. For purposes of this section, an “eligible country” is any country that applies with respect to the United States an agreement ensuring reciprocal access for United States products and services and United States suppliers to the markets of that country, as determined by the United States Trade Representative. The Buy American regulations may be found at, and any requests for waiver must be submitted pursuant to, 7 CFR part 1787.
§§ 1740.47-1740.58 [Reserved]
Subpart E – Application Submission and Evaluation
§ 1740.59 Application submission.
(a) Applications must be submitted through the Agency’s online application system.
(b) The Agency may publish additional application submission requirements in a notice in the
(c) Unless otherwise identified in the notice, applicants can only submit one application under any funding window.
§ 1740.60 Elements of a complete application.
(a) Online application system. All applications under this regulation must be submitted through the RUS Online Application System located on the Agency’s web page. Additional information can be found in the Application Guide found on the Agency’s web page.
(b) Dun and Bradstreet Universal Numbering System (DUNS) Number. All applicants must register for a DUNS number, or other Government non-proprietary identifier as part of the application process. The applicant can obtain the DUNS number free of charge by calling Dun and Bradstreet. Go to https://fedgov.dnb.com/webform for more information on assignment of a DUNS number or confirmation. DUNS numbers of parent or affiliated operations cannot be substituted for the applicant. If a DUNS number is not provided, the application cannot be considered for an award.
(c) System for Award Management (SAM). Prior to submitting an application, the applicant must also register in SAM at https://www.sam.gov/SAM/ and supply a Commercial and Government Entity (CAGE) Code number as part of the application. SAM registration must be active with current data at all times, from the application review throughout the active Federal award funding period. To maintain active SAM registration, the applicant must review and update the information in the SAM database annually from the date of initial registration or from the date of the last update. The applicant must ensure that the information in the database is current, accurate, and complete. If the CAGE Code of the applicant is not included in the application, the application will not be considered for an award.
(d) Contents of the application. A complete application will include the following information as requested in the RUS Online Application System and application guide:
(1) General information on the applicant and the project including:
(i) A description of the project, that will be made public, consistent with the requirements herein; and
(ii) The estimated dollar amount of the funding request.
(2) An executive summary that includes, but is not be limited to, a detailed description of existing operations, discussion about key management, description of the workforce, description of interactions between any parent, affiliated or subsidiary operation, a detailed description of the proposed project, and the source of the matching and other funds;
(3) A description of the PFSA including the number of premises passed;
(4) Subscriber projections including the number of subscribers for broadband, video and voice services and any other service that may be offered. A description of the proposed service offerings and the associated pricing plan that the applicant proposes to offer;
(5) A map, utilizing the RUS mapping tool located on the Agency’s web page, of the PFSAs identifying the areas without sufficient access to broadband and any NFSA of the applicant. If an applicant has multiple NFSAs, they can elect to submit each NFSA individually or they can submit them as a single file through the mapping tool;
(6) A description of the advertised prices of service offerings by competitors in the same area;
(7) A network design and all supporting information as detailed in § 1740.64.
(8) Resumes of key management personnel, a description of the organization’s readiness to manage a broadband services network, and an organizational chart showing all parent organizations and/or holding companies (including parents of parents, etc.), and all subsidiaries and affiliates;
(9) A legal opinion that:
(i) Addresses the applicant’s ability to enter into the award documents;
(ii) Describes all material pending litigation matters;
(iii) Addresses the applicant’s ability to pledge security as required by the award documents; and
(iv) Addresses the applicant’s ability to provide broadband service under state or tribal law.
(10) Summary and itemized budgets of the infrastructure costs of the proposed project, including if applicable, the ratio of loans to grants, and any other sources of outside funding. The summary must also detail the amount of matching and other funds and the source of these funds. If the matching and other funds are coming from a third party, a commitment letter and support that the funds are available must also be submitted. Matching and other funds must be deposited into the RUS Pledged Deposit Account at the closing of the award;
(11) A detailed description of working capital requirements and the sources of those funds;
(12) Unqualified, comparative audited financial statements for the previous calendar year from the date the application is submitted as detailed in § 1740.63;
(13) The historical and projected financial information required in § 1740.63;
(14) All information and attachments required in the RUS Online application system;
(15) A scoring sheet, analyzing any scoring criteria set forth in the funding announcement opening the application window;
(16) A list of all the applicant’s outstanding and contingent obligations as required in § 1740.63;
(17) All environmental information as required by § 1740.27;
(18) Certification from the applicant that agreements with, or obligations to, investors do not breach the obligations to the government under the standard Award Documents located on the Agency’s web page, especially distribution requirements, and that any such agreements will be amended so that such obligations are made contingent to compliance with the Award Documents. Such certification should also specifically identify which, if any, provisions would need to be amended;
(19) If service is being proposed on tribal land, a certification from the proper tribal official that they are in support of the project and will allow construction to take place on tribal land. The certification must:
(i) Include a description of the land proposed for use as part of the proposed project;
(ii) Identify whether the land is owned, held in Trust, land held in fee simple by the Tribe, or land under a long-term lease by the Tribe;
(iii) If owned, identify the landowner; and
(iv) Provide a commitment in writing from the landowner authorizing the applicant’s use of that land for the proposed project; and
(20) Additional items that may be required by the Administrator through a notice in the
(e) Material representations. The application, including certifications, and all forms submitted as part of the application will be treated as material representations upon which RUS will rely in awarding grants and loans.
§ 1740.61 Evaluation for technical and financial feasibility.
(a) A project is financially feasible when the applicant demonstrates to the satisfaction of RUS that it will be able to generate sufficient revenues to cover expenses; will have sufficient cash flow to service all debts and obligations as they come due; will have a positive ending cash balance as reflected on the cash flow statement for each year of the forecast period; and, by the end of the forecast period, will meet at least two of the following requirements: A minimum TIER requirement of 1.2, a minimum DSCR requirement of 1.2, and a minimum current ratio of 1.2. In addition, applicants must demonstrate positive cash flow from operations at the end of the forecast period.
(b) For any funding option that includes grant funds, evaluation criteria for scoring the application will be included in the
(c) The Agency will determine technical feasibility by evaluating the Applicant’s network design and other relevant information in the application.
§ 1740.62 Evaluation of Awardee operations.
(a) RUS may send a team to the awardee’s facilities to complete a Management Analysis Profile (MAP) of the entire operation. MAPs are used by RUS as a means of evaluating an Awardee’s strengths and weaknesses and ensuring that awardees are prepared to fulfil the terms of the award. Once an applicant accepts an award offer, RUS may schedule a site visit as soon as possible.
(b) RUS reserves the right not to advance funds until the MAP has been completed. If the MAP identifies issues that can affect the operation and completion of the project, those issues must be addressed to the satisfaction of RUS before funds can be advanced. Funding may be rescinded if following a MAP, the agency determines that the awardee will be unable to meet the requirements of the award.
§ 1740.63 Financial information.
(a) The Applicant must submit financial information acceptable to the Agency that demonstrates that the Applicant has the financial capacity to fulfill the grant, loan, and loan/grant combination requirements in this part and to successfully complete the proposed project.
(1) Applicants must submit unqualified, comparative, audited financial statements for the previous year from the date the application is submitted. If an application is submitted and the most recent year-end audit has not been completed, the applicant can submit the previous unqualified audit that has been completed. If qualified audits containing a disclaimer or adverse opinion are submitted, the application will not be considered.
(i) An applicant can use the consolidated audit of a parent as long as the parent fully guarantees the loan, or in the case of a grant, guarantees that construction will be completed as approved in the application or will repay the grant to RUS.
(ii) If the applicant has more than one parent, then each parent’s audits must be submitted, and each parent must fully guarantee the award.
(iii) For governmental entities, financial statements must be accompanied with certifications as to unrestricted cash that may be available on a yearly basis to the applicant.
(2) Applicants must provide detailed information for all outstanding and contingent obligations. Copies of existing notes, loan and security agreements, guarantees, any existing management or service agreements, and any other agreements with parents, subsidiaries and affiliates, including but not limited to debt instruments that use the applicant’s assets, revenues or stock as collateral must be included in the application.
(3) Applicants must provide evidence of all funding, other than the RUS award, necessary to support the project, such as bank account statements, firm letters of commitment from equity participants, or outside loans, which must evidence the timely availability of funds. If outside loans are used to cover any matching requirement, they may only be secured by assets other than those used for collateral under this regulation. Equity partners that are not specifically identified by name will not be considered in the financial analysis of the application. If the application states that other funds are required for the broadband project in addition to the Program funding requested, evidence must be included in the application identifying the source of funds and when the funds will be available. If the additional funding is not clearly identified, the application may not be considered for an award. If the applicant is providing non-telecommunication services and is proposing expansion to those services and states that additional funds are required to support sustainability of the overall operation of the applicant, then evidence must be submitted supporting the availability of these funds or the application may not be considered for funding.
(4) Historical financial statements for the last four years consisting of a balance sheet, income statement, and cash flow statement must be provided. If an entity has not been operating for four years, historical statements for the period of time the entity has been operating are acceptable.
(5) Pro Forma financial analysis prepared in conformity with GAAP and the Agency’s guidance on grant accounting can be found at https://www.rd.usda.gov/files/AccountingGuidance10.pdf. The Pro Forma should validate the sustainability of the project by including subscriber estimates related to all proposed service offerings; annual financial projections with balance sheets, income statements, and cash flow statements; supporting assumptions for a five-year forecast period and a depreciation schedule for existing facilities, those facilities funded with federal assistance, matching funds, and other funds. This pro forma should indicate the committed sources of capital funding and include a bridge year prior to the start of the forecast period. This bridge year shall be used as a buffer between the historical financial information and the forecast period and is the year in which the application is submitted.
(i) The financial projections must demonstrate that by the end of the forecast period, the project will meet at least two of the requirements described in § 1740.61(a).
(ii) The financial projections must also demonstrate positive cash flow from operations at the end of the forecast period.
(iii) Based on the financial evaluation, additional conditions may be added to the Award documents to ensure financial feasibility and security on the award.
(b) Publicly traded companies that have a bond rating from Moody’s, Standard and Poor’s, or Fitch of Investment Grade at the time an application is submitted do not have to complete the pro forma financial projections. In addition, applicants with this classification that elect not to submit financial projections do not need to submit NFSAs.
§ 1740.64 Network design.
(a) Only projects that RUS determines to be technically feasible will be eligible for an award.
(b) The network design must include a description of the proposed technology used to deliver the broadband service, demonstrating that all premises in the PFSA can be offered broadband service; a network diagram, identifying cable routes, wireless access points, and any other equipment required to operate the network; a buildout timeline and milestones for implementation of the project; and a capital investment schedule showing that the system can be built within five years. All of these items must be certified by a professional engineer who is certified in at least one of the states where there is or will be project construction. The certification from the professional engineer must clearly state that the proposed network can deliver the broadband service to all premises in the PFSA at the minimum required service level. In addition, a list of all required licenses and regulatory approvals needed for the proposed project and how much the applicant will rely on contractors or vendors to deploy the network facilities must be submitted. Note that in preparing budget costs for equipment and materials, RUS’ Buy American requirements apply, as referenced in § 1740.46.
§§ 1740.65-1740.76 [Reserved]
Subpart F – Closing, Servicing, and Reporting
§ 1740.77 Offer and closing.
Successful applicants will receive an offer letter and award documents from RUS following award notification. Applicants may view sample award documents on the Agency’s web page.
§ 1740.78 Construction.
(a) All project assets must comply with 7 CFR part 1788 and 7 CFR part 1970, the Program Construction Procedures located on the Agency’s web page, any successor regulations found on the agency’s website, and any other guidance from the Agency.
(b) The build-out of the project must be completed within five years from the date funds are made available. Build-out is considered complete when the network design has been fully implemented, the service operations and management systems infrastructure is operational, and the awardee is ready to support the activation and commissioning of individual customers to the new system.
§ 1740.79 Servicing of grants, loans and loan/grant combinations.
(a) Awardees must make payments on the loan as required in the note and Award Documents.
(b) Awardees must comply with all terms, conditions, affirmative covenants, and negative covenants contained in the Award Documents.
(c) The sale or lease of any portion of the Awardee’s facilities must be approved in writing by RUS prior to initiating the sale or lease.
§ 1740.80 Accounting, monitoring, and reporting requirements.
(a) Awardees must adopt a system of accounts for maintaining financial records acceptable to the Agency, as described in 7 CFR part 1770, subpart B.
(b) Awardees must submit annual comparable audited financial statements along with a report on compliance and on internal control over financial reporting, and management letter in accordance with the requirements of 7 CFR part 1773 using the RUS’ on-line reporting system. The Certified Public Accountant (CPA) conducting the annual audit is selected by the borrower and must be satisfactory to RUS as set forth in 7 CFR 1773, subpart B, “RUS Audit Requirements.”
(c) Thirty (30) calendar days after the end of each calendar year quarter, Awardees must submit to RUS, balance sheets, income statements, statements of cash flow, rate package summaries, and the number of customers taking broadband service on a per community basis utilizing RUS’ on-line reporting system. These reports must be submitted throughout the loan amortization period or for the economic life of the facilities funded with a grant.
(d) Awardees will be required to submit annually updated service area maps through the RUS mapping tool showing the areas where construction has been completed and premises are receiving service until the entire PFSA can receive the broadband service. At the end of the project, Awardees must submit a service area map indicating that all construction has been completed as proposed in the application. If parts of the PFSA have not been constructed, RUS may require a portion of the award to be rescinded or paid back.
(e) Awardees must comply with all reasonable Agency requests to support ongoing monitoring efforts. The Awardee shall afford RUS, through its representatives, reasonable opportunity, at all times during business hours and upon prior notice, to have access to and the right to inspect: The Broadband System, any other property encumbered by the Award Documents, any and 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 the possession of the Awardee or in any way pertaining to its property or business, including its subsidiaries, if any, and to make copies or extracts thereof.
(f) Awardee records shall be retained and preserved in accordance with the provisions of 7 CFR part 1770, subpart A.
(g) Awardees receiving assistance under this part will be required to submit annual reports for three (3) years after the completion of construction. The reports must include the following information:
(1) Existing network service improvements and facility upgrades, as well as new equipment and capacity enhancements that support high-speed broadband access for educational institutions, health care providers, and public safety service providers;
(2) The estimated number of end users who are currently using or forecasted to use the new or upgraded infrastructure;
(3) The progress towards fulfilling the objectives for which the assistance was granted;
(4) The number and geospatial location of residences and businesses that will receive new broadband service;
(5) The speed and price of the Awardee’s broadband service offerings; and
(6) The average price of broadband service in the Project’s service area.
§ 1740.81 Default and de-obligation.
RUS reserves the right to deobligate awards to Awardees under this part that demonstrate an insufficient level of performance, wasteful or fraudulent spending, or noncompliance with environmental and historic preservation requirements.
§§ 1740.82-1740.93 [Reserved]
Subpart G – Other Information and Federal Requirements
§ 1740.94 Confidentiality of Applicant information.
Applicants are encouraged to identify and label any confidential and proprietary information contained in their applications. The Agency will protect confidential and proprietary information from public disclosure to the fullest extent authorized by applicable law, including the Freedom of Information Act, as amended (5 U.S.C. 552), the Trade Secrets Act, as amended (18 U.S.C. 1905), the Economic Espionage Act of 1996 (18 U.S.C. 1831 et seq.), and CALEA (47 U.S.C. 1001 et seq.). Applicants should be aware, however, that this program requires substantial transparency. For example, RUS is required to make publicly available on the internet a list of each entity that has applied for a loan or grant, a description of each application, the status of each application, the name of each entity receiving funds, and the purpose for which the entity is receiving the funds.
§ 1740.95 Compliance with applicable laws.
Any recipient of funds under this regulation shall be required to comply with all applicable federal, tribal and state laws, including but not limited to:
(a) The Architectural Barriers Act of 1968, as amended (42 U.S.C. 4151 et seq.);
(b) The Uniform Federal Accessibility Standards (UFAS) (Appendix A to 41 CFR subpart 101-19.6); and
(c) All applicable federal, tribal and state communications laws and regulations, including, for example, the Communications Act of 1934, as amended, (47 U.S.C. 151 et seq.) the Telecommunications Act of 1996, as amended (Pub. L. 104-104, 110 Stat. 56 (1996), and CALEA. For further information, see http://www.fcc.gov.
§§ 1740.96-1740.99 [Reserved]
§ 1740.100 OMB control number.
The information collection requirements in this part are approved by the Office of Management and Budget (OMB) and assigned OMB control number 0572-0152.
PART 1741 – PRE-LOAN POLICIES AND PROCEDURES FOR INSURED TELEPHONE LOANS [ RESERVED]
PART 1744 – POST-LOAN POLICIES AND PROCEDURES COMMON TO GUARANTEED AND INSURED TELEPHONE LOANS
Subpart A [Reserved]
Subpart B – Lien Accommodations and Subordination Policy
§ 1744.20 General.
(a) Recent changes in the telecommunications industry, including deregulation and technological developments, have caused Rural Utilities Service (RUS) borrowers and other organizations providing telecommunications services to consider undertaking projects that provide new telecommunications services and other telecommunications services not ordinarily financed by RUS. Although some of these services may not be eligible for financing under the Rural Electrification Act of 1936 (RE Act), these services may nevertheless advance RE Act objectives where the borrower obtains financing from private lenders. The borrower’s financial strength and the assurance of repayment of outstanding Government debt may be improved as a result of providing such telecommunications services.
(b) To facilitate the financing of new services and other services not ordinarily financed by RUS, RUS is willing to consider accommodating the Government’s lien on telecommunications borrowers’ systems or accommodating or subordinating the Government’s lien on after-acquired property of telecommunications borrowers. To expedite this process, requests for lien accommodations meeting the requirements of § 1744.30 will receive automatic approval from RUS.
(c) This subpart establishes RUS policy with respect to all requests for lien accommodations and subordinations for loans from private lenders. For borrowers that do not qualify for automatic lien accommodations in accordance with § 1744.30, RUS will consider lien accommodations for RE Act purposes under § 1744.40 and non-Act purposes under § 1744.50.
§ 1744.21 Definitions.
The following definitions apply to this subpart:
Administrator means the Administrator of RUS.
Advance means transferring funds from RUS or a lender guaranteed by RUS to the borrower’s construction fund.
After-acquired property means property which is to be acquired by the borrower and which would be subject to the lien of the Government mortgage when acquired.
Amortization expense means the sum of the balances of the following accounts of the borrower:
| Account names | Number |
|---|---|
| (1) Amortization expense | 6560.2 |
| (2) Amortization expense – tangible | 6563 |
| (3) Amortization expense – intangible | 6564 |
| (4) Amortization expense – other | 6565 |
All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B).
Asset means a future economic benefit obtained or controlled by the borrower as a result of past transactions or events.
Automatic lien accommodation means the approval, by RUS, of a request to share the Government’s lien on a pari passu or pro-rata basis with a private lender in accordance with the provisions of § 1744.30.
Borrower means any organization that has an outstanding telecommunications loan made or guaranteed by RUS, or that is seeking such financing. See 7 CFR part 1735.
Construction Fund means the RUS Construction Fund Account into which all advances of loan funds are deposited pursuant to the provisions of the loan documents.
Debt Service Coverage (DSC) ratio means the ratio of the sum of the borrower’s net income, depreciation and amortization expense, and interest expense, all divided by the sum of all payments of principal and interest required to be paid by the borrower during the year on all its debt from any source with a maturity greater than 1 year and capital lease obligations.
Default means any event or occurrence which, unless corrected, will, with the passage of time and the giving of proper notices, give rise to remedies under one or more of the loan documents.
Depreciation expense means the sum of the balances of the following accounts of the borrower:
| Account names | Number |
|---|---|
| (1) Depreciation expense | 6560.1 |
| (2) Depreciation expense – telecommunications plant in service | 6561 |
| (3) Depreciation expense – property held for future telecommunications use | 6562 |
All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B).
Disbursement means a transfer of money by the borrower out of the construction fund in accordance with the provisions of the fund.
Equity percentage means the total equity or net worth of the borrower expressed as a percentage of the borrower’s total assets.
FFB means the Federal Financing Bank.
Financial Requirement Statement (FRS) means RUS Form 481 (OMB – No. 0572 – 0023). (This RUS Form is available from RUS, Program Development and Regulatory Analysis, Washington, DC 20250-1522).
Government mortgage means any instrument to which the Government, acting through the Administrator, is a party and which creates a lien or security interest in the borrower’s property in connection with a loan made or guaranteed by RUS whether the Government is the sole mortgagee or is a co-mortgagee with a private lender.
Hardship loan means a loan made by RUS under section 305(d)(1) of the RE Act.
Interim construction means the purchase of equipment or the conduct of construction under an RUS-approved plan of interim financing. See 7 CFR part 1737.
Interest expense means the sum of the balances of the following accounts of the borrower:
| Account names | Number |
|---|---|
| (1) Interest and related items | 7500 |
| (2) Interest on funded debt | 7510 |
| (3) Interest expense – capital leases | 7520 |
| (4) Amortization of debt issuance expense | 7530 |
| (5) Less Allowance for funds used during construction | 7340/7300.4 |
| (6) Other interest deductions | 7540 |
All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B).
Interim financing means funding for a project which RUS has acknowledged may be included in a loan, should said loan be approved, but for which RUS loan funds have not yet been made available.
Lien accommodation means sharing the Government’s lien on a pari passu or pro-rata basis with a private lender.
Loan means any loan made or guaranteed by RUS.
Loan documents means the loan contract, note and mortgage between the borrower and RUS and any associated document pertinent to a loan.
Loan funds means the proceeds of a loan made or guaranteed by RUS.
Material and supplies means any of the items properly recordable in the following account of the borrower:
| Account names | Number |
|---|---|
| (1) Material and Supplies | 1220.1 |
All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B).
Net income/Net margins means the sum of the balances of the following accounts of the borrower:
| Account names | Number |
|---|---|
| (1) Local Network Services Revenues | 5000 through 5069 |
| (2) Network Access Services Revenues | 5080 through 5084 |
| (3) Long Distance Network Services Revenues | 5100 through 5169 |
| (4) Miscellaneous Revenues | 5200 through 5270 |
| (5) Nonregulated Revenues | 5280 |
| (6) Less Uncollectible Revenues | 5200 through 5302 |
| (7) Less Plant Specific Operations Expense | 6110 through 6441 |
| (8) Less Plant Nonspecific Operations Expense | 6510 through 6565 |
| (9) Less Customer Operations Expense | 6610 through 6623 |
| (10) Less Corporate Operations Expense | 6710 through 6790 |
| (11) Other Operating Income and Expense | 7100 through 7160 |
| (12) Less Operating Taxes | 7200 through 7250/7200.5 |
| (13) Nonoperating Income and Expense | 7300 through 7370 |
| (14) Less Nonoperating Taxes | 7400 through 7450/7400.5 |
| (15) Less Interest and Related Items | 7500 through 7540 |
| (16) Extraordinary Items | 7600 through 7640/7600.4 |
| (17) Jurisdictional Differences and Nonregulated Income Items | 7910 through 7990 |
All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B).
Net plant means the sum of the balances of the following accounts of the borrower:
| Account names | Number |
|---|---|
| (1) Property, Plant and Equipment | 2001 through 2007 |
| (2) Less Depreciation and Amortization | 3100 through 3600 |
All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B).
Notes means evidence of indebtedness secured by or to be secured by the Government mortgage.
Pari Passu means equably; ratably; without preference or precedence.
Plant means any of the items properly recordable in the following accounts of the borrower:
| Account names | Number |
|---|---|
| (1) Property, Plant and Equipment | 2001 through 2007 |
All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B).
Private lender means any lender other than the RUS or the lender of a loan guaranteed by RUS.
Private lender notes means the notes evidencing a private loan.
Private loan means any loan made by a private lender.
RE Act (Act) means the Rural Electrification Act of 1936 (7 U.S.C. 901 et. seq.).
RUS means the Rural Utilities Service, and includes its predecessor, the Rural Electrification Administration.
RUS cost-of-money loan means a loan made under section 305(d)(2) of the RE Act.
Subordination means allowing a private lender to have a lien on specific property which will have priority over the Government’s lien on such property.
Tangible plant means any of the items properly recordable in the following accounts of the borrower:
| Account names | Number |
|---|---|
| (1) Telecommunications Plant in Service – General Support Assets | 2110 through 2124 |
| (2) Telecommunications Plant in Service – Central Office Assets | 2210 through 2232 |
| (3) Telecommunications Plant in Service – Information Origination/Termination Assets | 2310 through 2362 |
| (4) Telecommunications Plant in Service – Cable and Wire Facilities Assets | 2410 through 2441 |
| (5) Amortizable Tangible Assets | 2680 through 2682 |
| (6) Nonoperating Plant | 2006 |
All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B).
Telecommunication services means any service for the transmission, emission, or reception of signals, sounds, information, images, or intelligence of any nature by optical waveguide, wire, radio, or other electromagnetic systems and shall include all facilities used in providing such service as well as the development, manufacture, sale, and distribution of such facilities.
Times interest earned ratio (TIER) means the ratio of the borrower’s net income or net margins plus interest expense, divided by said interest expense.
Total assets means the sum of the balances of the following accounts of the borrower:
| Account names | Number |
|---|---|
| (1) Current Assets | 1100s through 1300s |
| (2) Noncurrent Assets | 1400s through 1500s |
| (3) Total telecommunications plant | 2001 through 2007 |
| (4) Less accumulated depreciation | 3100 through 3300s |
| (5) Less accumulated amortization | 3400 through 3600s |
All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B).
Total equity or net worth means the excess of a borrower’s total assets over its total liabilities.
Total liabilities means the sum of the balances of the following accounts of the borrower:
| Account names | Number |
|---|---|
| (1) Current Liabilities | 4010 through 4130.2 |
| (2) Long-Term Debt | 4210 through 4270.3 |
| (3) Other Liabilities and Deferred Credits | 4310 through 4370 |
All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B).
Total long-term debt means the sum of the balances of the following accounts of the borrower:
| Account names | Number |
|---|---|
| (1) Long-Term Debt | 4210 through 4270.3 |
All references to account numbers are to the Uniform System of Accounts (7 CFR part 1770, subpart B).
Weighted-average life of the loans or notes means the average life of the loans or notes based on the proportion of original loan principal paid during each year of the loans or notes. It shall be determined by calculating the sum of all loan or note principal payments expressed as a fraction of the original loan or note principal amount, times the number of years and fractions of years elapsed at the time of each payment since issuance of the loan or note. 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.
Weighted-average remaining life of the loans or notes means the remaining average life of the loans or notes based on the proportion of remaining loan or note principal expressed in years remaining to maturity of the loans or notes. It shall be determined by calculating the sum of the remaining principal payments of each loan or note expressed as a fraction of the total remaining loan or note amounts times the number of years and fraction of years remaining until maturity of the loan or note.
Weighted-average remaining useful life of the assets means the estimated original average life of the assets to be acquired with the proceeds of the private lender notes expressed in years based on depreciation rates less the number of years those assets have been in service (or have been depreciated). It shall be determined by calculating the sum of each asset’s remaining value expressed as a fraction of the total remaining value of the assets, times the estimated number of years and fraction of years remaining until the assets are fully depreciated.
Wholly-owned subsidiary means a corporation owned 100 percent by the borrower.
§§ 1744.22-1744.29 [Reserved]
§ 1744.30 Automatic lien accommodations.
(a) Purposes and requirements for approval. Automatic lien accommodations are available only for refinancing and refunding of notes secured by the borrower’s existing Government mortgage; financing assets, to be owned by the borrower, to provide telecommunications services; or financing assets, to be owned by a wholly-owned subsidiary of the borrower, to provide telecommunications services in accordance with the procedures set forth in this section.
(b) Private lender responsibility. The private lender is responsible for ensuring that its notes, for which an automatic lien accommodation has been approved as set forth in this section, are secured under the mortgage. The private lender is responsible for ensuring that the supplemental mortgage is a valid and binding instrument enforceable in accordance with its terms, and recorded and filed in accordance with applicable law. If the private lender determines that additional documents are required or that RUS must take additional actions to secure the notes under the mortgage, the private lender shall follow the procedures set forth in § 1744.40 or § 1744.50, as appropriate.
(c) Refinancing and refunding. The Administrator will automatically approve a borrower’s execution of private lender notes and the securing of such notes on a pari passu or pro-rata basis with all other notes secured under the Government mortgage, when such private lender notes are issued for the purpose of refinancing or refunding any notes secured under the Government mortgage, provided that all of the following conditions are met:
(1) No default has occurred and is continuing under the Government mortgage;
(2) The borrower has delivered to the Administrator, at least 10 business days before the private lender notes are to be executed, a certification and agreement executed by the President of the borrower’s Board of Directors, such certification and agreement to be substantially in the form set forth in Appendix A of this subpart, providing that:
(i) No default has occurred and is continuing under the Government mortgage;
(ii) The principal amount of such refinancing or refunding notes will not be greater than 112 percent of the then outstanding principal balance of the notes being refinanced or refunded;
(iii) The weighted-average life of the private loan evidenced by the private lender notes will not exceed the weighted-average remaining life of the notes being refinanced or refunded;
(iv) The private lender notes will provide for substantially level debt service or level principal amortization over a period not less than the original remaining years to maturity;
(v) Except as provided in the Government mortgage, the borrower has not agreed to any restrictions or limitations on future loans from RUS; and
(vi) If the private lender determines that a supplemental mortgage is necessary, the borrower will comply with those procedures contained in paragraph (h) of this section for the preparation, execution, and delivery of a supplemental mortgage and take such additional action as may be required to secure the notes under the Government mortgage.
(d) Financing assets to be owned directly by a borrower. The Administrator will automatically approve a borrower’s execution of private lender notes and the securing of such notes on a pari passu or pro-rata basis with all other notes secured under the Government mortgage, when such private lender notes are issued for the purpose of financing the purchase or construction of plant and material and supplies to provide telecommunication services and when such assets are to be owned and the telecommunications services are to be offered by the borrower, provided that all of the following conditions are met:
(1) The borrower has achieved a TIER of not less than 1.5 and a DSC of not less than 1.25 for each of the borrower’s two fiscal years immediately preceding the issuance of the private lender notes;
(2) The ratio of the borrower’s net plant to its total long-term debt at the end of any calendar month ending not more than 90 days prior to execution of the private lender notes is not less than 1.2, on a pro-forma basis, after taking into account the effect of the private lender notes and additional plant on the total long-term debt of the borrower;
(3) The borrower’s equity percentage, as of the most recent fiscal year-end, was not less than 25 percent;
(4) No default has occurred and is continuing under the Government mortgage;
(5) The borrower has delivered to the Administrator, at least 10 business days before the private lender notes are to be executed, a certification by an independent certified public accountant that the borrower has met each of the requirements in paragraphs (d)(1) and (d)(3) of this section, such certification to be substantially in the form in appendix B of this subpart; and
(6) The borrower has delivered to the Administrator, at least 10 business days before the private lender notes are to be executed, a certification and agreement executed by the President of the borrower’s Board of Directors, such certification and agreement to be substantially in the form in appendix C of this subpart: provided, that:
(i) The borrower has met each of the requirements in paragraphs (d)(2) and (d)(4) of this section;
(ii) The proceeds of the private lender notes are to be used for the construction or purchase of the plant and materials and supplies to provide telecommunications services in accordance with this section and such construction or purchase is expected to be completed not later than 4 years after execution of such notes;
(iii) The weighted-average life of the private loan evidenced by the private lender notes does not exceed the weighted-average remaining useful life of the assets being financed;
(iv) The private lender notes will provide for substantially level debt service or level principal amortization over a period not less than the original remaining years to maturity;
(v) All of the assets financed by the private loans will be purchased or otherwise procured in bona fide arm’s length transactions;
(vi) The financing agreement with the private lender will provide that the private lender shall cease the advance of funds upon receipt of written notification from RUS that the borrower is in default under the RUS loan documents;
(vii) Except as provided in the Government mortgage, the borrower has not agreed to any restrictions or limitations on future loans from RUS; and
(viii) If the private lender determines that a supplemental mortgage is necessary, the borrower will comply with those procedures set forth in paragraph (h) of this section for the preparation, execution, and delivery of a supplemental mortgage and take such additional action as may be required to secure the notes under the Government mortgage.
(e) Financing assets to be owned by a wholly-owned subsidiary of the borrower. The Administrator will automatically approve a borrower’s execution of private lender notes and the securing of such notes on a pari passu or pro-rata basis with all other notes secured under the Government mortgage, when such private lender notes are issued for the purpose of financing the purchase or construction of tangible plant and material and supplies to provide telecommunication services and when such services are to be offered and the associated tangible assets are to be owned by a wholly-owned subsidiary of the borrower, provided that all of the following conditions are met:
(1) The borrower has achieved a TIER of not less than 2.5 and a DSC of not less than 1.5 for each of the borrower’s two fiscal years immediately preceding the issuance of the private lender notes;
(2) The ratio of the borrower’s net plant to its total long-term debt at the end of any calendar month ending not more than 90 days prior to execution of the private lender notes is not less than 1.6, on a pro-forma basis, after taking into account the effect of the private lender notes and additional plant on the total long-term debt of the borrower;
(3) The borrower’s equity percentage, as of the most recent fiscal year-end, was not less than 45 percent;
(4) No default has occurred and is continuing under the Government mortgage;
(5) The borrower has delivered to the Administrator, at least 10 business days before the private lender notes are to be executed, a certification by an independent certified public accountant that the borrower has met each of the requirements in paragraphs (e)(1) and (e)(3) of this section, such certification to be substantially in the form in appendix D of this subpart; and
(6) The borrower has delivered to the Administrator, at least 10 business days before the private lender notes are to be executed, a certification and agreement executed by the President of the borrower’s Board of Directors, such certification and agreement to be substantially in the form in appendix E of this subpart; providing that:
(i) The borrower has met each of the requirements in paragraphs (e)(2) and (e)(4) of this section;
(ii) The proceeds of the private lender notes are to be used for the construction or purchase of the tangible plant and materials and supplies to provide telecommunications services in accordance with this section and such construction or purchase is expected to be completed not later than 4 years after execution of such notes;
(iii) The weighted-average life of the private loan evidenced by the private lender notes does not exceed the weighted-average remaining useful life of the assets being financed;
(iv) The private lender notes will provide for substantially level debt service or level principal amortization over a period not less than the original remaining years to maturity;
(v) All of the assets financed by the private loans will be purchased or otherwise procured in bona fide arm’s length transactions;
(vi) The proceeds of the private lender notes will be lent to a wholly-owned subsidiary of the borrower pursuant to terms and conditions agreed upon by the borrower and subsidiary;
(vii) The borrower will, whenever requested by RUS, provide RUS with a copy of the financing or guarantee agreement between the borrower and the subsidiary or any similar or related material including security instruments, loan contracts, or notes issued by the subsidiary to the borrower;
(viii) The borrower will promptly report to the Administrator any default by the subsidiary or other actions that impair or may impair the subsidiary’s ability to repay its loans;
(ix) The financing agreement with the private lender will provide that the private lender shall cease the advance of funds upon receipt of written notification from RUS that the borrower is in default under the RUS loan documents;
(x) Except as provided in the Government mortgage, the borrower has not agreed to any restrictions or limitations on future loans from RUS; and
(xi) If the private lender determines that a supplemental mortgage is necessary, the borrower will comply with those procedures contained in paragraph (h) of this section for the preparation, execution, and delivery of a supplemental mortgage and take such additional action as may be required to secure the notes under the Government mortgage.
(f) Borrower notification. The borrower shall notify RUS of its intention to obtain an automatic lien accommodation under § 1744.30 by providing the following:
(1) The board resolution cited in § 1744.55(b)(1) and the opinion of counsel cited in § 1744.55(b)(2);
(2) The applicable certification or certifications required by paragraph (c)(2); paragraphs (d)(5) and (d)(6); or paragraphs (e)(5) and (e)(6), respectively, of this section, in substantially the form contained in the applicable appendices to this subpart.
(g) RUS acknowledgment. Within 5 business days of receipt of the completed certifications and any other information required under this section, RUS will review the information and provide written acknowledgment to the borrower and the private lender of its qualification for an automatic lien accommodation. Upon receipt of the acknowledgment, the borrower may execute the private lender notes.
(h) Supplemental mortgage. If the private lender determines that a supplemental mortgage is required to secure the private lender notes on a pari passu or pro-rata basis with all other notes secured under the Government mortgage, the private lender may prepare the supplemental mortgage using the form attached as appendix F to this subpart or the borrower may request RUS to prepare such supplemental mortgage in accordance with the following procedures:
(1) The private lender preparing the supplemental mortgage shall execute and forward the completed document to RUS. Upon ascertaining the correctness of the form and the information concerning RUS, RUS will execute and forward the supplemental mortgage to the borrower.
(2) When requested by the borrower, RUS will expeditiously prepare the supplemental mortgage, using the form in appendix F to this subpart, upon submission by the private lender of:
(i) The name of the private lender;
(ii) The Property Schedule for inclusion as supplemental mortgage Schedule B, containing legally sufficient description of all real property owned by the borrower; and
(iii) The amount of the private lender note.
(3) The government is not responsible for ensuring that the supplemental mortgage has been executed by all parties and is a valid and binding instrument enforceable in accordance with its terms, and recorded and filed in accordance with applicable law. If the private lender determines that additional security instruments or other documents are required or that RUS must take additional actions to secure the private lender notes under the mortgage, the private lender shall follow the procedures established in §§ 1744.40 or 1744.50, as appropriate. Except for the actions of the government expressly established in § 1744.40, the government undertakes no obligation to effectuate an automatic lien accommodation. When processing of the supplemental mortgage has been completed to the satisfaction of the private lender, the borrower shall provide RUS with the following:
(i) A fully executed counterpart of the supplemental mortgage, including all signatures, seals, and acknowledgements; and
(ii) Copies of all opinions rendered by borrower’s counsel to the private lender.
(i) Other approvals. (1) The borrower is responsible for meeting all requirements necessary to issue private lender notes and to accommodate the lien of the Government mortgage to secure the private lender notes including, but not limited to, those of the private lender, of any other mortgagees secured under the existing RUS mortgage, and of any governmental entities with jurisdiction over the issuance of notes or the execution and delivery of the supplemental mortgage.
(2) To the extent that the borrower’s existing mortgage requires RUS approval before the borrower can make an investment in an affiliated company, approval is hereby given for all investments made in affiliated companies with the proceeds of private lender notes qualifying for an automatic lien accommodation under paragraph (e) of this section. Any reference to an approval by RUS under the mortgage shall apply only to the rights of RUS and not to any other party.
§ 1744.40 Act purposes.
(a) Borrowers are encouraged to submit requests for accommodation of the Government’s lien on the borrower’s system in order to facilitate obtaining financing from private lenders for purposes provided in the RE Act.
(b) The Administrator will consider requests for the subordination of the Government’s lien on after-acquired property which will enable borrowers to obtain financing from private lenders for purposes provided in the Act: Provided, however, that property integral to the operation of projects financed with loans made or guaranteed by RUS shall be financed with funds obtained through lien accommodations instead of lien subordinations, unless the Administrator determines that it is in the Government’s interest to do otherwise.
§§ 1744.41-1744.49 [Reserved]
§ 1744.50 Non-Act purposes.
(a) The Administrator will consider requests for the accommodation of the Government’s lien on the borrower’s system or the subordination of the Government’s lien on after-acquired property which will enable the borrowers to obtain financing from private lenders for the purpose of providing new telecommunication services which may not be eligible for financing under the Act if the Administrator is satisfied that:
(1) The borrower will have the ability to repay its existing and proposed indebtedness;
(2) The security for outstanding Government loans and guarantees is reasonably adequate and will not be adversely affected by the accommodation or subordination; and
(3) Approval of the request is in the interests of the Government with respect to the financial soundness of the borrower and other matters, such as assuring that the borrower’s system is constructed cost-effectively using sound engineering practices.
(b) In determining that the security for outstanding Government loans and guarantees is reasonably adequate and will not be adversely affected by the accommodation or subordination the Administrator will consider, among other matters, when applicable, the following:
(1) Market forecasts for the project;
(2) Projected revenues, expenses and net income of the borrower’s existing system and the project;
(3) Maximum debt service on indebtedness of both the borrower’s system and the project;
(4) Projected rate of return on the borrower’s investment in the project;
(5) Fair market value of property acquired by the borrower as part of the project;
(6) Impact of the project on the ratio of the borrower’s secured debt to assets;
(7) Projected growth in borrower’s system and project equity; and
(8) Amount of funds available for plant additions, replacements and other similar costs of the system and the project.
(c) In determining whether the accommodation or subordination is in the interests of the Government, the Administrator may consider, among other matters, whether the project will improve the borrower’s financial strength and the assurance of repayment of Government debt.
§§ 1744.51-1744.54 [Reserved]
§ 1744.55 Application procedures.
(a) Requests for information regarding applications for lien accommodations or subordination under this part should be addressed to the Assistant Administrator, Telecommunications Program, Rural Utilities Service, Washington, DC 20250-1590.
(b) An application for a lien accommodation or subordination shall include the following supporting information:
(1) A board Resolution from the applicant requesting the lien accommodation or subordination and stating the general purpose for which the funds from the private lender will be used, the proposed amount of the loan, and the proposed terms and conditions of the loan;
(2) An opinion from counsel representing the applicant that the applicant has the authority under its articles of incorporation, bylaws, and under applicable state law to undertake the project;
(3) Engineering and pertinent studies related to the projects or purposes to be financed, when applicable;
(4) Feasibility studies with pro forma financial statements showing the ability to repay the loan and provide an appropriate margin or net income;
(5) Any other information or documentation deemed pertinent by the borrower or the Administrator in support of the application.
(c) When the Administrator makes a determination that an application for an accommodation or subordination will not be approved the Administrator shall set forth the reasons therefor in writing and furnish such determination and reasons to the borrower within 30 days of the determination.
§§ 1744.56-1744.59 [Reserved]
Appendix A to Subpart B of Part 1744 – Statement, Certification, and Agreement of Borrower’s President of Board of Directors Regarding Refinancing and Refunding Notes Pursuant to 7 CFR 1744.30(c)
Appendix B to Subpart B of Part 1744 – Certification of Independent Certified Public Accountant Regarding Notes To Be Issued Pursuant to 7 CFR 1744.30(c)
Appendix C to Subpart B of Part 1744 – Statement, Certification, and Agreement of Borrower’s President of Board of Directors Regarding Notes To Be Issued Pursuant to 7 CFR 1744.30(d )
Appendix D to Subpart B of Part 1744 – Certification of Independent Certified Public Accountant Regarding Notes To Be Issued Pursuant to 7 CFR 1744.30
Appendix E to Subpart B of Part 1744 – Statement, Certification, and Agreement of Borrower’s President of Board of Directors Regarding Notes To Be Issued Pursuant to 7 CFR 1744.30(e )
Appendix F to Subpart B of Part 1744 – Form of Supplemental Mortgage
Subpart C – Advance and Disbursement of Funds
§ 1744.60 General.
(a) The standard loan documents (as defined in 7 CFR part 1758) contain provisions regarding advances and disbursements of loan funds by telephone borrowers. This part implements certain of the provisions by setting forth requirements and procedures to be followed by borrowers in obtaining advances and making disbursements of loan and nonloan funds.
(b) This part supersedes any sections of RUS Bulletins with which it is in conflict.
§ 1744.61 [Reserved]
§ 1744.62 Introduction.
RUS is under no obligation to make or approve advances of loan funds unless the borrower is in compliance with all terms and conditions of the loan documents. The borrower shall use funds in its construction fund only to make disbursements approved by RUS.
§ 1744.63 The telephone loan budget.
When the loan is made, RUS provides the borrower a Telephone Loan Budget, RUS Form 493. This budget divides the loan into budget accounts such as “Engineering.” When a contract or other document is approved by RUS, funds are encumbered from the appropriate budget account. See 7 CFR part 1753.
§ 1744.64 Budget adjustment.
(a) If more funds are required than are available in a budget account, the borrower may request RUS’s approval of a budget adjustment to use funds from another account. The request shall include an explanation of the change, the budget account to be used, and a description of how the adjustment will affect loan purposes. RUS will not approve a budget adjustment that affects other loan purposes unless the borrower satisfies RUS that the additional funds are available from another source, requests a deficiency loan, or scales back the project.
(b) RUS may make a budget adjustment without a formal request by the borrower when a budget account is insufficient to encumber funds for a contract that otherwise would be approved by RUS. See 7 CFR part 1753.
§ 1744.65 The construction fund.
(a) The construction fund is used by the borrower primarily to hold advances until disbursed.
(b) All advances shall be deposited in the construction fund.
(c) RUS may require that other funds be deposited in the construction fund. These may include equity or general fund contributions to construction, service termination payments, proceeds from the sale of property, amounts recovered from insurance for losses during the construction period, and interest received on loan funds in savings or interest bearing checking accounts, and similar receipts. Deposit slips for any deposit to the construction fund shall show the source and amount of funds deposited and be executed by an authorized representative of the bank.
(d) Funds shall be disbursed only up to the amount approved for advance on the FRS as described in § 1744.66. No funds may be withdrawn from the fund except for loan purposes approved by RUS.
(e) The disbursement of nonloan funds requires the same RUS approvals as loan funds.
(f) Disbursements must be evidenced by canceled checks. The invoices and supporting documentation needed for construction contracts are specified in the contracts and in 7 CFR part 1753. Disbursements to reimburse the borrower’s general funds shall be documented by a reimbursement schedule, to be retained in the borrower’s files, that lists the construction fund check number, date, and an explanation of amounts reimbursed by budget account.
§ 1744.66 The financial requirement statement (FRS).
(a) To request advances, the borrower must submit to RUS an FRS, a description of the advances desired, and other information related to the transactions when required by RUS.
(b) The FRS is used by RUS and the borrower to record and control transactions in the construction fund. Approved contracts and other items are shown on the FRS under “Approved Purposes.” Except as noted below, the amount approved for advance is 100 percent of the amount encumbered for that item. Funds are approved for advance as follows:
(1) Construction – (i) Construction contracts and force account proposals. Ninety percent of the encumbered amount (95 percent for outside plant), with the final 10 percent (5 percent) approved when RUS approves the closeout documents. When a contract contains supplement “A” (See 7 CFR part 1753), 90 percent (95 percent) of the contract is approved less materials supplied by the borrower. For the Supplement “A” materials, which are a separate entry on the FRS, 100 percent of the material cost is approved.
(ii) Work orders. The portion of the work order summary (See 7 CFR part 1753) determined by RUS to be for approved loan purposes.
(iii) Work order fund. Based on a borrower’s request as described in 7 CFR part 1753.
(iv) Real estate. Upon request by the borrower after submission of evidence of a valid title.
(v) Right of way procurement. Based on the borrower’s itemized costs.
(vi) Joint use charges. Based on copies of invoices from the other utility.
(2) Engineering – (i) Preloan engineering. Based on a final itemized invoice from the engineer.
(ii) Postloan engineering contracts. The amount shown on the engineering estimate, RUS Form 506, less the amount estimated for construction contract closeouts. The balance is approved when the engineering contract is closed.
(iii) Force account engineering. Ninety percent of the total amount of the RUS approved force account engineering proposal. The balance is approved when the force account engineering proposal is closed.
(3) Office equipment, vehicles and work equipment. Based on copies of invoices for the equipment.
(4) General – (i) Organization and loan expenditures. Based on an itemized list of requirements prepared by the borrower.
(ii) Construction overhead. Based on an itemized list of expenditures. If funds are required for employee salaries, the itemization shall include the employee’s position, the period covered, total compensation for the period, and the portion of compensation attributable to the itemized construction.
(iii) Legal fees. Based on itemized invoices from the attorney.
(iv) Bank stock. Based on the requirements for purchase of class B Rural Telephone Bank stock established in the loan. Funds for class B stock will be advanced in an amount equal to 5 percent of the amount, exclusive of the amount for class B stock, of each loan advance, at the time of such advance.
(5) Operating expenses – (i) Working capital – new system. Based on the borrower’s itemized estimate.
(ii) Current operating deficiencies. Based on a current and projected balance sheet submitted by the borrower.
(6) Debt retirement and refinancing. Upon release of the loan, based on the amount in the approved budget.
(7) Acquisitions. Based on final itemized costs, but cannot exceed the amount in the approved loan budget.
(c) Funds other than loan funds deposited in the construction fund, which shall include proceeds from the sale of property on which RUS has a lien, (lines 10 and 11 on the FRS) are reported as a credit under total disbursements. Disbursements of these funds are subject to the same RUS approvals as loan funds.
(d) The borrower shall request advances as needed to meet its obligations promptly. Generally, RUS does not approve an advance requested more than 60 days before the obligation is payable.
(e) Funds should be disbursed for the item for which they were advanced. If the borrower needs to pay an invoice for which funds have not been advanced, and disbursement of advanced funds for another item has been delayed, the latter funds may be disbursed to pay the invoice up to the amount approved for advance for that item on the FRS. The borrower shall make erasable entries on the next FRS showing the changes under “Total Advances to Date” and shall explain the changes in writing before RUS will process the next FRS.
(f) Advances will be rounded down to the nearest thousands of dollars except for final amounts.
(g) The certification on each of the three copies of the FRS sent to RUS shall be signed by a corporate officer of manager authorized by resolution of the board of directors to sign such statements. At the time of such authorization a certified copy of the resolution and one copy of RUS Form 675, Certificate of Authority, shall be submitted to RUS.
(h) The documentation required for the FRS transactions are the deposit slips, the canceled construction fund checks and the supporting invoices or reimbursement schedules. These shall be kept in the borrower’s files for periodic audits by RUS.
§ 1744.67 Temporary excess construction funds.
(a) When unanticipated events delay the borrower’s disbursement of advanced funds, the funds may be used as follows:
(1) With RUS loan funds for loans approved prior to November 1, 1993, or hardship loan funds, the borrower may invest the funds in 5 percent Treasury Certificates of Indebtedness – RUS Series.
(2) With RUS cost-of-money or FFB loan funds, the following apply:
(i) The borrower may invest the funds in short term securities issued by the United States Treasury.
(ii) If permitted by state law, the borrower may deposit the funds in savings accounts, including certificates of deposit, of federally insured savings institutions.
(3) Funds advanced by a guaranteed lender other than the FFB may, if so permitted by such lender, be invested under the terms and conditions described above for FFB advances.
(4) Any security or investment made under this authorization shall identify the borrower by its corporate name followed by the words “Trustee, Rural Utilities Service.”
(5) All temporary investments and all income derived from them shall be considered part of the construction fund and be subject to the same controls as cash in that account.
(6) Securities and other investments shall have maturity dates or liquidating provisions that ensure the availability of funds as required for the completion of projects and the payment of obligations.
(7) Any instrument evidencing a security or other investment herein authorized to be purchased or made, may not be sold, discounted, or pledged as collateral for a loan or as security for the performance of an obligation or for any other purpose.
(8) The Administrator may, at his sole discretion, require a borrower to pledge any security or other evidence of investment authorized hereby by forwarding to him all pertinent instruments and related documentation as he may reasonably require.
(9) Borrowers shall be responsible for the safekeeping of securities and other investments.
(b) All interest and income received from investments of temporary excess funds, as described in this section, shall be deposited in the Construction Fund.
(c) The borrower shall account for investment proceeds on the next FRS submitted to RUS. RUS will make the necessary adjustments on budgetary records.
(d) The Administrator reserves the right to suspend any borrower’s authorization to invest temporary excess funds contained herein if the borrower does not comply with the requirements.
(e) For RUS loans approved prior to October 1, 1991, the borrower may return advanced funds to RUS as a refund of an advance. Interest stops accruing on the refunded advance upon receipt by RUS. A refunded advance may be readvanced. A refund of an advance shall be sent to the Rural Utilities Service, United States Department of Agriculture, Collections and Custodial Section, Washington, DC, 20250. The borrower should clearly indicate that this is a refund of an advance, and not a loan payment or prepayment.
§ 1744.68 Order and method of advances of telephone loan funds.
(a) Borrowers may specify the sequence of advances of funds under any combination of approved telephone loans from RUS or FFB, except that for all loans approved on or after November 1, 1993, the borrower may use loan funds:
(1) Only for purposes for which that type of loan (i.e. Hardship, RUS cost-of-money, or FFB) may be made; and
(2) Only in exchanges that qualify for the type of loan from which the funds are drawn.
(b) The first or subsequent advances of loan funds may be conditioned on the satisfaction of certain requirements stated in the borrower’s loan contract.
(c) Normally, only one payment is made by the Automatic Clearing House (ACH) for an advance of funds.
(d) Borrowers of RUS funds may request advances by wire service only for amounts greater than $500,000 or for advances to borrowers outside the Continental United States. FFB advances in any amount over $100,000 can be sent by wire service.
(e) The following information shall be included with the FRS:
(1) Name and address of borrower’s bank.
(2) If borrower’s bank is not a member of the Federal Reserve System, the name and address of its correspondent bank that is a member of the Federal Reserve System.
(3) American Bankers Association (ABA) nine digit identifier of the receiving banks (routing number and check digit).
(4) Borrower’s bank account title and number.
(5) Any other necessary identifying information.
§ 1744.69 [Reserved]
Subpart D [Reserved]
Subpart E – Borrower Investments
§ 1744.200 General statement.
(a) RUS telephone borrowers are encouraged to utilize their own funds to participate in the economic development of rural areas, provided that such activity does not impair a borrower’s ability to provide modern telecommunications services at reasonable rates or to repay its indebtedness to RUS and other lenders. When considering 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.
(b) [Reserved]
§ 1744.201 Definitions.
As used in this subpart:
Administrator means the Administrator of the Rural Utilities Service (RUS).
Advance means any funds provided of which repayment is expected.
Affiliated company means any organization that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the borrower.
Borrower means any organization which has an outstanding loan made by RUS or guaranteed by RUS, or which is seeking such financing.
Extension of credit means to make loans or advances.
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 affiliated companies. Some examples of such guarantees would include:
(1) Guarantees of payment or collection on a note or other debt instrument;
(2) Issuing performance bonds or completion bonds; or
(3) Cosigning leases or other obligations of third parties.
Maximum investment ratio means that the aggregate of all qualified investments by the borrower including the proposed qualified investment shall not be more than one-third of the net worth of the borrower.
Minimum total assets ratio means the borrower’s net worth is at least twenty percent of its total assets including the proposed qualified investment.
Net plant means the sum of the balances of the following accounts of the borrower:
| Account Names | Number |
|---|---|
| (1) Telecommunications plant in service | 2001 |
| (2) Property held for future telecommunications use | 2002 |
| (3) Telecommunications plant under construction-short term | 2003 |
| (4) Telecommunications plant under construction-long term | 2004 |
| (5) Telecommunications plant adjustment | 2005 |
| (6) Nonoperating plant | 2006 |
| (7) Goodwill | 2007 |
| (8) Less accumulated depreciation | 3100 through 3300s |
| (9) Less accumulated amortization | 3400 through 3600s |
Net worth means the sum of the balances of the following accounts of the borrower:
| Account Names | Number |
|---|---|
| (1) Capital stock | 4510 |
| (2) Additional paid-in capital | 4520 |
| (3) Treasury stock | 4530 |
| (4) Other capital | 4540 |
| (5) Retained earnings | 4550 |
Qualified investment is defined in § 1744.202(b).
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.
Rural development investment is defined in § 1744.202(d).
RUS means the Rural Utilities Service, an agency of the United States Department of Agriculture established pursuant to Section 232 of the Federal Crop Insurance Reform and Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor to REA with respect to administering certain electric and telephone programs. See 7 CFR 1700.1.
RUS mortgage means the instrument creating a lien on or security interest in the borrower’s assets in connection with a loan made or guaranteed under the RE Act.
Total assets means the sum of the balances of the following accounts of the borrower:
| Account Names | Number |
|---|---|
| (1) Current assets | 1100s through 1300s |
| (2) Noncurrent assets | 1400s through 1500s |
| (3) Total telecommunications plant | 2001 through 2007 |
| (4) Less accumulated depreciation | 3100 through 3300s |
| (5) Less accumulated amortization | 3400 through 3600s |
Uniform System of Accounts means the Federal Communications Commission Uniform System of Accounts for Telecommunications Companies (47 CFR part 32) as supplemented by 7 CFR Part 1770, Accounting Requirements for RUS Telephone Borrowers.
§ 1744.202 Borrowers may make qualified investments without prior approval of the Administrator.
(a) A borrower that equals or exceeds the minimum total assets ratio may make a qualified investment, defined in paragraph (b) of this section without prior written approval of the Administrator.
(b) A qualified investment is a rural development investment, defined in paragraph (d) of this section meeting the following criteria:
(1) Unless the borrower’s commitment is a guarantee, extension of credit, or advance, the borrower receives any financial return accruing to such investment, or the borrower’s proportionate share of such return;
(2) Unless the borrower’s commitment is a guarantee, extension of credit, or advance, the borrower retains title to any asset acquired with such investment, or the borrower’s proportionate share of such title; and
(3) The funds committed are the borrower’s own funds. As used in this subpart, the term own funds shall not include proceeds of loans made, guaranteed or lien accommodated by RUS; funds necessary to make timely payments of principal and interest on loans made, guaranteed or lien accommodated by RUS; and funds on deposit in the cash construction fund-trustee account, as defined in the borrower’s loan contract with RUS.
(c) A rural development investment will not be considered to be a qualified investment to the extent that the amount of such investments exceeds the borrower’s maximum investment ratio.
(d) A rural development investment is an investment, extension of credit, advance, or guarantee by a borrower for a period longer than one year and for one or more of the following purposes:
(1) Improve the economic well-being of rural residents and alleviate the problems of low income, elderly, minority, and otherwise disadvantaged rural residents;
(2) Improve the business and employment opportunities, occupational training and employment services, health care services, educational opportunities, energy utilization and availability, housing, transportation, community services, community facilities, water supplies, sewage and solid waste management systems, credit availability, and accessibility to and delivery of private and public financial resources in the maintenance and creation of jobs in rural areas;
(3) Improve state and local government management capabilities, institutions, and programs related to rural development and expand educational and training opportunities for state and local officials, particularly in small rural communities;
(4) Strengthen the family farm system; or
(5) Maintain and protect the environment and natural resources of rural areas.
(e) As used in paragraph (d) of this section, the term rural development investment shall include investments by a borrower in its own name, in affiliated companies, and in entities not affiliated with the borrower.
§ 1744.203 Establishing amount of rural development investment.
For purposes of determining whether a rural development investment is within the limits of the borrower’s maximum investment ratio or the minimum total assets ratio, the amount of the qualified investment shall be the total amount of funds committed to the rural development project as of the date of determination. The total amount of funds committed to the rural development project includes:
(a) The principal amount of loans and advances made by the borrower;
(b) Guarantees made by the borrower; and
(c) A reasonable estimate of the amount the borrower is committed to provide to the rural development project in future years.
§ 1744.204 Rural development investments that do not meet the ratio requirements.
(a) Each borrower is authorized to make investments other than qualified investments only in accordance with the provisions of the borrower’s mortgage with RUS. Without RUS’s approval, the portion of any investment of funds or commitment to invest funds for any rural development investment that will exceed the borrower’s maximum investment ratio or cause the borrower to fall below the minimum total assets ratio, must comply with the provisions of the RUS mortgage.
(b) RUS will consider, on a case-by-case basis, requests for approval of rural development investments not constituting qualified investments. RUS may condition such approval, if granted, on such requirements and restrictions as RUS may determine to be in the best interests of the Government, including, without limitation, the borrower’s agreement to limit dividends or distributions of capital by an amount specified by RUS. Requests for such approvals must be submitted in writing to the relevant RUS regional office and shall include:
(1) A description of the rural development project and the type of investment to be made, such as a loan, guarantee, stock purchase or equity investment;
(2) A reasonable estimate of the amount the borrower is committed to provide to the rural development project including investments that may be required in the future; and
(3) A pro forma balance sheet and cash flow statement for the period covering the borrower’s future commitments to the rural development project.
(c) In determining whether to approve a rural development investment that may cause the borrower to exceed the maximum investment ratio or to fall below the minimum total assets ratio in the future, RUS will consider annual increases to the borrower’s net worth and total assets as might be reasonably anticipated from the borrower’s normal operations.
§ 1744.205 Determinations and application of limitations described in § 1744.202.
(a) RUS will not include qualified investments, including qualified investments in affiliated companies, in calculating the amount of dividend or capital distributions a borrower may make under its RUS mortgage.
(b) A borrower’s investment in its net plant shall not be considered a rural development investment for purposes of calculating the maximum investment ratio or the minimum total assets ratio.
(c) The borrower’s net worth and total assets shall be determined using the balances of the respective accounts of the borrower as of December 31 of the last complete calendar year preceding the date on which the borrower’s maximum investment ratio and minimum total assets ratio are calculated.
(d) All determinations required to be made under 7 U.S.C. 926 or this subpart will be made in accordance with the Uniform System of Accounts (USoA)(47 CFR part 32). References to specific USoA accounts shall include revised or replacement accounts.
§ 1744.206 Effect of subsequent failure to maintain ratios.
If an expenditure constitutes a qualified investment under the terms of this subpart, it does not cease to be a qualified investment merely because subsequently the borrower fails to maintain the maximum investment ratio or the minimum total assets ratio.
§ 1744.207 Investment not to jeopardize loan security.
A borrower shall not make a qualified investment or a rural development investment which jeopardizes:
(a) The security of loans made or guaranteed by RUS; or
(b) The borrower’s ability to repay such loans under the terms and conditions as agreed.
§ 1744.208 Rural development investments before November 28, 1990.
All investments made by a borrower shall be subject to the provisions of this subpart, regardless of when the investment was made or whether it has been approved by RUS. Any restrictions required by RUS as a condition to approving a rural development investment before November 28, 1990, shall continue to be in effect to the extent that such investment exceeds the maximum investment ratio or causes the borrower to fall below the minimum total assets ratio.
§ 1744.209 Records.
(a) The records of borrowers, including records relating to qualified investments, shall be subject to the auditing procedures prescribed in part 1773 of this chapter. RUS reserves the right to review the records of the borrower relating to qualified investments to determine if the borrower is in compliance with this subpart.
(b) Borrowers shall report to RUS on the end-of-year operating report, RUS Form 479, the current status and principal amount of each qualified investment it has made or is committed to make pursuant to § 1744.202.
§ 1744.210 Effect of this subpart on RUS loan contract and mortgage.
(a) Except as expressly provided in this subpart, the borrower shall comply with all provisions of its loan contract with RUS, its notes issued to RUS, and the RUS mortgage, including all provisions thereof relating to investments not covered by this subpart.
(b) Nothing in this subpart shall affect any rights of supplemental lenders under the RUS mortgage, or other creditors of the borrower, to limit a borrower’s investments, loans and guarantees to levels below those permitted in § 1744.202.
(c) As used in paragraph (b) of this section, supplemental lender means a creditor of the borrower, other than RUS, whose loan to the borrower is secured by the RUS mortgage.
PART 1748 – POST-LOAN POLICIES AND PROCEDURES FOR INSURED TELEPHONE LOANS [ RESERVED]
PART 1751 – TELECOMMUNICATIONS SYSTEM PLANNING AND DESIGN CRITERIA, AND PROCEDURES
Subpart A [Reserved]
§§ 1751.1-1751.99 [Reserved]
Subpart B – State Telecommunications Modernization Plan
§ 1751.100 Definitions.
As used in this subpart:
Bit rate. The rate of transmission of telecommunications signals or intelligence in binary (two state) form in bits per unit time, e.g., Mb/s (megabits per second), kb/s (kilobits per second), etc.
Borrower. Any organization that has received a RUS loan designation number and which has an outstanding telephone loan made by RUS or guaranteed by RUS, or which has a completed loan application with RUS.
Emerging technologies. New or not fully developed methods of telecommunications.
Modernization Plan (State Telecommunications Modernization Plan). A State plan, which has been approved by RUS, for improving the telecommunications network of those Telecommunications Providers covered by the plan. A Modernization Plan must conform to the provisions of this subpart.
New facilities. Facilities which are wholly or partially constructed or reconstructed after a short- or medium-term requirements start date, as appropriate. This does not include connections or capacity extensions within the wired capacity of existing plant such as adding line cards to existing equipment.
Plan Developer. The entity creating the Modernization Plan for the State, which may be the State PUC, the State legislature, or a numeric majority of the RUS Borrowers within the State. When this part refers to the PUC as the Plan Developer, this includes the State legislature.
PUC (Public Utilities Commission). The public utilities commission, public service commission or other State body with such jurisdiction over rates, service areas or other aspects of the services and operation of providers of telecommunications services as vested in the commission or other body authority, to the extent provided by the State, to guide development of telecommunications services in the State. When this part refers to the PUC as the Plan Developer, this includes the State legislature.
RE Act. The Rural Electrification Act of 1936, as amended (7 U.S.C. 901 et seq.).
REA. 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.
RELRA. The Rural Electrification Loan Restructuring Act of 1993 (107 Stat. 1356).
RUS. 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 (7 U.S.C. 6941 et seq.)), successor to REA with respect to administering certain electric and telephone programs. See 7 CFR 1700.1.
RUS hardship loan. A loan made by RUS under section 305(d)(1) of the RE Act bearing interest at a rate of 5 percent per year.
State. Each of the 50 states of the United States, the District of Columbia, and the territories and insular possessions of the United States. This does not include countries in the Compact of Free Association.
Telecommunications. The transmission or reception of voice, data, sounds, signals, pictures, writings, or signs of all kinds, by wire, fiber, radio, light, or other visual or electromagnetic means.
Telecommunications providers. RUS Borrowers and if the Plan Developer is a PUC, such other entities providing telecommunications services as the developer of the Modernization Plan (See § 1751.101) may determine.
Wireline Service. Telecommunica-tions service provided over telephone lines. It is characterized by a wire or wirelike connection carrying electricity or light between the subscriber and the rest of the telecommunications network. Wireline Service implies a physical connection. Although radio may form part of the circuit, it is not the major method of transmission as in radiotelephone.
§ 1751.101 General.
(a) It is the policy of RUS that every State have a Modernization Plan which provides for the improvement of the State’s telecommunications network.
(b) A proposed Modernization Plan must be submitted to RUS for approval. RUS will approve the proposed Modernization Plan if it conforms to the provisions of this subpart. Once obtained, RUS’s approval of a Modernization Plan cannot be rescinded.
(c) The Modernization Plan shall not interfere with RUS’s authority to issue such other telecommunications standards, specifications, requirements, and procurement rules as may be promulgated from time to time by RUS including, without limitation, those set forth in 7 CFR part 1755.
(d) The Modernization Plan must, at a minimum, apply to RUS Borrowers’ wireline service areas. If a Modernization Plan is developed by the PUC, RUS encourages, but does not require, that the Modernization Plan’s requirements apply to the rural service areas of all providers of telecommunications services in the State. A PUC’s decision not to include non-RUS Borrowers will not prejudice RUS approval of that PUC’s Modernization Plan. The PUC may also, at its option, extend coverage of the Modernization Plan to all service areas of all providers of telecommunications services in the State. In addition, while the requirements and goals contained in § 1751.106 apply only to wireline services, the PUC, at its discretion, may extend coverage of Modernization Plans to wireless or other communications services in the State as it deems appropriate. Borrower-developed Modernization Plans apply only to Borrowers.
§ 1751.102 Modernization Plan Developer; eligibility.
(a) Each PUC is eligible until February 13, 1996 to develop a proposed Modernization Plan and deliver it to RUS. RUS will review and consider for approval all PUC-developed Modernization Plans received by RUS within this one year period. The review and approval, if any, may occur after the one year period ends even though the PUC is no longer eligible to submit a proposed Modernization Plan.
(b) The PUC must notify all Telecommunications Providers in the State and other interested parties of its intent to develop a proposed Modernization Plan. The PUC is encouraged to consider all Telecommunications Providers’ and interested parties’ views and incorporate these views into the Modernization Plan. In the event that the PUC does not intend to develop a proposed Modernization Plan, RUS requests that the PUC inform RUS of this decision as soon as possible.
(c)(1) If the PUC is no longer eligible to develop a Modernization Plan or has informed RUS that it will not develop a Modernization Plan, as described in paragraphs (a) and (b) of this section, a majority of the Borrowers within the State may develop the Modernization Plan. If a majority of Borrowers develops the Modernization Plan, the following apply:
(i) All Borrowers shall be given reasonable notice of and shall be encouraged to attend and contribute to all meetings and other proceedings relating to the development of the Modernization Plan; and
(ii) Borrowers developing a Modernization Plan are encouraged to solicit the views of other providers of telecommunications services and interested parties in the State.
(2) There is no time limit placed on Borrowers to develop a Modernization Plan. Borrowers should be aware that certain types of loans may be restricted until a Modernization Plan is approved. See § 1751.103.
§ 1751.103 Loan and loan advance requirements.
(a) For information about loan eligibility requirements in relation to the Modernization Plan, see 7 CFR part 1735. In particular, beginning February 13, 1996, RUS will make RUS hardship and RUS cost-of-money loans for facilities and other RE Act purposes in a State only if:
(1) The State has an RUS approved Modernization Plan; and
(2) The Borrower to whom the loan is to be made is participating in the Modernization Plan for the State. A Borrower is considered to be participating if, in RUS’s opinion, the purposes of the loan requested by the Borrower are consistent with the Borrower achieving the requirements stated in the Modernization Plan within the timeframe stated in the Modernization Plan unless RUS has determined that achieving the requirements is not technically or economically feasible.
(b) With regard to the three types of loans discussed in paragraph (a), only loans approved after the date the State has an RUS approved Modernization Plan are subject to complying with the Modernization Plan.
(c) For loans subject to complying with the Modernization Plan, advances will not be made if, in RUS’s opinion, the advances are not consistent with achieving the requirements of the Modernization Plan.
§ 1751.104 Obtaining RUS approval of a proposed Modernization Plan.
(a) To obtain RUS approval of a proposed Modernization Plan, the Plan Developer must submit the following to RUS:
(1) A certified copy of the statute or PUC order, if the PUC is the Plan Developer, or a written request for RUS approval of the proposed Modernization Plan signed by an authorized representative of the Plan Developer, if a majority of Borrowers is the Plan Developer; and
(2) Three copies of the proposed Modernization Plan.
(b) Generally, RUS will review the proposed Modernization Plan within (30) days and either:
(1) Approve the Modernization Plan if it conforms to the provisions of this subpart in which case RUS will return a copy of the Modernization Plan with notice of approval to the Plan Developer; or
(2) Not approve the proposed Modernization Plan if it does not conform to the provisions of this subpart. In this event, RUS will return the proposed Modernization Plan to the Plan Developer with specific written comments and suggestions for modifying the proposed Modernization Plan so that it will conform to the provisions of this subpart. If the Plan Developer remains eligible, RUS will invite the Plan Developer to submit a modified proposed Modernization Plan for RUS consideration. This process can continue until the Plan Developer gains approval of a proposed Modernization Plan unless the Plan Developer is a PUC whose eligibility has expired. If a PUC’s eligibility has expired, RUS will return the proposed Modernization Plan unapproved. Because RUS does not have authority to extend the term of a PUC’s eligibility, RUS recommends that the PUC submit a proposed Modernization Plan at least 90 days in advance of February 13, 1996 to allow time for this process.
§ 1751.105 Amending a Modernization Plan.
(a) RUS understands that changes in standards, technology, regulation, and the economy could indicate that an RUS-approved Modernization Plan should be amended.
(b) The Plan Developer of the Modernization Plan may amend the Modernization Plan if RUS finds the proposed changes continue to conform to the provisions of this subpart.
(c) The procedure for requesting approval of an amended Modernization Plan is identical to the procedure for a proposed Modernization Plan except that there are no time limits on the eligibility of the Plan Developer.
(d) The existing Modernization Plan remains in force until RUS has approved the proposed amended Modernization Plan.
(e) RUS may from time to time revise these regulations to incorporate newer technological and economic standards that RUS believes represent more desirable goals for the future course of telecommunications services. Such revisions will be made in accordance with the Administrative Procedure Act. These revisions shall not invalidate Modernization Plans approved by RUS but shall be used by RUS to determine whether to approve amendments to Modernization Plans presented for RUS approval after March 15, 1995.
§ 1751.106 Modernization Plan; requirements.
(a) The requirements for a Modernization Plan as stated in RELRA are:
(1) The plan must provide for the elimination of party line service.
(2) The plan must provide for the availability of telecommunications services for improved business, educational, and medical services.
(3) The plan must encourage and improve computer networks and information highways for subscribers in rural areas.
(4) The plan must provide for –
(i) Subscribers in rural areas to be able to receive through telephone lines –
(A) Conference calling;
(B) Video images; and
(C) Data at a rate of at least 1,000,000 bits of information per second; and
(ii) The proper routing of information to subscribers.
(5) The plan must provide for uniform deployment schedules to ensure that advanced services are deployed at the same time in rural and nonrural areas.
(6) The plan must provide for such additional requirements for service standards as may be required by the Administrator.
(b) To implement the requirements of the law described in paragraph (a) of this section, RUS has set minimum requirements as described in paragraphs (i) and (j) of this section. They are grouped into short-term and medium-term requirements. RUS has also included long-term goals which are not requirements. The Modernization Plan must meet all of the statutory requirements of RELRA and shall provide that short- and medium-term requirements be implemented as set forth in this section of the regulation except that the PUC, if it is the Plan Developer, or RUS, if a majority of Borrowers is the Plan Developer, may approve extensions of time if the required investment is not economically feasible or if the best available telecommunications technology lacks the capability to enable the Telecommunications Provider receiving the extension to comply with the Modernization Plan. Extensions shall be granted only on a case-by-case basis and generally shall not exceed a total of five years from the first such extension granted to the Telecommunications Provider.
(c) Each State’s Modernization Plan shall be a strategic development proposal for modernizing the telecommunications network of the Telecommunications Providers covered by the Modernization Plan. In addition to implementing the requirements described in paragraphs (a), (i), and (j) of this section, the Modernization Plan shall include a short engineering description of the characteristics of a future telecommunications structure that would enable all Telecommunications Providers to achieve the requirements and goals of the Modernization Plan.
(d) Within the scope of § 1751.101(d), if the Plan Developer is the PUC, the Modernization Plan shall name the Telecommunications Providers in the State, in addition to Borrowers, that are covered by the Modernization Plan.
(e) The Modernization Plan must require that the design of the network provided by Telecommunications Providers allow for the expeditious deployment and integration of such emerging technologies as may from time to time become commercially feasible.
(f) The Modernization Plan must provide guidelines to Telecommunications Providers for the development of affordable tariffs for medical links and distance learning services.
(g) With regard to the uniform deployment requirement of the law restated in paragraph (a)(5) of this section, if services cannot be deployed at the same time, only the minimum feasible interval of time shall separate availability of the services in rural and nonrural areas.
(h) The Modernization Plan must make provision for reliable powering of ordinary voice telephone service operating over those portions of the telecommunications network which are not network powered. In the event of electric utility power outages, an alternative source of power must be available to ensure reliable voice service.
(i) Short-term requirements. (1) The “short-term requirements start date” is the date one year after the date RUS approves the Modernization Plan for the State.
(2) All New Facilities providing Wireline Service after the short-term requirements start date, even if the construction began before such date, shall be constructed so that:
(i) Every subscriber can be provided 1-party service.
(ii) The New Facilities are suitable, as built or with additional equipment, to provide transmission and reception of data at a rate no lower than 1 Mb/sec.
(3) All switching equipment installed by a Telecommunications Provider after the short-term requirements start date shall be capable of:
(i) Providing custom calling features. At a minimum, custom calling features must include call waiting, call forwarding, abbreviated dialing, and three-way calling; and
(ii) Providing E911 service for areas served by the Telecommunication Provider when requested by the government responsible for this service.
(j) Medium-term requirements. (1) The “medium-term requirements start date” is the date six years after the date RUS approves the Modernization Plan for the State, or such earlier date as the Modernization Plan shall provide.
(2) All New Facilities providing Wireline Service after the medium-term requirements start date, even if the construction began before such date, shall be capable, as built or with additional equipment, of transmitting video to a subscriber. The video must be capable of depicting a reasonable representation of motion. The frame rate, resolution, and other measures of audio and video quality shall be determined by the Plan Developer.
(3) No later than the medium-term requirements start date, all switching equipment of Telecommunications Providers covered by the Modernization Plan must be capable of providing E911 service when requested by the government responsible for this service.
(4) No later than five years after the medium-term requirements start date, one-party service must be provided upon demand to any subscriber of a Telecommunications Provider covered by the Modernization Plan.
(k) Long-term goals. RUS suggests, but does not require, that the provisions of each Modernization Plan be consistent with the accomplishment of the following:
(1) The elimination of party line service.
(2) For subscribers that desire the service, universal availability of:
(i) Digital voice and data service (56-164 kb/sec).
(ii) Service that provides transmission and reception of high bit rate (no less than 1 Mb/sec) data.
(iii) Service that provides reception of video as described in paragraph (j)(2) of this section.
PART 1752 – SERVICING OF TELECOMMUNICATIONS PROGRAMS
§ 1752.1 Purpose.
This part prescribes the policies and procedures for loan and grant servicing for financial assistance made under the Rural Utilities Service (RUS) Telecommunications Infrastructure Loan Program, Rural Broadband Program, Distance Learning and Telemedicine Program, Broadband Initiatives Program, and the Rural e-Connectivity Pilot Program (in this part collectively referred to as the “RUS Telecommunications Programs”).
§ 1752.2 Objectives.
The purpose of loan and grant servicing functions is to assist recipients to meet the objectives of loans and grants, repay loans on schedule, comply with agreements and protect RUS’ financial interests. The provisions of this part will ensure recipients comply with any revised terms in repayment on loans and ensures serving actions are handled consistently by the Agency.
§ 1752.3 Definitions.
The terms and conditions provided in this section are applicable to this part only. All financial terms not defined in this section shall have the commonly-accepted meaning under Generally Accepted Accounting Principles.
Acceleration. A written notice informing the Borrower that the total unpaid principal and interest is due and payable immediately.
Administrator. Administrator of the Rural Utilities Service.
Agency. The Rural Utilities Service, an agency of the United States Department of Agriculture’s Rural Development mission area.
Assumption of debt. Agreement by one party to legally bind itself to repay the debt of the RUS borrower.
Borrower. Recipient of loan funding under a RUS Telecommunications Program.
Broadband system. The telecommunications or broadband network financed with RUS loan and/or grant funding or maintained by the Borrower and contained as part of the collateral to the loan.
Cancellation. Final discharge of debt with a release of liability.
Charge-off. Write-off of a debt and termination of servicing activity without release of liability. A charge-off is a decision by the Agency to remove debt from Agency receivables, however, future payments may be received.
Collateral. Means the assets, equipment and/or revenues pledged as security for the loan as defined in the loan documents.
Disposition of facility. Relinquishing control of a facility to another entity.
Loan Documents. All associated loan agreements, loan and security agreements, loan/grant agreements, mortgages, and promissory notes, as applicable.
Liquidation. Satisfaction of a debt through the sale of a Borrower’s assets and cancellation of liabilities.
Parity lien. A lien having an equal lien position to another lender’s lien on a Borrower’s asset.
Rural Utilities Service (RUS). An agency of the United States Department of Agriculture’s Rural Development mission area.
Settlement. Compromise, adjustment, cancellation, or charge-off of a debt owed to the Agency. The term “settlement” is used to refer to any of these actions, whether individually or collectively.
Unliquidated obligations. Obligated loan funds that have not been advanced.
Voluntary conveyance. A method by which title to security is voluntarily transferred to the Federal Government.
§ 1752.4 Availability of forms, bulletins, and procedures.
Forms, bulletins, and procedures referenced in this part are available online at https://www.rd.usda.gov/publications/regulations-guidelines.
§ 1752.5 Monetary default by Borrower.
A defaulting Borrower’s primary responsibility is to expeditiously bring the delinquent account current. If a monetary default exceeds 60 days, RUS will attempt to discuss the situation with the Borrower and make the Borrower aware of options that may be available. In considering options, the prospects for providing a permanent cure without adversely affecting the risk to the Agency is the paramount objective. RUS will also work with entities that are not in monetary default but whose financial position is such that, without RUS action, a monetary default is imminent within the next 24 months, as evidenced by a financial forecast provided by the Borrower. RUS receives quarterly financial reports and annual audits from borrowers and actively monitors the borrower’s Times Interest Earned Ratio (TIER), Current Ration, Debt Service Coverage Ratio, and Net Worth.
§ 1752.6 Request for special servicing action.
(a) Special servicing actions include, but are not limited to, one or more of the following:
(1) Consent to additional, unsecured debt;
(2) Parity lien;
(3) Reamortization or rescheduling of debt payments;
(4) Deferment of principal and/or interest;
(5) Interest rate adjustment;
(6) Transfer of collateral and assumption of debt;
(7) Sale or exchange of loan collateral;
(8) Sale of the note; and
(9) Debt settlement.
(b) In order for the Agency to consider one or more of the curative actions cited in paragraph (a) of this section, the Borrower must submit a written request to RUS.
(1) The written request must contain the following items:
(i) A detailed explanation of the request and why it is needed.
(ii) Most recent audited financial statements for the Borrower.
(iii) Borrower’s Pro Forma 5-year financial forecast, which includes an Income Statement, Balance Sheet, and Statement of Cash Flows, 2 years of historical data, current year data and a 5-year forecast, with detailed supporting assumptions. Additionally, in order to request assistance under this paragraph (b)(1)(iii), the Borrower must make a showing that the account is delinquent and cannot be brought current within one year, or that the Borrower will become delinquent within 24 months, as demonstrated in the Pro Forma.
(iv) Existing and projected subscriber numbers and service tiers, along with pricing for each tier. Additionally, for companies receiving support from the Federal Communications Commission, a detailed forecast of the support revenue, certified by a cost consultant, must be included.
(v) Current organizational chart for the Borrower, related entities, and affiliated companies, as well as information relating to ownership interest in the Borrower and its related entities.
(vi) A complete list of all collateral and steps the Borrower is taking to preserve the collateral.
(2) The Agency may request the additional documents in paragraphs (b)(2)(i) through (iv) of this section after reviewing the Borrower’s servicing request:
(i) An appraisal in order to determine the adequacy of loan security or repayment ability;
(ii) An itemized list of estimated liquidation expenses expected to be incurred along with justification for each expense;
(iii) A legal opinion regarding RUS’ interests in the impacted collateral and supporting evidence, in the form of Uniform Commercial Code Statements and filed Mortgages, that RUS maintains a first lien position on all assets of the Borrower, or such collateral as mandated by the Loan Documents; and
(iv) Such other documents that may be relevant in individual cases, as determined by RUS.
(3) When submitting a request for a servicing action, the distressed Borrower must consent to the following during the request and for the duration of the servicing action:
(i) On-site visit. A Management Analysis Profile (MAP) visit of the Borrower’s entire operation;
(ii) RUS priority payment. Borrowers must agree that no other creditors will be paid without RUS consent, if RUS is not receiving full principal and interest payments;
(iii) Additional reporting and monitoring. Throughout the term of the servicing action(s), RUS will require increased frequency and/or additional details to the reporting and monitoring required under the terms of the Loan Documents; and
(iv) Additional controls and limitations. RUS may require additional controls and limitations such as segregation of accounts, RUS review of expenditures, etc.
(c) False information provided by a Borrower, or by entities acting on behalf of the Borrower, will give rise to the immediate termination of any servicing action(s).
§ 1752.7 Civil rights and requirements.
(a) Equal opportunity and nondiscrimination. The Agency 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 under this part 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. Prior to determining eligibility of any servicing action under this part, the Agency will determine that the Borrower is in compliance with all civil rights requirements of the latest Civil Rights Compliance Review conducted by the Agency.
(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.
§§ 1752.8-1752.10 [Reserved]
§ 1752.11 Consent to additional, unsecured debt.
(a) An additional, unsecured loan from another lender to the Borrower may be approved subject to the conditions set forth in this section. In order to request assistance under this section, the Borrower must make a showing that the additional debt will cure any existing or projected delinquency. Additionally, the following requirements must be met, as determined by RUS:
(1) The additional debt will not disadvantage RUS’s standing or lien on any of the collateral already pledged to RUS;
(2) The additional debt will not adversely impact the continued financial viability of the Borrower or the Borrower’s ability to carry out the purposes of the RUS loan;
(3) The debt is needed to resolve short-term, negative cashflow problems; and
(4) The Borrower is in good standing with the Agency or will become so with the additional debt.
(b) In the case where all assets of the Borrower are not secured by the Government’s debt, the Borrower may request additional debt that is secured by collateral that is not subject to the Government’s security interest.
§ 1752.12 Parity lien.
A Borrower’s request for parity may be approved subject to the conditions set forth in this section. In order to request assistance under this section, the Borrower must make a showing that the amount of new debt is at least equal to the amount of the collateral being added and will cure any existing or projected delinquency. The following factors will be considered in assessing whether the request is in the Government’s best interest:
(a) The value of the added assets compared with the amount of new debt to be secured;
(b) The value of the assets already pledged under the Loan Documents, and any effects of the proposed transaction on the value of those assets;
(c) The ratio of the total outstanding debt secured under the Loan Documents to the value of all assets pledged as security under the Loan Documents;
(d) The Borrower’s ability to repay its debt owed to the Government;
(e) The overall financial viability of the Borrower; and
(f) That the Borrower is in good standing with the Agency or will become so with the parity lien; and
(g) Such other conditions as may be imposed by the Agency on a case-by-case basis, as determined by RUS.
§ 1752.13 Reamortization of or rescheduling of the debt payments.
A reamortization or rescheduling of debt payments may be approved subject to the conditions set forth in this section. In order to request a reamortization or rescheduling of debt payments, the Borrower must make a showing that the Borrower does not have access to other sources of capital or alternatives for resolving the delinquency, and that the reamortization or rescheduling of debt payment will cure any existing or projected delinquency. Reamortizations or rescheduling of debt will be limited to 10 years beyond the original maturity date. Additionally, the following requirements must be met, as determined by RUS:
(a) The Borrower has cooperated with RUS in exploring alternative servicing options and has acted in good faith with regard to eliminating the delinquency and complying with its loan agreements and Agency regulations;
(b) Any management deficiencies identified by RUS have been corrected or the Borrower has submitted a plan acceptable to RUS to correct any deficiencies;
(c) The Borrower has presented a budget which clearly indicates that it is able to meet the proposed payment schedule and the reamortization or rescheduling of debt payments will ensure the continued financial viability of the Borrower;
(d) The Agency will consider the useful life of the facilities along with the level of debt service payments that the Borrower can contribute when determining the appropriate term to place on any reamortized loan; and
(e) Such other conditions as may be imposed by the Agency on a case-by-case basis, as determined by RUS.
§ 1752.14 Deferment of principal and/or interest payments.
A deferment of principal and/or interest payments which will continue the original purpose of the loan may be approved subject to the conditions set forth in this section.
(a) Principal-only deferrals. In order to request a principal deferral, the Borrower must make a showing that at the end of the deferment period the Borrower’s financial position has improved and the Borrower is able to make full principal and interest payments, curing any delinquency or projected delinquency. Deferments of principal will be limited to no more than 36 months. Additionally, the following requirements must be met, as determined by RUS:
(1) Any management deficiencies identified by RUS have been corrected or the Borrower has submitted a plan acceptable to RUS to correct any deficiencies;
(2) The Borrower has presented a budget which clearly indicates that it is able to meet the new proposed payment schedule and after the end of the deferral period is able to resume making full principal and interest payments while maintaining a positive cashflow position;
(3) Unless authorized by prior RUS written consent, the Borrower will only use funds otherwise due and payable under the RUS Note for the benefit of the broadband system. Such expenditures include, but are not limited to, costs to complete any necessary construction of the Project, costs to connect additional subscribers, marketing and sales costs, and other such costs that are necessary to maximize the value of the broadband system; and
(4) The Borrower will comply with such other conditions as may be imposed by the Agency on a case-by-cases basis, as determined by RUS.
(b) Principal and interest deferrals. A principal and interest deferral shall only be approved when the Borrower has demonstrated that it is the only option for the Agency to avoid foreclosure and is in the best interest of the Government to avoid a substantial loss to the Government. Additionally, principal and interest deferrals may be approved if the Borrower and RUS have agreed to a public sale of the broadband system and such a deferral is needed to provide time to complete the sale of the broadband system. Principal and interest deferrals will be limited to no more than 24 months, unless extended by the Agency for good cause and full cooperation of the Borrower. Additionally, the following requirements must be met, as determined by RUS:
(1) The Borrower has cooperated with RUS in exploring alternative servicing options and has acted in good faith with regard to eliminating the delinquency and complying with its Loan Documents and Agency regulations;
(2) Any management deficiencies identified by RUS have been corrected or the Borrower has submitted a plan acceptable to RUS to correct any deficiencies; and
(3) Unless authorized by prior RUS written consent, the Borrower will only use funds otherwise due and payable under the RUS Note for the benefit of the broadband system. Such expenditures include, but are not limited to, costs to execute a sale of the broadband system, costs to complete any necessary construction of the Project, costs to connect additional subscribers, marketing and sales costs, and other such costs that are necessary to maximize the value of the broadband system for an eventual sale;
(4) In cases when the Borrower and RUS have agreed to a public sale of the broadband system, the Borrower agrees that within 30 days of the execution of the deferral agreement, the Borrower will develop a process and timeline for the sale of the broadband system, in form and substance satisfactory to RUS, and will continually execute on those plans in order to effectuate a public sale of the broadband system; and
(5) The Borrower will comply with such other conditions as may be imposed by the Agency on a case-by-cases basis, as determined by RUS.
§ 1752.15 Interest rate adjustments.
Interest rate reductions may be approved subject to the conditions set forth in this section. In order to request an interest rate reduction, the Borrower must make a showing that the Borrower does not have access to other sources of capital or alternatives to resolve the delinquency, and the interest rate adjustment will cure any existing or projected delinquency. Additionally, the following requirements must be met, as determined by RUS:
(a) The Borrower has cooperated with RUS in exploring alternative servicing options and has acted in good faith with regard to eliminating the delinquency and complying with its loan agreements and Agency regulations;
(b) Any management deficiencies identified by RUS have been corrected or the Borrower has submitted a plan acceptable to RUS to correct any deficiencies;
(c) The Borrower has presented a budget which clearly indicates that it is able to meet the proposed payment schedule and the interest rate reduction will improve the financial viability of the Borrower;
(d) The Borrower has agreed to not maintain cash or cash reserves beyond what is reasonable at the time of interest rate adjustment to meet debt service, operating, and reserve requirements; and
(e) The Borrower will comply with such other conditions as may be imposed by the Agency on a case-by-cases basis, as determined by RUS.
§ 1752.16 Transfer of collateral and assumption of debt.
A transfer of collateral and assumption of debt may be approved subject to the conditions set forth in this section. In order to request assistance under this section, the Borrower must make a showing that the transfer of collateral and assumption of debt will improve the likelihood that the government will be repaid and maximize the Agency’s recovery on such loans. Such actions will be subject to the following requirements:
(a) The transfer will not be disadvantageous to the Government, as determined by RUS;
(b) The Agency has concurred to plans for disposition of funds in any reserve account, including project construction bank accounts;
(c) The transferee will assume all of the Borrower’s responsibilities regarding the loan(s) and will accept the original loan conditions, as well as any others that may be imposed by the Agency;
(d) There must be no lien, judgement, or similar claims of other parties against the loan collateral being transferred, and once transferred, such collateral may not be subject to the lien, judgement, or similar claims of other parties of the transferee;
(e) Title to all assets must be conveyed to the transferee; and
(f) The Borrower will comply with such other conditions as may be imposed by the Agency on a case-by-case basis, as determined by RUS.
§ 1752.17 Sale or exchange of loan collateral.
A cash sale of all or a portion of a Borrower’s assets or an exchange of security property for Borrowers in a distressed situation may be approved subject to the conditions set forth in this section. In order to request assistance under this section, the Borrower must make a showing that the sale or exchange of collateral is in the best interest of the Government to avoid a substantial loss to the Government. Additionally, the following requirements must be met, as determined by RUS:
(a) If a sale of all of the assets, that the consideration is for the full amount of the debt or the present fair market value as determined by an independent appraiser that has been approved by RUS, and which addresses any conditions of the appraisal as may be imposed by RUS; and
(b) If the sale is for a portion of the assets, that the remaining property is adequate security for the loan and that the transaction will not adversely affect the Agency’s security position; and provided that any proceeds remaining after paying reasonable and necessary selling expenses, as approved by the Agency in advance, are to be used for the following purposes:
(1) Repayment of the RUS debt, and other non-RUS debt if secured by a parity lien with the Agency; and/or
(2) Improvement of the broadband network or other facilities of the Borrower, including customer premise equipment and other equipment needed to upgrade the broadband network, if necessary to improve the Borrower’s ability to repay the loan; and
(c) Any grant assets in the sale of collateral that were financed with Agency grants must follow the disposition rules as stated in the Loan Documents or Grant/Loan Documents.
§ 1752.18 Sale of the note.
In the event of one or more incidents of default by the Borrower that cannot or will not be cured within a reasonable period of time, the Agency may sell the note. A decision to sell the note may be made when the Agency determines that the monetary default cannot be cured through the other actions as outlined in this part, or it has been determined that it is in the best interest of the Agency. The decision to sell the note should be made as soon as possible when one or more of the following exist:
(a) A loan is 90 days behind on any scheduled payment and the Agency and Borrower have not been able to cure the delinquency through actions such as those contained in this part;
(b) It is determined that delaying sale of the note will jeopardize full recovery on the loan; or
(c) The Borrower is uncooperative in resolving the delinquency or the Agency has reason to believe the Borrower is not acting in good faith, and it would improve the position of the Agency to sell the note immediately.
§ 1752.19 Debt settlement.
Debts will not be settled directly by the Agency if:
(a) Referral to the Office of Inspector General and/or to Office of General Counsel is contemplated or pending because of suspected criminal violation;
(b) Civil action to protect the interest of the Government is contemplated or pending;
(c) An investigation for suspected fiscal irregularity is contemplated or pending;
(d) The Borrower is uncooperative in resolving the delinquency or the Agency has reason to believe the Borrower is not acting in good faith; or
(e) The debt has been referred to the Department of Justice, such as in bankruptcy proceedings.
§§ 1752.20-1752.24 [Reserved]
§ 1752.25 Special terms.
If the Administrator determines the servicing actions in this part would not protect the Government’s interest due to unique circumstances of the debtor, the Agency reserves the right to negotiate special terms to maximize the Government’s recovery on the debt.
§ 1752.26 No rights to special servicing actions.
Nothing in this part should be assumed guaranteed as a right to the Borrower for any of the special servicing actions noted in this part.
§ 1752.27 Confidentiality of borrower information.
Borrowers are encouraged to identify and label any confidential and proprietary information contained in their applications. The Agency will protect confidential and proprietary information from public disclosure to the fullest extent authorized by applicable law, including the Freedom of Information Act, as amended (5 U.S.C. 552), the Trade Secrets Act, as amended (18 U.S.C. 1905), the Economic Espionage Act of 1996 (18 U.S.C. 1831 et seq.), and Communications Assistance for Law Enforcement Act (CALEA) (47 U.S.C. 1001 et seq.).
§ 1752.28 Interest accrual.
(a) The Agency may determine to stop accruing interest if the account has remained delinquent for a period of 18 months or more, and the Agency has determined, in its sole discretion, that it will not recover the full outstanding principal balance on the loan.
(b) Notwithstanding paragraph (a) of this section, the Administrator may waive the accrual of interest on any outstanding delinquent debt, if in the sole determination of the Administrator, such waiver facilitates and maximizes the Government’s recovery of the debt, such as under a voluntary foreclosure by the Borrower.
§ 1752.29 Communications laws.
Borrowers must comply with all applicable Federal and state communications laws and regulations, including, for example, the Communications Act of 1934, as amended (47 U.S.C. 151 et seq.), the Telecommunications Act of 1996, as amended (Pub. L. 104-104, 110 Stat. 56 (1996), and CALEA. For further information see http://www.fcc.gov.
§ 1752.30 Information collection and reporting requirements.
Copies of all forms and instructions referenced in this part may be obtained from RUS. Data furnished by Borrowers will be used to determine eligibility for certain servicing actions. Furnishing the data is voluntary; however, the failure to provide data could result in a servicing action being denied or the Agency taking adverse action against the Borrower to collect funds. The collection of information is vital to RUS to ensure compliance with the provisions of this part. The information collection requirements contained in this part have been approved by the Office of Management and Budget (OMB) under OMB Control Number 0572-0153.
§ 1752.31 Authorized signatories.
Only the RUS Administrator can bind the Government to the expenditure of funds. Notwithstanding anything contained in this part, however, any settlement resulting in the reduction of $500,000 or more in payment to the Government, inclusive of attorney’s fees, shall be approved by the Under Secretary for Rural Development, or higher.
PART 1753 – TELECOMMUNICATIONS SYSTEM CONSTRUCTION POLICIES AND PROCEDURES
Subpart A – General
§ 1753.1 General.
(a) The standard RUS Telecommunications Loan Documents contain provisions regarding procurement of materials and equipment and construction of telecommunications facilities by telecommunications borrowers. This part implements certain of the provisions by setting forth requirements and procedures. Borrowers shall follow these requirements and procedures whenever using loan funds to purchase materials and equipment or perform construction, unless they have received the Administrator’s written approval to do otherwise.
(b) The typical procedure followed in constructing a project financed by an RUS loan begins with the prospective borrower obtaining the necessary preloan engineering and developing a complete loan application, including an LD (See 7 CFR part 1737). If a loan is approved and all prerequisites to advance of funds are satisfied, the borrower may proceed with the purchase and installation of materials and equipment and the construction of telephone facilities pursuant to this part 1753. Subpart A describes
(1) RUS’s general requirements with respect to steps to be taken after the loan is approved and before construction begins (See § 1753.3),
(2) RUS requirements with respect to methods of construction (See §§ 1753.5 and 1753.6),
(3) RUS requirements regarding sealed competitive bidding and negotiated bidding of construction contracts (See §§ 1753.6 and 1753.9),
(4) RUS standards for materials, equipment, and construction financed with loan funds (See § 1753.7), and
(5) RUS requirements for subcontracts and contract amendments covering construction financed with loan funds (See §§ 1753.10 and 1753.12).
(c) Each borrower is responsible for the construction of its facilities and for the procurement of materials and equipment that are best suited to its needs.
(d) If contracts, P&S, or other methods of procurement are subject to RUS approval pursuant to the provisions of the loan contract, as implemented by this part, RUS will review the documents or proposals submitted and notify the borrower in writing of approval or disapproval. RUS may withhold approval if, in RUS’s judgment:
(1) The P&S or contract will not accomplish loan purposes.
(2) Provisions of the P&S or contract will add unnecessary expense to the project.
(3) The proposal, method of procurement, or P&S do not conform to RUS engineering criteria or construction standards, or if they present unacceptable loan security risks to RUS.
(4) The P&S or contract have been modified.
(e) The requirements and procedures covering procurement of architectural and engineering services are described in subpart B of this part.
(f) Single copies of RUS forms cited in this part are available from Administrative Services Division, Rural Utilities Service, United States Department of Agriculture, Washington, DC 20250-1500. These RUS forms may be reproduced.
§ 1753.2 Definitions.
For the purpose of this part 1753:
Alternate – A solicitation for a bid adjustment for a specified deviation from the Plans and Specifications.
Architect – A person registered as an architect in the state where construction is performed, or a person on the borrower’s staff, approved by RUS, authorized to perform architectural services.
Bid guarantee – A bid bond or certified check required of contractors bidding on construction work to ensure that the bidder, if successful, will furnish a satisfactory performance bond ensuring completion of work.
Central office building – The facility housing the central office equipment.
Central office equipment – Switching and signaling equipment that performs call origination and completion functions for subscribers.
Closeout documents – The documents required to certify satisfactory completion of all obligations under a contract or force account proposal.
Construction – Purchase and installation of telecommunications facilities in a borrower’s system using loan funds.
Contract – “Contract” means collectively the Seller’s Proposal, Seller’s Technical Proposal including any general or feature descriptions, equipment lists, Seller’s responses to the Buyer’s specifications and Performance Requirements, the Buyer’s Acceptance, Articles I through X herein, the Performance Requirements, and the Contractor’s Bond when required by the Buyer.
Contract construction – Construction and installations performed using an RUS contract form. See 7 CFR 1755.93.
Engineer – A person registered as an engineer in the state where construction is performed, or a person on the borrower’s staff, approved by RUS, authorized to perform engineering services.
FAP (force account proposal) – The borrower’s detailed plans submitted to RUS for force account construction.
Force account construction – Construction performed by the borrower’s employees under an RUS approved FAP, with the borrower furnishing all materials, equipment, tools, and transportation.
FRS – RUS Form 481 (OMB control number 0572-0023), Financial Requirement Statement.
GFR – RUS General Field Representative.
Installation – The act of setting up or placing in position equipment for service or use in the borrower’s system.
Interim construction – The purchase of equipment or the conduct of construction under an RUS-approved plan of interim financing. See 7 CFR part 1737.
Interim financing – Funding for a project which RUS has acknowledged may be included in a loan, should said loan be approved, but for which RUS loan funds have not yet been made available.
Labor and materials – All the labor and materials required for construction.
LD (loan design) – Supporting data for a loan application. See 7 CFR part 1737.
Loan – Any loan made or guaranteed by RUS. See 7 CFR part 1735.
Loan funds – Funds provided by RUS through direct or guaranteed loans. See 7 CFR part 1744 subpart C.
Loan purposes – The high level objectives of the loan are to fund the construction. These purposes are first stated in the characteristics letter described in 7 CFR 1737.80, which is sent to the applicant to offer a loan after RUS has completed its preloan studies.
Major construction – A telecommunications plant project estimated to cost more than $250,000, including all labor and materials.
Minor construction – A telecommunications plant project estimated to cost $250,000 or less, including all labor and materials.
Minor errors or irregularities – A defect or variation in a seller’s 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. Unless otherwise noted, the borrower determines whether an error or irregularity is “minor.”
Modernization plan – A State plan, which has been approved by RUS, for improving the telecommunications network of those Telecommunications Providers covered by the plan. A Modernization Plan must conform to the provisions of 7 CFR part 1751, subpart B.
Negotiation – Any form of purchasing or contracting other than sealed competitive bidding. Any contract awarded without using the sealed competitive bidding procedure is a negotiated contract.
Outside plant – The facilities that conduct electrical or optical signals between the central office and the subscriber’s network interface or between central offices.
Performance bond – A surety bond on a form satisfactory to RUS guaranteeing the contractor’s faithful performance of a contract.
P&S (plans and specifications) – An RUS contract form, the appropriate specifications, and such additional information and documents needed to provide a clear, accurate, and complete understanding of the installations to be made or construction to be performed.
Project – “Project” means any equipment, including but not limited to switching, routing, access, video, and/or transport equipment, which will be used in the delivery of voice, video, or data services, which are listed under Column 2, “Equipment,” in Schedule 1 hereto. A Project will have a single delivery and completion schedule listed under Column 7 and Column 8. The Contract may consist of one or more Projects.
Responsive bid – A bid that complies with the requirements of the plans and specifications.
RUS – the Rural Utilities Service, an agency of the United States Department of Agriculture established pursuant to Section 232 of the Federal Crop Insurance and Reform and Department of Agriculture Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor to Rural Electrification Administration with respect to administering certain electric and telecommunications program. See 7 CFR 1700.1.
Sealed competitive bidding – A method of contracting that employs sealed competitive bids, public opening of bids, and award of the contract to the bidder submitting the lowest responsive bid. See § 1753.8.
Single source negotiation – Negotiating with a single source (contractor or seller).
Special equipment – Equipment used primarily for the transmission and enhancement of voice, data, carrier, radio and light signals, and other equipment and facilities, including incidental cable and other transmission equipment.
Subcontract – A secondary contract undertaking some of the obligations of a primary contract. Under all RUS forms of contract, the primary contractor bears full responsibility for the performance of the subcontractor.
Unbalanced bid – A bid which contains pricing for a task or material that is significantly higher or lower than pricing for similar tasks or materials.
Work order construction – Minor construction performed by the borrower’s employees, pursuant to its work order procedure, with the borrower furnishing all materials, equipment, tools, and transportation.
§ 1753.3 Preconstruction review.
(a) Advance RUS approval must be obtained for any construction that does not conform to RUS standards and specifications or the approved LD, such as construction of extensions to serve subscribers in areas not included in the LD (See 7 CFR part 1737). For loans approved after RUS approval of the modernization plan in the borrower’s state, the proposed construction must conform to the modernization plan, as required by 7 CFR part 1751, subpart B. To obtain approval, the borrower shall submit a written proposal containing:
(1) A description of the work, indicating any deviations from the approved LD or RUS standards and specifications.
(2) An engineering study covering the deviations if there are changes in the design.
(3) A cost estimate for labor, engineering, materials, and overheads.
(4) If applicable, a brief analysis from the borrower demonstrating that the proposed changes conform to the modernization plan.
(b) Before any construction, including interim construction, is initiated, the GFR shall meet with the borrower to review the LD to determine if any significant changes have occurred since its approval by RUS. It is important that the design and construction of the proposed facilities be based on the latest information on subscriber needs.
(c) If the borrower and GFR agree that there have been no significant changes, the borrower may proceed.
(d) If the GFR finds that the LD is no longer satisfactory, the borrower shall prepare an amendment to the LD incorporating the necessary revisions (See 7 CFR part 1737). The borrower must obtain RUS approval of the LD amendment before proceeding with engineering activities on any project to be financed with loan funds.
§ 1753.4 Major and minor construction.
RUS’s general requirements for construction are set forth in this subpart A. Additional requirements and procedures for different types of major construction are presented in subparts D, E, F, G, and H (OMB control number 0572-0062). The requirements and procedures for minor construction are presented in subpart I. Borrowers may, at their option, follow the procedures in subparts D, E, F, G, and H for any minor construction.
§ 1753.5 Methods of major construction.
(a) All major construction projects financed by loan funds shall be performed pursuant to a contract approved by RUS and awarded through sealed competitive bidding unless
(1) A specific exception is granted in subparts D, E, F, G, or H, or
(2) Written RUS approval is obtained.
(b) Contract construction. (1) RUS approval of the borrower’s award of the contract is not required if the contractor is selected through sealed competitive bidding, the bid amount is $500,000 or less and the contractor is not a company or organization affiliated with the borrower. This does not relieve the borrower of the requirements of bidding or bid evaluation set contained in this part.
(2) RUS approval of the borrower’s award of the contract is required for all other competitively-bid and for negotiated major construction contracts.
(3) The requirements and procedures for sealed competitive bidding are presented in § 1753.8(a). The requirements and procedures for negotiation are presented in § 1753.8(b).
(c) Force account construction. To obtain RUS approval of the force account method for major construction the borrower must demonstrate its ability to perform major construction based on past force account construction which fully met RUS construction standards and was as cost-effective as contract construction in the area. If the borrower has no record of past performance to support its request, but has adequate equipment and experienced personnel to perform the proposed construction, RUS may approve a small trial project. The requirements and procedures for force account construction are presented in subparts D, E, G, and H.
§ 1753.6 Standards, specifications, and general requirements.
(a) Materials, equipment, and construction financed with loan funds must meet the standards and specifications established by RUS in 7 CFR 1755.97 which lists the RUS Bulletins containing the standards and specifications for telephone facilities.
(b) The borrower may use RUS loan funds to finance nonstandard construction materials or equipment only if approved by RUS in writing prior to purchase or commencement of construction.
(c) Only new materials and equipment may be financed with loan funds, unless otherwise approved by RUS. The materials and equipment must be year 2000 compliant, as defined in 7 CFR 1735.22(e).
(d) All materials and equipment financed with loan funds are subject to the “Buy American” provision (7 U.S.C. 901 et seq. as amended in 1938).
(e) All software, software systems, and firmware financed with loan funds must be year 2000 compliant, as defined in 7 CFR 1732.22(e).
§ 1753.7 Plans and specifications (P&S).
(a) The P&S consist of an RUS contract form, the appropriate RUS specifications, and such additional information and documents needed to provide a clear, accurate, and complete understanding of what is included in the construction.
(b) 7 CFR 1755.93 provides a list of the RUS forms of telecommunications contracts for use in purchasing telephone materials and equipment and for constructing telephone facilities with loan funds. Also listed is the source where copies may be obtained.
(c) The appropriate standards and specifications listed in 7 CFR part 1755 shall be included in the P&S. When RUS has not prepared standards and specifications, the borrower shall use all appropriate project specific engineering requirements and specifications prepared by the borrower’s engineer. The specifications prepared by the borrower’s engineer and based on appropriate project specific engineering requirements shall be subject to review and approval by RUS for all major construction, including major projects which would be exempted from RUS approval under paragraph (e) of this section.
(d) The P&S shall be based on the LD approved by RUS. Section 1753.3 presents the requirements and procedures for obtaining RUS approval for construction that does not conform to the LD approved by RUS.
(e) RUS approval of P&S is required for construction that is estimated to cost over $500,000 or 25% of the total loan, whichever is less, and for all building construction. P&S for all other construction are exempt from RUS review and approval except that, at the time of contract approval, RUS will examine the plans and specifications for conformity with the loan purposes and to determine that they comply with other requirements of this part.
(f) RUS will approve only contracts that will provide for at least the following requirements.
(1) Equal employment opportunity provision. If this provision is not already in the contract, RUS Contract Form 270, Equal Opportunity Addendum, shall be attached and made a part of the contract.
(2) Liquidated damages provision. (i) If not covered by the contract, an appropriate liquidated damages provision, in a form prescribed by RUS, shall be included and made a part of the contract
(ii) The liquidated damages must be based upon the borrower’s best estimate of the damages it would incur as a result of the contractor’s default.
(3) Insurance and bond requirements. (i) The insurance provision shall provide coverage as required by 7 CFR 1788.
(ii) A contractor’s bond shall be furnished as required by 7 CFR part 1788.
(iii) The borrower is responsible for ensuring that its contractor complies with the insurance and bond requirements.
§ 1753.8 Contract construction procedures.
(a) Sealed, competitive bidding – (1) Bid opening date. The borrower is responsible for scheduling the bid opening date. If RUS review of P&S is required by § 1753.7, the borrower shall wait until approval has been received before setting the date. In setting the date, sufficient time should be allowed for the bidders to examine the project site and prepare their bids. The borrower shall notify GFR of the bid date and invite GFR to attend.
(2) Invitations to bid. The borrower is responsible for sending invitations to prospective bidders and taking any other action necessary to procure full, free, and competitive bidding. The borrower should obtain from its engineer a list of prospective bidders and a recommendation indicating which bidders are considered qualified. The minimum number of contractors to be invited to bid on contracts for various types of facilities is set forth in subparts D, E, F, or H.
(3) Qualifying bidders. If the notice and instructions to bidders require that bidders show evidence of meeting certain requirements, the borrower shall qualify bidders before issuing P&S to them. Procedures for qualifying bidders are contained in subparts D, E, and F.
(4) Receipt of bids. The borrower shall write on the outside envelope of any bid or bid amendment, the date and time the bid was received. Any bid received from an unqualified bidder or after the time specified for opening shall be returned promptly to the bidder unopened.
(5) Procedure when fewer than three bids are received. If fewer than three valid bids are received, the borrower shall consult with RUS to determine whether the bids are to be opened or returned unopened. RUS requires that the project be rebid if fewer than three bids are received and RUS determines that one or more other bidders with an express interest in bidding is available and could meet the bid requirements, but was not invited to bid. RUS shall also require rebidding if it is found that qualified bidders were discouraged from bidding by unreasonable bid requirements (such as late notification to bidders) or if the borrower fails to follow the bid procedure.
(6) Conduct of bid openings. The borrower shall conduct bid openings open to the public. The borrower should be able to contact its attorney for immediate consultation.
(7) Review of bids. The borrower shall review all bids prior to reading any bid results to determine that:
(i) The bid guarantees are adequate.
(ii) All minor errors or irregularities made through inadvertence are corrected or waived. Failing this, the bid shall be rejected as nonresponsive.
(iii) In the event of non-minor errors or irregularities, the bid is rejected and the bid price not disclosed.
(8) Reading of bids. Bid prices shall not be read until the borrower has reviewed all bids to determine if there are any minor errors or irregularities that may affect the recommendation as to award. These shall be made public at the same time the bid price is announced.
(9) Evaluating bids. The borrower shall consider the same alternates in all bids in determining the low bid.
(10) Rejection. The borrower shall reject:
(i) All bids if quoted prices are not acceptable or if the specifications were ambiguous and resulted in bidders having different interpretations of the requirements.
(ii) Any bid that is not responsive, or is incomplete, or submitted by an unqualified bidder, or unbalanced between labor and materials or other respects.
(11) Award of contract. (i) The borrower shall obtain from the engineer the determination of the lowest responsive bid, a tabulation of all bids and the engineer’s recommendation for award of the contract. Contract award is subject to RUS approval if either the cost of the project is over $500,000 or the contract is with an organization affiliated with the borrower. Contract award of all other projects is not subject to RUS approval.
(ii) If an award is made, the borrower shall award the contract to the lowest responsive bidder. The borrower may award the contract immediately upon determination of the lowest responsive bidder if the following conditions are met:
(A) The project is included in an approved loan and adequate funds were budgeted in the loan and are available.
(B) All applicable RUS procedures were followed, including those in the Notice and Instructions to Bid in the standard forms of contract.
(iii) If RUS approval of the award of contract is required under this paragraph (a)(11), the borrower shall send to RUS for consideration of approval of the award:
(A) Two copies of the low bid.
(B) The engineer’s recommendation and the tabulation of all bids.
(C) Evidence of acceptance of the low bid by the borrower, such as:
(1) Certified copy of board resolution or
(2) letter or telegram to RUS signed by a properly authorized corporate official.
(iv) If RUS approval of the award of contract is not required under this paragraph (a)(11), the borrower shall keep a file available for inspection by RUS. The file shall be kept for at least two years and shall include:
(A) One copy of all received bids.
(B) The engineer’s recommendation and tabulation of all bids including “Buy American” evaluations, if any, and all other evaluations required by law.
(C) Evidence of acceptance of the low bid by the borrower, such as a copy of the board resolution certified by the Secretary of the board.
(12) Execution of contract. (i) The borrower shall submit to RUS three original counterparts of the contract executed by the contractor and borrower.
(ii) If RUS approves the contract, it shall return one copy to the borrower and send one copy to the contractor.
(b) Negotiated construction contracts. (1) For the construction of certain facilities the borrower may negotiate a contract rather than solicit sealed competitive bids. Refer to the appropriate subparts E, F, or H for specific requirements and procedures.
(2) For negotiated purchases, borrowers shall use RUS contract forms, standards, and specifications.
(3) For all contract forms except RUS Form 773:
(i) After a satisfactory negotiated proposal has been obtained, the borrower shall submit it to RUS for approval, along with the engineer’s recommendation, and evidence of acceptance by the borrower.
(ii) If RUS approves the negotiated proposal, the borrower shall submit three copies of the contract, executed by the contractor and borrower, to RUS for approval.
(iii) If RUS approves the contract, RUS shall return one copy of the contract to the borrower and one copy to the contractor.
(4) For RUS Form 773, the borrower is responsible for negotiating a satisfactory proposal, executing contracts, and closing the contract. See subparts F and I of this part for requirements for major and minor construction, respectively, on Form 773.
§ 1753.9 Subcontracts.
(a) RUS construction contract Forms 257, 395, and 515, contain provisions for subcontracting. Reference should be made to the individual contracts for the amounts and conditions under which a contractor may subcontract work under the contract.
(b) RUS Form 282, Subcontract, shall be used for subcontracts under construction and installation contracts.
(1) Minor modifications or additions may be made to the subcontract form, as long as they do not change the intent of the primary contract. Any alterations to the subcontract shall be initialed and dated by the persons executing the subcontract.
(2) Subcontracts shall be prepared in quadruplicate and all copies executed by the contractor and subcontractor and consented to by the borrower and surety, if any.
(3) Four executed copies of the subcontract shall be forwarded to RUS for approval. Upon approval, one copy each will be sent to the borrower, contractor, and subcontractor.
(c) As stated in contract Forms 257, 395, and 515, the contractor shall bear full responsibility for the acts and omissions of the subcontractor and is not relieved of any obligations to the borrower and to the Government under the contract.
(d) As stated in the contract, construction shall not be performed by the subcontractor before approval of the subcontract by RUS.
§ 1753.10 Preconstruction conference.
The borrower shall conduct a conference, attended by the borrower, contractor, and resident engineer prior to the beginning of construction to provide an opportunity to discuss and agree on responsibilities, procedures, practices, and methods before the work begins. The borrower shall provide each participant with a copy of the conference results. The GFR shall be invited to attend this conference.
§ 1753.11 Contract amendments.
(a) The borrower must obtain RUS approval before execution of any amendment to a contract if
(1) The amendment alters the terms and conditions of the contract or changes the scope of the project covered by the contract regardless of the amount of the contract before amendment,
(2) The amendment increases the amount to be paid under the contract by 20% or more, or
(3) The amendment causes an unbonded contract to require a contractor’s performance bond. This would occur when a contract that is executed in an amount below that requiring a performance bond by 7 CFR part 1788, subpart C, is amended to an amount above that amount.
(b) Advance RUS approval to execute other contract amendments is not required. These amendments may be submitted to RUS at any time prior to closeout. If a borrower wishes to receive an advance of funds based on an amended contract amount (i.e., amendments that increase a contract by less than 20%), the borrower may initiate an increase in the amount approved for advance by submitting three copies of the amendment to RUS for approval.
(c) For each amendment executed, the borrower shall make certain that:
(1) The contractor’s bond covers the additional work to be performed. If the amendment by itself (or together with preceding amendments) increases the original contract price by 20% or more, a bond extension will be required to bring the penal sum of the bond to the total amended contract price.
(2) If an amendment covers construction in a county or state not included in the original contract, the borrower and contractor are licensed to do business in that location.
(d) Upon execution of any amendment that causes the amended contract amount to exceed the original contract amount by 20% or more, three copies of the amendment shall be submitted to RUS for approval.
§§ 1753.12-1753.14 [Reserved]
Subpart B – Engineering Services
§ 1753.15 General.
(a)(1) The standard RUS loan documents contain provisions regarding engineering and architectural services performed by or for RUS telecommunications borrowers. This part implements certain of the provisions by setting forth the requirements and procedures to be followed by borrowers in selecting architects and engineers and obtaining architectural and engineering services by contract or by force account.
(2) Borrowers shall obtain architectural and engineering services only from persons or firms which are not affiliated with, and have not represented, a contractor, vendor or manufacturer who may provide labor, materials, or equipment to the borrower under any current loan.
(3) Preloan architectural and engineering services may be provided by qualified personnel on the borrower’s staff or by consultants. Neither the selection of a preloan architect or engineer by a borrower, nor the contractual arrangements with them, requires RUS approval.
(4) Postloan architectural and engineering services shall be obtained by borrowers from registered architects and engineers licensed in the State in which the facilities will be located, except where RUS has approved the borrower to provide these services by the force account method. When the extent of the proposed major or minor construction is such that the postloan engineering involved is within the capabilities of employees on the borrower’s staff, the borrower may request RUS approval to provide such services. This method of providing engineering services is referred to as force account engineering. Refer to § 1753.17(c).
(5)(i) For major construction, services provided by architects and engineers not on the borrower’s staff must be provided under Form 220, Architectural Service Contract, or Form 217, Postloan Engineering Service Contract – Telecommunications. These contracts require RUS approval.
(ii) For minor construction, borrowers may use the contracts in paragraph (a)(5)(i) of this section for postloan architectural or engineering services or any other form of contract, such as Form 245, Engineering Service Contract, Special Services – Telephone. RUS approval of contracts for postloan architectural or engineering services associated with minor construction, except for buildings covered in paragraph (a)(6) of this section, is not required.
(6) For buildings to be constructed with RUS funds, postloan architectural or engineering services shall be obtained if (1) the construction cost exceeds $50,000 (prefab buildings using manufacturer’s specifications approved by RUS are exempt from this requirement) or (2) soil or seismic conditions require special design considerations.
(b) For the purpose of this subpart B:
(1) Contract – The services contract between the borrower and its architect or engineer.
(2) Force Account Engineering – Any preloan or postloan engineering services performed by the borrower’s staff.
(3) Postloan engineering services – The design, procurement, and inspection of construction to accomplish the objectives of a loan as stated in a LD approved by RUS.
(4) Preloan engineering services – The planning and design work performed in preparing a LD. This consists of helping the borrower determine the objectives for a loan, including consideration of RUS’s requirements relating to the modernization plan, selecting the most effective and efficient methods of meeting loan objectives, and preparing the LD which describes the objectives and presents the method selected to meet them.
(c) Single copies of RUS forms and publications cited in this part are available free from Administrative Services Division, Rural Utilities Service, United States Department of Agriculture, Washington, DC 20250-1500. These forms and publications may be reproduced.
(d)(1) All outside architects and engineers employed by RUS telephone borrowers shall have insurance coverage as required by 7 CFR part 1788.
(2) Borrowers shall ensure that their architects and engineers comply with the insurance requirements of their contracts. See 7 CFR 1788.54.
(e)(1) Borrowers shall make prompt payments to architects and engineers as required by the contract.
(2) RUS shall not make loan funds available for late payment interest charges.
§ 1753.16 Architectural services.
(a) The borrower shall be responsible for selecting an architect to perform the architectural services required in the design and construction of buildings.
(b)(1) The borrower shall use Form 220 when contracting for architectural services for major construction, except that the borrower may use either Form 220 or Form 217 if the building is an unattended central office building.
(2) The borrower and the architect negotiate the fees for services under Form 220.
(3) Reasonable modifications or additions to the terms and provisions in Form 220 may be made, subject to RUS approval, to obtain the specific services needed for a building.
(4)(i) Three copies of Form 220, executed by the borrower and the architect, shall be sent to GFR to be forwarded to RUS for approval. RUS will review the contract terms and conditions. RUS will not approve the contract if, in RUS’s judgment:
(A) Unacceptable modifications have been made to the contract form.
(B) The contract will not accomplish loan purposes.
(C) The architectural service fees are unreasonable.
(D) The contract presents unacceptable loan security risk to RUS.
(ii) If RUS approves the contract, RUS will send one copy to the architect and one copy to the borrower.
(5) Loan funds will not be available to pay for the preliminary architectural services if a loan is not made for the construction project, or if the construction project is abandoned.
(6) Subpart D of 7 CFR part 1753 sets forth the requirements and procedures to be followed by borrowers constructing central office, warehouse, and garage buildings with RUS loan funds.
(c)(1) RUS telephone borrowers shall obtain two copies of a completed Form 284, Final Statement of Architect’s Fees, when all services and obligations required under the architectural services contract have been completed. All fees shown on the statement shall be supported by detailed information where appropriate. For example: out-of-pocket expense, cost plus, and per diem types of compensation shall be listed separately with labor, transportation, etc., itemized for each service involving these types of compensation.
(2) If Form 284 and supporting data are satisfactory, the borrower shall approve the statement, sign both copies, and send one copy to the GFR.
(3) Upon approval of Form 284 by RUS, the borrower shall promptly make final payment to the architect.
§ 1753.17 Engineering services.
(a)(1) All engineering services required by a borrower to support its application for a loan shall be rendered by a qualified engineer selected by the borrower or by qualified employees on the borrower’s staff. The selection of the preloan engineer, the form of preloan engineering service contract, and the contract itself, are not subject to RUS approval. Borrowers, however, should discuss their proposed method of obtaining preloan engineering services with the GFR before proceeding with any arrangements.
(2) Form 835, Preloan Engineering Service Contract, Telephone System Design, is a suggested form of preloan engineering service contract. While use of this form of contract is not required, it will be helpful in determining the tasks to be performed. Any form of contract used shall specify that preloan engineering services conform to RUS requirements for preloan studies. See subpart D of 7 CFR part 1737.
(b)(1) Major construction. (i) Three copies of Form 217 executed by the borrower and the engineer shall be sent to the GFR to forward to RUS for approval. The engineer’s estimate of the engineering fees, on Form 506, shall be included.
(ii) RUS will review the contract terms and conditions. RUS will not approve the contract if, in RUS’s judgement:
(A) Unacceptable modifications have been made to the contract form.
(B) The contract will not accomplish loan purposes.
(C) The engineering service fees are unreasonable.
(D) The contract presents unacceptable loan security risk to RUS.
(E) The consulting engineering firm is affiliated with or has represented a contractor, vendor, or manufacturer who may provide labor, materials, or equipment to the borrower under any current loan.
(2) Minor construction. When a borrower contracts for an engineering firm to inspect and certify construction accounted for under the work order procedure or the Contract for Miscellaneous Construction Work and Maintenance Services, Form 773 (See 7 CFR part 1753 subpart I), the borrower shall require that the certification be signed by a licensed engineer.
(c)(1) Major construction. When the extent and complexity of the proposed construction is such that the engineering involved is within the capabilities of employees on the borrower’s staff, borrowers may request RUS approval to provide such services.
(i) The request shall include:
(A) A description of services to be performed.
(B) The name and qualifications of the employee to be in charge. RUS requires this employee to meet the State experience requirements for registered engineers. In the absence of specific State experience requirements, the employee must have at least eight years experience in the design and construction of telecommunication facilities, with at least two years of the work experience at a supervisory level. RUS does not require professional registration of this employee, but this does not relieve the borrower from compliance with applicable State registration requirements which may require a licensed individual to perform such services.
(C) The names, qualifications, and responsibilities of other principal employees who will be associated with providing the engineering services.
(D) A letter signed by an authorized representative of the borrower authorizing the engineering services to be performed by force account and certifying the information supporting the request.
(ii) RUS shall notify the borrower by letter of approval or disapproval to perform force account engineering. The letter shall set forth any conditions associated with an approval or the reasons for disapproval.
(iii) RUS’s approval of force account engineering for major construction shall be only for the specific projects named in the notice of approval.
(2) Minor construction. (i) When the borrower proposes to perform the inspection and certification of minor construction, the following shall be submitted to the RUS:
(A) A copy of the employee’s qualifications and experience record, unless previously submitted. RUS requires a minimum of four years of construction and inspection experience. The employee cannot be engaged in the actual construction.
(B) A letter signed by an authorized representative of the borrower authorizing the performance of these services by the employee, subject to RUS approval, and certifying the supporting information.
(ii) RUS shall notify the borrower by letter of approval or disapproval of the borrower’s staff employee to perform the inspection and certification of construction. The approval shall be limited to the employee’s area of expertise.
(d)(1) Subject to the requirements of this part and other applicable regulations, RUS will make loan funds available for the architectural and engineering services up to the amounts included in the approved loan.
(2) Advance of funds shall be requested on an FRS as set forth in 7 CFR part 1744 subpart C.
(e) The borrower shall obtain status of contract and force account proposal reports from the engineer once each month. The report shall show for each contract or FAP the approved contract or FAP amount, the date of approval, the scheduled date construction was to begin and the actual date construction began, the scheduled completion date, the estimated or actual completion date, the estimated or actual date of submission of closeout documents, and an explanation of delays or other pertinent data relative to progress of the project. One copy of this report shall be submitted to the GFR.
(f)(1) Upon completion of all services required under the engineering service contract Form 217, the borrower shall obtain from the engineer four copies of the Final Statement of Engineering Fee, Form 506.
(2) If the statement is satisfactory, the borrower shall sign all copies and send three to the GFR.
(3) After RUS approval of Form 506, one copy shall be sent to the borrower and one copy sent to the engineer.
(4) The borrower shall promptly make final payment to the engineer.
§ 1753.18 Engineer and architect contract closeout certifications.
A certification of completion and inspection of construction signed by the borrower and countersigned in accordance with accepted professional engineering and architectural practice, by the engineer or architect, shall be prepared as evidence of completion of a major construction project. This certification shall make reference to the contract number and contract amount, and shall include the following:
(a) A statement that the construction is complete and was done in accordance with the RUS approved system design or layout or subsequent RUS approved changes.
(b) A statement that the construction was for loan purposes.
(c) A statement that construction used was in accordance with specifications published by RUS covering the construction which were in effect when the contract was executed, or in the absence of such specifications, that it meets other applicable specifications and standards and that it meets all applicable national and local code requirements as to strength and safety.
(d) A statement that the construction complies with the “Buy American” provision (7 U.S.C. 903 note) of the Rural Electrification Act of 1936 (7 U.S.C. 901 et seq.).
(e) A statement that all necessary approvals have been obtained from regulatory bodies and other entities with jurisdiction over the project.
(f) A statement that all closeout documents required by this part have been examined and found complete such that the Contractor has fulfilled all obligations under the contract except for warranty coverage.
(g) A statement that the engineer or architect is not affiliated with and does not represent the contractor, vendor, or manufacturer who is a participant in the contract.
§§ 1753.19-1753.20 [Reserved]
Subpart C [Reserved]
Subpart D – Construction of Buildings
§ 1753.25 General.
(a) This subpart implements and explains the provisions of the Loan Documents setting forth the requirements and the procedures to be followed by borrowers in constructing headquarters, commercial office, central office, warehouse, and garage buildings with loan funds.
(b) Terms used in this subpart are defined in § 1753.2.
(c) All plans and specifications for buildings to be constructed with loan funds are subject to the approval of RUS. In addition, preliminary plans and specifications for headquarters and commercial office buildings to be constructed with loan funds are subject to RUS approval.
(d) RUS Form 257, Contract to Construct Buildings, shall be used for the construction of all headquarters, commercial office, central office, warehouse, and garage buildings with loan funds. Refer to § 1753.26 for further instructions.
(e) The borrower shall use the sealed competitive bid procedure for all building construction, except for:
(1) Minor construction using subpart I procedures.
(2) Major construction, where the borrower has received advanced approval to perform the construction by force account.
Refer to §§ 1753.27 and 1753.29 for further instructions.
(f) The site location, design, and construction of the facilities must comply with all applicable laws and regulations, including:
(1) Pub. L. 90-480 (42 U.S.C. 4151) (Access to Physically Handicapped), which requires certain buildings financed with Federal funds be designed and constructed to be accessible to the physically handicapped.
(2) Pub. L. 91-596 (29 U.S.C. 651) the Occupational Safety and Health Act of 1970. OSHA issues rules and regulations covering occupational safety and health standards for buildings. These regulations are codified in 29 CFR chapter XVII.
(3) 7 CFR part 1970.
(4) 7 CFR part 1792, subpart C, which requires that the building design comply with applicable seismic design criteria. Prior to the design of buildings, borrowers shall submit to RUS a written acknowledgement from the architect or engineer that the design will comply.
(g) All construction pertaining to the building structure shall be performed under one contract. Separate contracts may be used for planting shrubbery, surfacing of roads and parking areas, and other identifiable parts of the project not pertaining to the building structure. These separate contracts shall also be subject to RUS approval as described in this subpart D.
(h) The borrower is responsible for submitting evidence, satisfactory to RUS, establishing that clear title to the building site has been obtained. RUS will not approve the construction contract until it has given title clearance.
§ 1753.26 Plans and specifications (P&S).
(a) For headquarters and commercial office buildings only, the borrower shall prepare preliminary P&S showing the floor plan and general architectural details of the building to be constructed using loan funds. In particular, the preliminary P&S shall address the requirements of § 1753.25(f) and the Uniform Relocation Assistance and Real Property Acquisition Policies Act of 1970 (42 U.S.C. 4601 et seq.). The P&S shall be submitted to the GFR and are subject to RUS approval.
(b) The borrower shall prepare P&S for construction of all buildings. Each set of P&S shall include:
(1) RUS Contract Form 257, Contract to Construct Buildings, completed to the extent explained in (c) of this section.
(2) Complete and detailed specifications covering materials and workmanship.
(3) A detailed building plan. Where the building is to house electronic apparatus, the detailed plan or specifications shall include the equipment environmental requirements and special equipment required.
(4) A site plan for each building showing the building location and giving the legal description of the site. Sufficient information must be provided for the site so that it can be identified as the same property on which title opinion was submitted to RUS. The legal description shall be typed on the site plan. The borrower shall also furnish topographical information and a description of any proposed site development work and show proposed connections for public utilities.
(c) RUS Contract Form 257 shall be completed as follows:
(1) List of names or kinds of buildings and locations – Site plan and specifications must be identified with the appropriate building.
(2) Alternates – The borrower shall keep the number of alternates to a minimum. Items for which alternates are to be taken shall be fully described on a separate sheet in the specifications and the details shown on the plans, when necessary, and identified by the alternate number. The Notice and Instructions to Bidders shall explain how bids will be evaluated with respect to alternates.
(3) Time for construction – A reasonable time for completion of construction, considering local conditions, shall be determined by the borrower and inserted in the space provided. Too short a construction period may discourage bidders or influence their bids. Completion of the building, where central office equipment is involved, shall be coordinated with delivery of the equipment. The time of completion shall allow adequate drying time before the central office equipment is stored or installed in the building.
(d) The plans and specifications shall show the identification and date of the model code used for seismic safety design considerations, and the seismic factor used. See 7 CFR part 1792, subpart C.
(e) Two sets of the building plans and specifications shall be prepared and submitted to the GFR.
§ 1753.27 Bidding procedure.
Upon RUS approval of the P&S, the borrower shall proceed as follows:
(a) Bid documents shall consist of a copy of the approved P&S, including RUS Contract Form 257, completed in accordance with the instructions on the cover of the form and the plot plans showing site development details. For contracts in amounts of $100,000 or less, the borrower must specify in the Notice and Instructions to Bidders whether the contractor will be required to furnish a performance bond or a builder’s risk policy.
(b) The borrower shall determine that title to the real estate has been approved by RUS before the invitations to bid are released.
(c) The borrower shall set the time for opening of bids, allowing ample time for bidders to prepare bids.
(d) The borrower shall solicit bids as set forth in § 1753.8(a)(2). Invitations shall be sent to at least six prospective bidders.
(e) The borrower shall conduct bid opening and award of contract in accordance with the procedure set forth in § 1753.8(a).
§ 1753.28 Contract amendments.
(a) The general requirements for contract amendments are set forth in § 1753.11.
(b) The borrower shall prepare construction contract amendments on RUS Contract Form 238, Construction or Equipment Contract Amendments. See 7 CFR 1755.93 to obtain copies of Form 238.
§ 1753.29 Force account procedures.
(a) The borrower must obtain RUS approval of the force account method of construction of buildings in advance in order to obtain RUS financing.
(b) The borrower shall prepare the P&S in accordance with § 1753.26.
(c) Prior to any construction activity or the purchase of materials or equipment, the borrower shall submit the FAP in duplicate to RUS, accompanied by a resolution indicating approval of the board of directors of the borrower or a letter signed by an authorized corporate official. The proposal shall include:
(1) A Copy of the P&S.
(2) An itemized list of all items of materials required for construction.
(3) A construction schedule showing the estimated construction period for each major construction item.
(4) An estimate of the material and labor and other costs for any construction item not provided for in the approved loan.
(d) Force Account construction to be financed with loan funds shall not be started until RUS approval has been received by the borrower.
§ 1753.30 Closeout procedures.
(a) This section outlines the procedure to be followed to close out RUS Contract Form 257 (Contract to Construct Buildings) and construction or rehabilitation performed by the force account method.
(b) RUS Form 257 Contract. (1) Whenever changes were made in the plans and specifications which did not require immediate submission to RUS of an amendment under § 1753.11, a final contract amendment showing the changes shall be prepared.
(2) Upon completion of the project, the borrower shall obtain certifications from the architect or engineer that the project and all required documentation are satisfactory and complete. The requirements for this certification are contained in § 1753.18.
(3) The engineer’s or architect’s contract closeout certification and the final amendment shall be submitted to RUS as a basis for the final advance of funds for the contract.
(4) After all required RUS approvals are obtained, final payment is made in accordance with article III of RUS Form 257 once the borrower has received the architect’s or engineer’s certifications regarding satisfactory completion of the project.
(c) Upon completion of force account construction, the borrower shall:
(1) Arrange with its architect or engineer and the GFR for final inspection of the project.
(2) Complete, with the assistance of its architect or engineer, the documents listed in the following table that are required for the closeout of force account construction.
Documents Required To Closeout Construction of Buildings
| RUS Form No. | Description | Use with | No. of copies prepared by | Distribution | |||
|---|---|---|---|---|---|---|---|
| Contract | Force account | Contractor | Architect/engineer | Borrower | Contractor | ||
| 238 | Construction or Equipment Contract Amendment (if not previously submitted, send to RUS for approval) | X | (3) | (to RUS) | (to RUS) | ||
| 181 | Certificate of Completion (contract construction) 1 | X | 2 | 1 | 1 | ||
| 231 | Certificate of Contractor | X | 1 | 1 | |||
| 224 | Waiver and Release of Lien From Each Supplier | X | 1 | 1 | |||
| 213 | Certificate (buy American) | X | 1 | 1 | |||
| None 2 | “As Built” Plans and Specifications | X | X | 1 | 1 | ||
| None | Guarantees, Warranties, Bonds, Operating or Maintenance Instructions, etc | X | 1 | 1 | |||
| None | Architect/Engineer seismic safety certification | X | X | 2 | 1 | 1 | |
1 Cost of materials and services furnished by borrower are not to be included in Total Cost on RUS Form 181.
2 When only minor changes were made during construction, two copies of a statement to that effect from the Architect will be accepted instead of the “as built” Plans and Specifications.
(3) Make distribution of the completed documents as indicated in the table in this section.
(d) Final payment shall not be made until RUS has approved the closeout documents.
§§ 1753.31-1753.35 [Reserved]
Subpart E – Purchase and Installation of Central Office Equipment
§ 1753.36 General.
(a) This subpart implements and explains the provisions of the Loan Documents setting forth the requirements and the procedures to be followed by borrowers in purchasing and installing central office equipment financed with loan funds.
(b) Terms used in this subpart are defined in § 1753.2 and Equipment Contract, RUS Contract Form 395 (RUS Contract Form 395).
(c) Borrowers shall use RUS Contract Form 395, and associated RUS Form 395a, Equipment Contract Certificate of Completion (Including Installation), when the firm supplying the equipment will install it and RUS Contract Form 395 and associated RUS Form 395b, Equipment Contract Certificate of Completion (Not Including Installation) when the supplier of the equipment will not be installing it. In either case the appropriate specifications shall be included in the contract.
(d) Alternates, if any, specified in the P&S shall be kept to a minimum.
(e) The borrower shall take sealed competitive bids for all central office equipment to be purchased under RUS Contract Form 395 using the procedure set forth in Sec. 1753.38(a), unless RUS approval to negotiate is obtained.
(f) The borrower may request permission to negotiate with a single supplier for additional central offices to standardize equipment on a system basis. RUS approval to negotiate must be obtained before release of the plans and specifications to the supplier. Except for remote switching terminals associated with an existing central office, RUS will not approve negotiation with a non-domestic manufacturer for the purpose of standardization because such a purchase does not meet the RE Act “Buy American” provisions.
(g) Materials and equipment must meet the standards and general specifications approved by RUS.
(h) Only new equipment shall be purchased unless otherwise approved by RUS.
(i) All purchases of materials and equipment are subject to the “Buy American” requirements.
(j) If the sealed competitive bid procedure is followed, negotiation after bid opening will not be permitted.
§ 1753.37 Plans and specifications (P&S).
(a) General. (1) Prior to the preparation of P&S, the borrower shall review with the GFR the current and future requirements for central office equipment.
(2) The P&S shall specify the delivery and completion time required for each exchange.
(3) P&S for equipment to be provided under an Equipment Contract, RUS Contract Form 395 (RUS Contract Form 395) contract without installation shall require the supplier to provide specific installation information and a detailed bonding and grounding plan to be utilized by the engineer, borrower, and others responsible for the installation of the equipment.
(b) Preparation of P&S. The P&S shall include RUS Contract Form 395, Notice and Instructions to Bidders, specifications for the required equipment for each exchange, provision for spare parts, and all other pertinent data needed by the bidder to complete its proposal.
(c) RUS review of P&S is required for construction estimated to cost over $500,000 total or estimated to cost more than 25% of the total loan, whichever is less.
(1) If RUS review is required, the borrower shall submit one copy of the P&S to the GFR for RUS review.
(2) RUS will review the P&S and notify the borrower in writing of approval or disapproval.
§ 1753.38 Procurement procedures.
(a) Sealed competitive bidding. Sealed competitive bidding of central office equipment shall be in two steps: presentation and evaluation of suppliers’ technical proposals, and compliance with the sealed competitive bidding procedure set forth in § 1753.8(a). The procedure is as follows:
(1) Solicitation of bids. (i) After RUS approval of the specifications and equipment requirements (required only for projects expected to exceed $500,000 or 25% of the loan, whichever is less), the borrower shall send “Notice and Instructions to Bidders” to suppliers with central office equipment.
(ii) The “Notice” must set forth the method of evaluating bids and must require the submission of equipment lists and traffic calculations with the bids.
(iii) Equipment Contract, RUS Contract Form 395 (RUS Contract Form 395) shall be used, except that the “Notice” shall state that prior to the bid opening a technical session will be conducted with each supplier to resolve any questions related to the technical proposal submitted by the supplier. The suppliers’ technical proposals should be requested for presentation 30 days in advance of the bid opening to enable sufficient time to make the technical evaluation.
(iv) The borrower shall solicit bids as set forth in § 1753.8(a)(2). The “Notice” shall be sent to at least three prospective bidders. A copy of the “Notice” and a list of such bidders shall be sent to RUS.
(v) At the request of an invited supplier, the borrower shall provide two copies of the P&S.
(2) Technical Sessions. (i) The borrower shall schedule individual technical sessions by the suppliers, notify each supplier of its scheduled date and time, notify the GFR of all scheduled dates and times, and request the following be available at the technical session:
(A) Lists of equipment, material and software.
(B) Proposed floor plan.
(C) Power and heat dissipation calculations.
(D) List of exceptions to plans and specifications.
(E) Protection and grounding requirements.
(F) Description of how office administration, maintenance and traffic collection are handled with step-by-step examples and printouts.
(G) Explanation of processor and/or memory expansion required to meet ultimate size. This shall include discussions of software, processor memory, and hardware additions needed for line additions and the introduction of various future services; the relative costs of installing the necessary hardware and software initially as compared with the anticipated cost if installed at the time when the future services are to be offered.
(H) Description of how special equipment such as loop tests, volunteer fire alarm circuit, line load control, etc., will function.
(I) Description of method for translating initial office administration information into machine language, and proposal as to whether it will be done by the borrower or by the supplier.
(J) Some types of equipment contain software. RUS Contract Form 395 indicates whether the equipment contains software and whether the software contract stipulations are applicable.
(K) Any other items pertinent to the technical proposal, such as information regarding changes that have been made in hardware and software of the equipment that is of like manufacture to that presently in operation in the borrower’s system. This shall include requirements for additional spare parts or training which have developed as a result of significant change in system device technology.
(ii) The borrower shall review in detail all exceptions to the P&S. No exceptions will be accepted unless all bidders are notified, in writing, of the change in the specifications and permitted to incorporate the change in their proposal.
(iii) If the technical proposal is not responsive, the borrower shall notify the supplier, in writing, that its proposal will not be given further consideration and why.
(iv) Changes in the P&S resulting from the technical sessions shall be subject to RUS’s review and approval.
(v) After evaluation of the technical proposals and RUS approval of the changes to P&S (required only for projects that are expected to exceed $500,000 or 25% of the loan, whichever is less), sealed bids shall be solicited from only those bidders whose technical proposals meet P&S requirements. When fewer than three bidders are adjudged qualified by the borrower to bid, RUS approval must be obtained to proceed. Generally, RUS will grant such approval only if the borrower can demonstrate to the satisfaction of RUS that a good faith effort was made to obtain at least three competitive bids. This would be demonstrated if all suppliers currently listed in I.P. 300-4 were invited to submit technical proposals.
(vi) The borrower shall invite the GFR to attend the technical sessions.
(3) Bidding and award of contract. (i) All bids must be completed, dated, and signed prior to submission.
(ii) The bid opening and award of contract shall be conducted in accordance with the procedure set forth in § 1753.8(a).
(iii) The spare parts bid shall always be priced separately and added to the base bid when determining the low bidder.
(b) Single source negotiated procurement. If RUS has approved the borrower’s request to procure central office equipment through single source negotiation in accordance with requirements contained in § 1753.36(f), the borrower shall proceed in accordance with this subsection.
(1) After RUS approval of the P&S and equipment requirements (required only for contracts expected to exceed $500,000 or 25% of the loan, whichever is less), the borrower shall send two complete copies of the approved P&S to the supplier and request that a proposal be submitted.
(2) The borrower shall schedule a time and date for a technical session by the supplier and request that the items listed in § 1753.38(a)(2)(i) be available at the technical session. In addition to these items, the supplier shall be requested to provide a description of the exact differences in hardware and software between the borrower’s existing equipment and the proposed equipment so that the borrower can determine spare parts interchangeability, need for retraining, and the compatibility of administration of the old and new equipment.
(3) If the contract is expected to exceed $500,000 or 25% of the loan, whichever is less, changes in the P&S resulting from the technical session shall be subject to RUS review and approval.
(4) The submitted proposal shall be based on the agreed-upon results of the technical evaluation and must be complete, dated, and signed.
(5) The borrower shall obtain an award recommendation from its engineer.
(6) The following shall be sent to RUS for review and approval:
(i) A copy of the engineer’s recommendation to the borrower, and
(ii) Evidence of acceptance of the proposal by the borrower, such as
(A) A certified copy of the board resolution, or
(B) A letter to RUS signed by an authorized corporate official.
(7) RUS approval of the proposal will be conditioned upon the borrower obtaining prices that are consistent with current competitive prices. Upon RUS approval of the proposal, three copies of the contract shall be prepared with all specifications and proposal documents, and performance bonds, to be executed by the supplier and borrower.
(8) The three complete, executed contracts shall be sent to the RUS Area Engineering Branch Chief for approval.
(9) If RUS approves the contract, one copy will be returned to the borrower and one copy will be sent to the supplier.
(10) Installation of the central office equipment and materials provided under RUS Contract Form 395 may be made in accordance with subpart I, if applicable, or by an approved Force Account Proposal (FAP).
(c) Contract amendments. (1) The general requirements for contract amendments are set forth in § 1753.11.
(2) Equipment contract amendments shall be prepared on RUS Contract Form 238, Construction or Equipment Contract Amendments.
(d) Additions. When additions to existing central office equipment are required:
(1) A proposal shall be requested from the supplier.
(2) The borrower shall prepare a plan containing an outline of the proposed use of the equipment, the proposal from the supplier and an estimate of the installation cost. If the total cost exceeds $500,000, RUS approval of the award of contract is required. The borrower shall in this case submit its plan and the supplier’s proposal to GFR. If the cost does not exceed $500,000, the borrower’s award of contract is not subject to RUS approval.
(3) If RUS approval was required by paragraph (d)(2) of this section, upon RUS approval the purchase may be made using RUS Contract Form 395, or when applicable, the procedures contained in subpart I of this part.
(4) If the purchase is to be made by contract, three executed copies of the contract with attachments are to be submitted to the RUS.
(5) Installation of the central office equipment and materials procured by RUS Contract Form 395 without installation may be made in accordance with subpart I, if applicable, or by an approved FAP.
(e) Preinstallation conference. RUS recommends, but does not require, that the borrower hold a preinstallation conference, attended by the borrower, its engineer, equipment installers, and if possible the GFR, prior to the beginning of the installation of the central office equipment.
§ 1753.39 Closeout documents.
Closeout of Equipment Contract, RUS Contract Form 395 (RUS Contract Form 395) (including or not including installation) shall be conducted as follows:
(a) Contract amendments. Amendments that must be submitted to RUS for approval, as required by § 1753.11, shall be submitted promptly. All other amendments may be submitted to RUS with the engineer’s contract closeout certification.
(b) Acceptance tests. The borrower will perform acceptance tests as part of the partial closeout and final closeout of RUS Contract Form 395 that will demonstrate compliance with the requirements as specified by the borrower’s engineer in the Performance Requirements. Other tests demonstrating compliance will be acceptable.
(c) Grounding system audit. A grounding system audit shall be performed and found acceptable for equipment provided under RUS Contract Form 395, (including or not including installation), prior to placing a central office or remote switching terminal into full service operation. The audits are to be conducted in accordance with the requirements specified by the borrower’s engineer in the Performance Requirements. The audits shall be performed by the contractor and borrower when using the RUS Contract Form 395 with equipment installation and by the borrower when using the RUS Contract Form 395 without equipment installation.
(d) Partial Closeout Procedure. Under conditions set forth in RUS Contract Form 395, a contractor may, when approved by the borrower, receive payment in full for central offices and their respective associated remote switching terminals upon completion of the installation without awaiting completion of the project. The contractor is to receive such payment, according to procedures contained in the applicable sections of RUS Contract Form 395. In addition to complying with the appropriate partial closeout procedure contained in RUS Contract Form 395, the borrower shall:
(1) Obtain from the engineer a certification of partial closeout; and
(2) Submit one copy of the summary to RUS with an FRS.
(e) Final contract closeout procedure. The documents required for the final closeout of the equipment contract, RUS Contract Form 395 with or without installation, are listed in the Table 1 to paragraph (e), which also indicates the number of copies and their distribution.
Table 1 to Paragraph (
RUS Contract Form 395
| RUS Form No. | Description | Number of copies prepared by | Distribution | ||
|---|---|---|---|---|---|
| Seller | Engineer | Buyer | Seller | ||
| 213 | Certificate (Buy American) | 1 | 1 | ||
| 238 | Construction or Equipment Contract Amendment (If not previously submitted, send to RUS for approval) | 3 sent to RUS | 1 from RUS | 1 from RUS. | |
| 395a | Certificate of Completion for Equipment Contract (Including Installation) | 2 | 1 | 1. | |
| 395b | Certificate of Completion for Equipment Contract (Not Including Installation) | 2 | 1 | 1. | |
| 395c | Certificate of Contractor and Indemnity Agreement (Use only for installation contracts) | 1 | 1 | ||
| None | Report in writing, including all measurements, any acceptance test report and other information required under Part II of the applicable specifications (Form 395d may be used) | 1 | 1 | ||
| None | Set of maintenance recommendations for all equipment furnished under the contract | 1 | 1 | ||
(f) Once RUS approval has been obtained for any required amendments, the borrower shall obtain certifications from the engineer that the project and all required documentation are satisfactory and complete. The requirements for the final contract certification are contained in § 1753.18.
(g) Once these certifications have been received, final payment shall be made according to the payment terms of the contract. Copies of the certifications shall be submitted with the FRS, requesting the remaining funds on the contract.
§§ 1753.40-1753.45 [Reserved]
Subpart F – Outside Plant Major Construction by Contract
§ 1753.46 General.
(a) This subpart implements and explains the provisions of the loan documents setting forth the requirements and procedures to be followed by borrowers when outside plant major construction by contract is financed by loan funds. Terms used in this subpart are defined in § 1753.2 and RUS Contract Form 515.
(b) The contract method for major construction is described in § 1753.5(b).
(c) The two contract forms which may be used for major outside plant construction are Form 515 and Form 773. Limitations on the applicability of these forms shall be as follows:
(1) Form 515 shall be used for major outside plant construction projects which will be competitively bid. The contract contains plans and specifications and has no dollar limitation. See §§ 1753.47, 1753.48 and 1753.49.
(2) Contract Form 515, which is for $250,000 or less, may, at the borrower’s option, be negotiated. See § 1753.48(b).
(3) RUS Form 773 may be used for minor outside plant projects which are not competitively bid because they cannot be designed and staked at the time of contract execution. Projects of this nature include routine line extensions and placement of subscriber drops. See subpart I of this part.
§ 1753.47 Plans and specifications (P&S).
(a) General. (1) Prior to the preparation of P&S for the construction project:
(i) A review shall be made of the outside plant requirements, and the Loan Design (LD) shall be revised to reflect any needed changes (See § 1753.3).
(ii) Deviations from the approved LD (7 CFR part 1737) must be approved by RUS (See § 1753.3).
(2) The standard RUS specifications required for construction of outside plant facilities are:
(i) RUS Form 515a (Bulletin 345-150) – Specifications and Drawings for Construction of Direct Buried Plant.
(ii) RUS Form 515c (Bulletin 345-151) – Specifications and Drawings for Conduit and Manhole Construction.
(iii) RUS Form 515d (Bulletin 345-152) – Specifications and Drawings for Underground Cable Installation.
(iv) RUS Form 515f (Bulletin 345-153) – Specifications and Drawings for Construction of Pole Lines and Aerial Cables.
(v) RUS Form 515g (Bulletin 345-154) – Specifications and Drawings for Service Entrance and Station Protector Installation.
(b) Preparation of plans and specifications. Each set of plans and specifications shall include:
(1) RUS Contract Form 515, “Telephone System Construction Contract (Labor and Materials).”
(2) The specifications described in paragraph (a)(2) of this section as specified by the borrower in the RUS Contract Form 515.
(3) Description of special assembly units and guide drawings, if any.
(4) Key, detail, and cable layout maps.
(5) RUS Contract Form 787, “Supplement A to Construction Contract, RUS Contract Form 515,” when the borrower proposes to provide any materials to the contractor. The borrower shall not order materials for a contractor without RUS approval. In such cases the borrower must attach Form 787 and a “List of Owner’s Materials on Hand” and/or a “List of Materials Ordered by Owner but Not Delivered” to contract Form 515 (See § 1753.48(f) of this part). Any materials furnished under Supplement A shall be listed in RUS Bulletin 344-2 unless special RUS approval has been received by the borrower to use unlisted materials.
(c) Submission of plans and specifications to RUS. (1) If the project does not exceed $500,000 or 25% of the loan, whichever is less, the borrower shall furnish GFR one set of P&S. The borrower may then proceed with procurement in accordance with § 1753.48.
(2) If the project exceeds $500,000 or 25% of the loan, whichever is less, RUS approval of P&S is required. Two sets of P&S shall be furnished to GFR. RUS will return one set to the borrower upon notice of approval. The borrower may then proceed with procurement in accordance with § 1753.48.
§ 1753.48 Procurement procedures.
(a) Sealed competitive bidding – (1) Qualifying bidders. (i) The borrower is responsible for selecting qualified contractors to bid on the project. See § 1753.8(a)(3). Questions relating to bidders’ qualifications shall be resolved prior to the pre-bid conference.
(ii) RUS Form 274 or its equivalent, supplemented by RUS Form 276, shall be used for the submission of bidders’ qualifications for all types of construction and for the required information on the bidder and subcontractors.
(2) Invitations to bid – The borrower shall solicit bids as set forth in § 1753.8(a)(2). Invitations shall be sent to at least 6 prospective bidders.
(3) Pre-bid conference. (i) Representatives of the borrower and its engineer shall be present at the pre-bid conference at the time and place designated in the Notice to Bidders. The borrower shall invite the GFR to attend the pre-bid conference.
(ii) The purpose of the pre-bid conference is to acquaint the bidders with the scope and special considerations of the project and to clarify any concerns the bidders may have.
(iii) No proposals shall be considered from bidders that do not attend the pre-bid conference unless the bidder has been notified by the engineer that such bidder’s attendance has been waived. Attendance can be waived if, in the judgment of the engineer, the bidder would gain no additional understanding of the construction project by attending the pre-bid conference.
(iv) The borrower shall obtain from the engineer the minutes of the pre-bid conference and shall distribute them to all potential bidders.
(v) When fewer than three bidders have been qualified to submit bids, RUS written approval must be obtained to proceed with requesting bids.
(4) Bid openings. (i) Bid openings and award of the contract shall be conducted in accordance with §§ 1753.5(b)(1) and 1753.8(a).
(ii) If § 1753.8 requires RUS approval of award of the bid, the borrower shall submit to RUS two copies of the assembly unit sections of the apparent lowest responsive bid accepted by the borrower.
(b) Negotiated procurement. (1) Competitive bids are not required for outside plant construction that is estimated to cost $250,000, or less, inclusive of labor and materials.
(2) The procedures to be followed are contained in § 1753.8(b) and paragraphs (3) and (4) of this section.
(3) Negotiation conference. (i) The borrower shall schedule a conference to be attended by representatives of the engineer, the borrower and the contractor selected for negotiations. The borrower shall invite the GFR to attend this conference.
(ii) The purpose of the negotiation conference is to acquaint the contractor with the scope and special considerations of the project and to answer any questions.
(iii) The borrower shall obtain from the engineer notes covering the negotiation conference and shall distribute them to all attendees.
(4) Two copies of the assembly unit sections of the negotiated contractor’s proposal shall be sent to the GFR for approval.
(c) Contract amendments. The borrower shall prepare contract amendments in accordance with § 1753.11 on RUS Contract Form 526, Construction Contract Amendment.
(d) Subcontracts. The RUS requirements for subcontracts and the procedures to be followed are set forth in § 1753.9.
(e) Preconstruction conference. The borrower shall conduct a conference, attended by the borrower, contractor, subcontractors, resident engineer, and the GFR, prior to the beginning of cable placement, to resolve any questions pertaining to the construction. Results of the conference shall be provided to each conference participant (See § 1753.10).
(f) Owner-furnished materials. When the borrower furnishes materials under RUS Contract Form 787, Supplement A to Construction Contract, these steps shall be followed:
(1) Materials on hand to be furnished by the borrower shall be released to the contractor at the start of construction. Materials on order but not received shall be provided to the contractor as they become available. The borrower shall obtain from the contractor a written receipt for all such materials delivered.
(2) Materials on hand, until released to the contractor, shall be covered by fire and either wind-storm or extended coverage insurance, exclusive of materials stored in the open and not within 100 feet of any building. Poles, wherever stored, shall be covered by fire insurance. All insured values must be at least 80 percent of the cash value of the property insured.
(3) Subject to adjustment at the time of final settlement, the borrower shall obtain from the contractor monthly invoices that show credit to the borrower, at the prices quoted in Form 787, Supplement A, for all materials furnished by the borrower and installed by the contractor during the preceding month.
(4) Any materials furnished by the borrower remaining as surplus at the completion of construction shall be returned to the borrower. For such materials, the borrower shall furnish a written receipt to the contractor and credit the contractor at the prices quoted in Supplement A.
(g) Changes or corrections in construction. (1) When changes or corrections in construction are necessary, and the cost of such changes or corrections is properly chargeable to the borrower, the borrower shall have its engineer prepare and sign four copies of a Construction Change Order, RUS Form 216, obtain borrower’s approval and forward the four copies to the contractor. Receipt of the executed Construction Change Order by the contractor will constitute authorization to proceed with the changes or corrections.
(2) When the changes or corrections have been made, the borrower shall have the contractor complete the form, itemizing the costs in accordance with the terms of the contract, and return three copies to the borrower’s engineer. A copy of each change order shall be attached to each copy of the construction inventory required to close out the contract.
§ 1753.49 Closeout documents.
(a) General. The borrower shall be responsible for preparing the closeout documents with, if necessary, the assistance of the GFR.
(b) Documents required. The following table lists the documents required to closeout the RUS contract Form 515.
Documents Required To Closeout Construction Contract
[RUS Form 515]
| RUS Form No. | Description | No. of copies prepared by | Distribution | ||
|---|---|---|---|---|---|
| Contractor | Engineer | Borrower | Contractor | ||
| 724 | Final Inventory – Certificate of Completion | 2 | 1 | 1 | |
| 724a | Final Inventory – Assembly Units | 2 | 1 | 1 | |
| None | Contractor’s Bond Extension (send to RUS when required) | (3) | (to RUS) | (to RUS) | |
| 281 | Tabulation of Materials Furnished by Borrower | 2 | 1 | 1 | |
| 213 | Certificate – “Buy American” | 1 | 1 | ||
| None | Listing of Construction Change Orders | 1 | 1 | ||
| 224 | Waiver and Release of Lien (from each supplier) | 1 | 1 | ||
| 231 | Certificate of Contractor | 1 | 1 | ||
| 527 | Final Statement of Construction | 2 | 1 | 1 | |
| None | Reports on Results of Acceptance Tests | 1 | 1 | 1 | |
| None | Set of Final Staking Sheets | 1 | 1 | ||
| None | Tabulation of Staking Sheets | 1 | 1 | ||
| None | Correction Summary (legible copy) | 1 | 1 | ||
| None | Treated Forest Products Inspection Reports or Certificates of Compliance (prepared by inspection company or supplier) | 1 | |||
| None | Final Key Map (when applicable) | 1 | 1 | ||
| None | Final Central Office Area and Town Maps | 1 | 1 | ||
(c) Closeout procedure. (1) After construction has been completed in accordance with the plans and specifications, and acceptance tests have been made, the borrower shall arrange the time for a final inspection to be made by the borrower’s engineer, the contractor, the GFR and a representative of the borrower.
(2) Final inventory documents. (i) The borrower shall obtain certifications from the engineer that the project and all required documentation are satisfactory and complete. Requirements for these contract closeout certifications are contained in § 1753.18.
(ii) The borrower shall prepare and distribute the final inventory documents in accordance with the tables contained in this section. The documents listed for RUS shall be retained by the borrower for inspection by RUS for at least two years from the date of the engineer’s contract closeout certification.
Step-by-Step Procedure for Closeout of Construction Contract
[RUS Form 515]
| Sequence | By | Procedure | |
|---|---|---|---|
| Step No. | When | ||
| 1 | Upon Completion of Construction | Borrower’s Engineer | Prepares the following: a set of Detail Maps and a set (when applicable) of Key Maps which show in red the work done under the 515 contract; a Tabulation of Staking Sheet; and a tentative Final Inventory, RUS Forms 724 and 724a. |
| 2 | After acceptance tests made | Borrower’s Engineer | Forwards letter to the borrower with copies to the GFR stating that the project is ready for final inspection. Schedules inspection date. |
| 3 | Upon receipt of letter from Borrower’s Engineer | GFR | Advises borrower whether attending the final inspection will be possible. |
| 4 | By inspection date | Borrower’s Engineer | Obtains and makes available the following documents: a set of “as constructed” detail maps and (when applicable) “as built” key maps; a list of construction change orders; the final staking sheets; the tabulation staking sheets; the treated forest products inspection reports or certificates of compliance; the tentative final inventory, RUS Forms 724 and 724a; the tentative tabulation, RUS Form 231 (if borrower furnished part of material); and, a report of results of acceptance tests. |
| 5 | During inspection | Borrower’s Engineer | Issues instructions to contractor covering corrections to be made in construction as a result of inspection. |
| 6 | During inspection | Contractor | Corrects construction on basis of instructions from the borrower’s engineer. The corrections should proceed closely behind the inspection in order that the borrower’s engineer can check the corrections before leaving the system. |
| 7 | During inspection | Borrower’s Engineer | Inspects and approves corrected construction. Marks inspected areas on the key map, if available, otherwise on the detail maps. |
| 8 | Upon completion of inspection | Borrower’s Engineer | Prepares or obtains all the closeout documents listed in Table 3. |
| 9 | After signing final inventory | Borrower | Prepares and submits to RUS the engineer’s certifications of completion and a Financial Requirement Statement, RUS Form 481, requesting amount necessary to make final payment due under contract. |
| 10 | On receipt of final advance | Borrower | Promptly forwards check for final payment to contractor. |
| 11 | During subsequent loan fund audit review following final payment | RUS Field Accountant | Examines borrower’s construction records for compliance with the construction contract and Subpart F, and examines RUS Form 281 (Tabulation of Materials Furnished by Borrower) if any, for appropriate costs. |
(iii) When the total inventory price exceeds the maximum contract by more than 20 percent, an extension to the contractor’s bond is required.
(iv) The borrower shall submit the engineer’s contract closeout certification with FRS for the final advance of funds.
(3) Final payment shall be made according to the payment provisions of article III of RUS Form 515, except that certificates and other documents required to be submitted to or approved by the Administrator shall be submitted to and approved by the Owner.
§§ 1753.50-1753.55 [Reserved]
Subpart G – Outside Plant Major Construction by Force Account
§ 1753.56 General.
(a) This subpart implements and explains the provisions of the loan documents setting forth the requirements and the procedures to be followed by borrowers for outside plant major construction by the force account method with RUS loan funds. Terms used in this subpart are defined in § 1753.2 and RUS Contract Form 515.
(b) A borrower shall not use the force account method for construction financed with loan funds unless prior RUS approval has been obtained.
(c) Generally, RUS will not approve the force account method for major outside plant construction for the initial loan to a borrower.
(d) The Force Account Proposals (FAPs) are subject to review and approval by RUS.
(e) The FAP is approved by RUS on the basis of estimated labor and material costs. The FAP is closed based on the borrower’s actual cost of performing the construction. RUS will provide loan funds only up to the amount determined by the completed assembly units priced at the unit prices in the approved FAP.
§ 1753.57 Procedures.
(a) The request. (1) The borrower shall submit to RUS a certified copy of the board resolution or a letter signed by an authorized corporate official requesting approval to use the force account method of construction. The request shall state the advantages of the force account method of construction and provide the following information:
(i) The scope of the construction to be undertaken, stating briefly the facilities and equipment to be installed and other pertinent data.
(ii) The name and qualifications of the construction supervisor who will be directly in charge of construction, the names and qualifications of the construction foremen, and the availability of qualified construction personnel. The construction supervisor must have at least 5 years outside plant construction experience with at least 2 years at the supervisory level on RUS financed projects. Construction foremen must have at least 3 years of outside plant construction experience.
(iii) The availability of equipment for construction, exclusive of equipment needed for normal operation and maintenance.
(2) [Reserved]
(b) Force Account Proposal (FAP). Upon receiving RUS approval to use the force account method, the borrower, prior to any construction activity or the purchase of materials or equipment, shall submit to RUS two copies of its FAP. The FAP shall consist of:
(1) The RUS Contract Form 515 and appropriate supporting attachments that normally would be provided as plans and specifications for contract construction. See § 1753.47.
(2) The cost estimate, using Form 515 as a convenient means of showing the following:
(i) The quantity and cost estimates of the various assembly units required. “Labor and other” cost will not include the cost of engineering, legal, and other professional services, interest during construction, preliminary survey and investigation charges, and right-of-way easement procurement costs.
(ii) A list identifying materials or construction for which loan funds will not be requested.
(3) The estimated completion time.
(c) Storage of materials. All materials ordered for the construction shall be stored separate from normal maintenance materials.
(d) Construction – (1) Preconstruction conference. The borrower shall arrange a conference, attended by the manager, construction supervisor, construction foremen, resident engineer and the GFR prior to the beginning of construction to clarify any questions pertaining to the construction. Notes of the conference shall be provided to each conference participant.
(2) Construction schedule and progress reports. The borrower shall obtain from the engineer a construction schedule and submit one copy to the GFR. The schedule shall include the starting date and a statement indicating that materials are either delivered or deliveries are assured to permit construction to proceed in accordance with the construction schedule. The borrower shall obtain from the engineer progress reports and submit one copy of each to the GFR. RUS Form 521 may be used for the construction schedule and the progress report.
(3) Borrower’s management responsibilities. (i) Obtain all right-of-way easements, permits, etc., prior to construction.
(ii) Maintain records on all expenditures for materials, labor, transportation, and other costs of construction, in order that all costs may be fully accounted for upon completion of construction.
(iii) Ensure that all the required inspections and tests are made.
(4) Engineer’s responsibilities. (i) Inspect and inventory construction as completed.
(ii) Require timely corrections and cleanup.
(iii) Perform acceptance tests as construction is completed.
(iv) Provide “as built” staking sheets of completed construction when the final inspections are made.
(v) Maintain accurate and current inventories of completed construction.
(5) Construction supervisor’s responsibilities. (i) Correct construction errors as construction progresses.
(ii) Maintain an accurate inventory of completed construction.
(iii) Perform cleanup as construction is completed.
(iv) Perform all the inspections and acceptance tests a contractor would be required to make under the construction contract.
(v) Promptly perform cleanup required after final inspection.
§ 1753.58 Closeout documents.
(a) General. (1) This section outlines the procedure to be followed in the preparation of closeout documents for the FAP.
(2) The period between the completion of construction and submission of the closeout documents to RUS should not exceed 60 days.
(b) Documents. The documents required to close the FAP are listed in the following table. The following is a brief description of the closeout documents:
Documents Required To Close Out Force Account Outside Plant Construction
| RUS Form No. | Description |
|---|---|
| 817, 817a, 817b | Final Inventory Force Account Construction and Certificate of Engineer. Submit one copy to RUS, if required 1 |
| 213 | Certificate – “Buy American” (as applicable from each supplier). |
| None | Detail Maps. |
| None | Key map, if applicable. |
| None | Staking Sheets. |
| None | Tabulation of staking sheets. |
| None | Treated Forest Products Inspection Reports or Certificates of Compliance (prepared by inspection company or supplier). |
1 RUS Forms 817, 817a, and 817b are to be submitted to GFR only if required in paragraph (c)(5) of this section. Otherwise, the final inventory documents are to be assembled and retained by the borrower for at least two years.
(c) Closeout procedures. (1) The borrower shall notify the GFR when the project is ready for final inspection.
(2) The GFR shall be invited to make the final inspection accompanied by the engineer and the borrower.
(3) The borrower shall correct all deficiencies found during the final inspection.
(4) The borrower may request the assistance of an RUS field accountant to review the borrower’s record of construction expenditures and assist the borrower with any accounting problems in connection with construction expenditures.
(5) After inspection, the final inventory documents shall be assembled as indicated in the table in this section. RUS Forms 817, 817a, and 817b are to be submitted to GFR only if the amount of the closeout exceeds the original force account proposal by 20% or more. Otherwise, the final inventory documents are to be assembled and retained by the borrower for at least two years.
(6) Upon approval of the closeout documents, RUS will notify the borrower of approval and of any adjustments to be made in funds advanced in connection with the construction.
(d) The above are not intended to be a complete description of the requirements of the documents relating to RUS’s closeout procedure. Refer to the documents for additional requirements.
§§ 1753.59-1753.65 [Reserved]
Subpart H – Purchase and Installation of Special Equipment
§ 1753.66 General.
(a) This subpart implements and explains the provisions of the Loan Documents setting forth the requirements and the procedures to be followed by borrowers in purchasing and installing special equipment financed with loan funds.
(b) Terms used in this subpart are defined in § 1753.2 and Equipment Contract, RUS Contract Form 395 (RUS Contract Form 395).
(c) Borrowers must obtain RUS review and approval of the LD for their telephone systems. Applications of equipment not included in an approved LD must conform to the modernization plan as required by 7 CFR part 1751, subpart B, and must be submitted to RUS for review and approval.
(d) RUS Contract Form 395 and applicable specifications shall be used for the purchase of special equipment for major construction on a furnish-and-install basis, as well as on a furnish-only basis.
(e) The procedures provided in subpart I, if applicable, or a FAP approved by RUS may be used for the installation of special equipment purchased with a RUS Contract Form 395 contract not including installation.
(f) For special equipment purchases for minor construction, the borrower may at its option use the Methods of Minor Construction procedures contained in subpart I or the purchase procedures contained in this subpart H.
(g) Some types of special equipment contain software. RUS Contract Form 395 indicates whether the equipment contains software and whether the software contract stipulations are applicable.
§ 1753.67 Contracts and specifications.
(a) Equipment Contract, RUS Contract Form 395 shall be used to purchase equipment on a furnish-and-install basis, as well as on a furnish-only basis.
(b) The equipment specifications must accompany the equipment contract form and each specification consists of performance specifications, installation requirements (if applicable), and application engineering requirements.
§ 1753.68 Purchasing special equipment.
(a) General. (1) Equipment purchases are categorized as initial equipment purchase, equipment additions to existing systems and new system additions.
(i) An initial equipment purchase is a first time purchase by a borrower of a complete system of special equipment.
(ii) Equipment additions to existing systems are additions of components to complete operating systems to increase system capacity that require components made by the manufacturer of the existing system.
(iii) New system additions are purchases of complete systems of special equipment when the purpose can be accomplished either with equipment of the same type and manufacture as other complete operating systems in the borrower’s system, or with complete systems of special equipment from other manufacturers.
(iv) Where equipment is obtained under a Equipment Contract, RUS Contract Form 395 (RUS Contract Form 395) without installation, the borrower shall require the supplier to provide a detailed proposed bonding and grounding plan and detailed installation information. The installation information is to enable acceptance testing by the borrower upon completion of the installation.
(2) For initial equipment purchases that qualify as major construction, the borrower shall obtain proposals from at least three suppliers of equipment of different manufacturers.
(3) For equipment additions to increase the capacity of existing systems, the borrower may negotiate for equipment of a specific type and manufacture. RUS approval to negotiate in this instance is not required if these additions were specifically described in the LD approved by RUS
(4) For new system additions, the borrower may request RUS approval to negotiate for additional equipment for the purpose of standardization on a system basis, provided RUS approved the procurement method used for the initial equipment purchase. RUS approval to negotiate must be obtained before release of the P&S to the seller.
(5) RUS will not approve negotiation with a seller of non-domestic equipment for the purpose of standardization, because such a purchase does not meet the “Buy American” provision.
(6) RUS recommends, but does not require, that borrowers include installation by the seller for initial installations of special equipment that qualify as major construction.
(7) Special equipment may be installed by the borrower if it has qualified personnel and test equipment available to install the equipment and make the required acceptance tests, and written approval is given by RUS.
(8) Installations, whether by the borrower or the seller, must meet the installation requirements of RUS Contract Form 395specifications. A copy of the acceptance tests results must be attached to the closeout documents or work order summary.
(9) The specifications for the various applications of equipment is prepared by the RUS borrower’s engineer and based on generally accepted engineering considerations and practices found in the Telecommunications Industry.
(10) The borrower must obtain authorization from the Federal Communications Commission (FCC) to construct and operate radio transmitting equipment. Evidence of FCC authorization is required for RUS contract approval. Where required, the borrower must obtain approval of state regulatory bodies regarding tariffs and related matters.
(b) Procurement procedures – (1) General. The following are the procurement procedure steps required for the purchase of special equipment by borrowers.
(2) Initial equipment purchase. (i) The borrower prepares P&S and, for projects estimated to exceed $500,000 or 25% of the loan, whichever is less, sends two copies to GFR for approval.
(ii) For projects estimated to exceed $500,000 or 25% of the loan, whichever is less, RUS will either approve P&S in writing or notify the borrower of the reasons for withholding approval.
(iii) For projects estimated to cost less than $500,000 or 25% of the loan, whichever is less, the borrower may proceed with procurement upon completion of the P&S.
(iv) If the borrower has employed full competitive bidding in the selection, a contract may be executed with the successful bidder and the borrower may proceed to paragraph (b)(2)(vi) of this section.
(v) If the borrower did not follow a fully competitive bidding process as described in § 1753.8, the selection, along with a summary of all proposals and an engineer’s recommendation, shall be sent to RUS. RUS shall approve the proposal selection in writing or notify the borrower of any reason for withholding approval.
(vi) The borrower sends three executed contracts including specifications to RUS for approval.
(vii) After RUS approval of the contract, one copy will be returned to the borrower and one copy will be sent to the seller.
(3) Equipment additions to existing systems. Purchase procedures for equipment additions to existing systems are the same as for initial system purchase except that the borrower may negotiate for equipment of a specific type and manufacture instead of obtaining proposals from three or more sellers.
(4) New system additions. (i) The borrower prepares the P&S and, if the project is estimated to exceed $500,000 or 25% of the loan, whichever is less, sends two copies to the GFR for approval. The borrower may request RUS approval to negotiate for the purpose of standardization on a system basis prior to preparing the P&S.
(ii) RUS notifies the borrower in writing as to whether the borrower may negotiate for specific equipment. If P&S were required to be submitted to RUS under paragraph (b)(4)(i) of this section, RUS notifies the borrower in writing of P&S approval (or notifies the borrower of the reasons for withholding approval).
(iii) The remainder of the purchase procedure for new system additions is the same as for initial equipment purchase.
(c) Contract amendments. (1) The general requirements for contract amendments are set forth in § 1753.11.
(2) The borrower shall prepare any required amendments to the special equipment contract, arrange for the execution by all parties, and submit these amendments to RUS in accordance with § 1753.11(d). RUS Form 238, Construction or Equipment Contract Amendment, shall be used for this purpose.
(d) Closeout procedures – (1) Acceptance tests for RUS Contract Form 395 with installation. (i) Immediately upon completion of the installation and alignment of the equipment, the borrower shall arrange with the contractor’s installer and the GFR for acceptance tests.
(ii) The borrower shall obtain from the contractor, in writing, the results of all inspections and tests made by the contractor as required in the specifications. The borrower will analyze the test results and determine whether the performance of the equipment meets the contract specifications.
(2) Acceptance tests for RUS Contract Form 395 without installation. (Upon completion of the installation and alignment of the equipment (under this contract the installation alignment will be by other than the seller) the borrower shall perform all the inspections and tests outlined in the specifications.
(3) Closeout documents. When the acceptance tests have been completed and all deficiencies have been corrected, the borrower:
(i) Assembles and distributes the documents listed in the following table that are required for the closeout of the equipment contract. The documents listed for RUS shall be retained by the borrower for inspection by RUS for at least two years from the date of the engineer’s contract closeout certification.
Table 1 to Paragraph
RUS Contract Form 395
| RUS Form No. | Description | Number of copies prepared by | Distribution | ||
|---|---|---|---|---|---|
| Seller | Engineer | Buyer | Seller | ||
| 213 | Certificate (Buy American) | 1 | 1 | ||
| 238 | Construction or Equipment Contract Amendment (If not previously submitted, send to RUS for approval) | 3 sent to RUS | 1 sent to RUS | 1 from RUS. | |
| 395a | Certificate of Completion for Equipment Contract (Including Installation) | 2 | 1 | 1. | |
| 395b | Certificate of Completion for Equipment Contract (Not Including Installation) | 2 | 1 | 1. | |
| 395c | Certificate of Contractor and Indemnity Agreement (Use only for installation contracts) | 1 | |||
| None | Report in writing, including all measurements, any acceptance test report and other information required under Part II of the applicable specifications. (Form 395d may be used.) | 1 | 1 | ||
| None | Set of maintenance recommendations for all equipment furnished under the contract | 1 | 1 | ||
(ii) Obtains certifications from the engineer that the project and all required documentation are satisfactory and complete. Requirements for this contract closeout certification are contained in § 1753.18.
(iii) Submits copies of the engineer’s certifications to RUS with the FRS requesting the remaining funds on the contract.
(iv) Makes final payment in accordance with the payment terms of the contract.
§§ 1753.69-1753.75 [Reserved]
Subpart I – Minor Construction
§ 1753.76 General.
(a) This subpart implements and explains the provisions of the Loan Documents containing the requirements and procedures to be followed by borrowers for minor construction of telecommunications facilities using RUS loan funds. Terms used in this subpart are defined in § 1753.2.
(b) [Reserved]
§ 1753.77 Methods of minor construction.
Minor construction may be performed by contract using RUS Contract Form 773, “Miscellaneous Construction Work and Maintenance Services”, by RUS Contract Form 515, or by work order construction. The rules for using Form 515 for minor construction are contained in subpart F of this part.
§ 1753.78 Construction by contract.
(a) RUS Form 773 shall be used for minor construction by contract. Compensation may be based upon unit prices, hourly rates, or another basis agreed to in advance by the borrower and the contractor. A single work project may require more than one contractor.
(b) The borrower shall prepare the contract form and attach any diagrams, sketches and tabulations necessary to specify clearly the work to be performed and who shall provide which materials. Neither the selection of the contractor nor the contract requires RUS approval.
(c) Borrowers are urged to obtain quotations from several contractors before entering into a contract to be assured of obtaining the lowest cost. The borrower must ensure that the contractor selected meets all Federal and State licensing and bonding requirements, and that the contractor maintains the insurance coverage required by the contract for the duration of the work. (See 7 part CFR 1788)
(d) Upon completion and final inspection of the construction the borrower shall obtain from the Contractor a final invoice and an executed copy of RUS Form 743, Certificate of Contractor and Indemnity Agreement.
(e) RUS Contract Form 773 may also be used to contract for the maintenance and repair of telephone equipment and facilities. Generally, RUS will not finance maintenance and repair contracts.
§ 1753.79 Construction by force account.
The borrower shall require that:
(a) Minor construction by the force account method be supervised by a competent foreman. The work shall be performed in accordance with all regulatory and safety codes.
(b) Daily time and material reports, referenced by the work project number, shall be kept to record labor and materials used as construction is performed.
(c) The construction foreman shall maintain a tabulation of all construction units installed.
§ 1753.80 Minor construction procedure.
(a) If the borrower performs minor construction financed with loan funds, the borrower’s regular work order procedure shall be used to administer construction activities that may be performed entirely by a contractor under Form 773 contract, by work order, or jointly by work order and one or more contractors under Form 773 contracts.
(b) RUS financing under Form 773 contracts dated in the same calendar year is limited to the following amounts for the following discrete categories of minor construction. The date of the Form 773 contract is the date the Form 773 contract is executed.
(1) For outside plant construction, the limit is $500,000 or ten per cent (10%) of the borrower’s previous calendar year’s outside plant total construction, whichever is greater.
(2) For central office equipment, the limit is $500,000.
(3) For equipment and buildings, the limit is $250,000 in each category.
(c) A single minor construction project may be a discrete element of a somewhat larger overall project, such as the provision and installation of a standby power generator or heating/air conditioning equipment in connection with a building modification or expansion project or the splicing on a major cable placement project. It cannot be a portion, by dividing into smaller segments, of a discrete major construction project, such as the placement of a continuous cable facility.
(d) RUS approval must be obtained in advance for minor construction unless all of the following conditions are met:
(1) RUS has approved the engineering design.
(2) All standard RUS procedures are followed, including the application of RUS construction practices (see § 1753.6).
(3) The Standard Form 773 contract is used without modification.
(e) The borrower shall determine the scope of each proposed construction project and decide how it will be constructed. A work project number shall be assigned to which all charges for that project are referenced.
(f) The borrower shall maintain accounting and plant records sufficient to document the cost and location of all construction and to support loan fund advances and disbursements.
(g) Normally the borrower will finance minor construction with general funds and obtain reimbursement with loan funds when construction is completed and executed Form 771 has been submitted to RUS. If a borrower satisfies RUS of its inability to finance the construction temporarily with general funds, RUS may establish, on a case by case basis, a work order fund for specific construction projects. The work order fund will be closed upon receipt of an FRS and the executed Forms 771 for the specific projects for which the work order fund was established.
(h) RUS will advance funds to finance minor construction work projects only if all necessary documents, including an FRS and supporting data covering the project, are received within one year of the date construction of the project is completed.
§ 1753.81 Inspection and certification.
(a) Upon completion and prior to closeout, minor construction must be inspected and certified to be in compliance with RUS construction standards, to be reasonable in cost, and to meet applicable codes. The certification is made by an experienced telephone en